[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
THE BENEFITS OF OFFSHORE OIL AND GAS DEVELOPMENT
=======================================================================
OVERSIGHT FIELD HEARING
before the
SUBCOMMITTEE ON ENERGY AND
MINERAL RESOURCES
of the
COMMITTEE ON RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
Saturday, August 13, 2005, in Port Fourchon, Louisiana
__________
Serial No. 109-29
__________
Printed for the use of the Committee on Resources
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______
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COMMITTEE ON RESOURCES
RICHARD W. POMBO, California, Chairman
NICK J. RAHALL II, West Virginia, Ranking Democrat Member
Don Young, Alaska Dale E. Kildee, Michigan
Jim Saxton, New Jersey Eni F.H. Faleomavaega, American
Elton Gallegly, California Samoa
John J. Duncan, Jr., Tennessee Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland Solomon P. Ortiz, Texas
Ken Calvert, California Frank Pallone, Jr., New Jersey
Barbara Cubin, Wyoming Donna M. Christensen, Virgin
Vice Chair Islands
George P. Radanovich, California Ron Kind, Wisconsin
Walter B. Jones, Jr., North Grace F. Napolitano, California
Carolina Tom Udall, New Mexico
Chris Cannon, Utah Raul M. Grijalva, Arizona
John E. Peterson, Pennsylvania Madeleine Z. Bordallo, Guam
Jim Gibbons, Nevada Jim Costa, California
Greg Walden, Oregon Charlie Melancon, Louisiana
Thomas G. Tancredo, Colorado Dan Boren, Oklahoma
J.D. Hayworth, Arizona George Miller, California
Jeff Flake, Arizona Edward J. Markey, Massachusetts
Rick Renzi, Arizona Peter A. DeFazio, Oregon
Stevan Pearce, New Mexico Jay Inslee, Washington
Henry Brown, Jr., South Carolina Mark Udall, Colorado
Thelma Drake, Virginia Dennis Cardoza, California
Luis G. Fortuno, Puerto Rico Stephanie Herseth, South Dakota
Cathy McMorris, Washington
Bobby Jindal, Louisiana
Louie Gohmert, Texas
Marilyn N. Musgrave, Colorado
Vacancy
Steven J. Ding, Chief of Staff
Lisa Pittman, Chief Counsel
James H. Zoia, Democrat Staff Director
Jeffrey P. Petrich, Democrat Chief Counsel
------
SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES
JIM GIBBONS, Nevada, Chairman
RAUL M. GRIJALVA, Arizona, Ranking Democrat Member
Don Young, Alaska Eni F.H. Faleomavaega, American
Barbara Cubin, Wyoming Samoa
Chris Cannon, Utah Solomon P. Ortiz, Texas
John E. Peterson, Pennsylvania Jim Costa, California
Stevan Pearce, New Mexico Charlie Melancon, Louisiana
Thelma Drake, Virginia Dan Boren, Oklahoma
Bobby Jindal, Louisiana Edward J. Markey, Massachusetts
Louie Gohmert, Texas Nick J. Rahall II, West Virginia,
Richard W. Pombo, California, ex ex officio
officio
------
C O N T E N T S
----------
Page
Hearing held on Saturday, August 13, 2005........................ 1
Statement of Members:
Gibbons, Hon. Jim, a Representative in Congress from the
State of Nevada............................................ 1
Prepared statement of.................................... 2
Jindal, Hon. Bobby, a Representative in Congress from the
State of Louisiana......................................... 3
Prepared statement of.................................... 6
Melancon, Hon. Charlie, a Representative in Congress from the
State of Louisiana, Prepared statement of.................. 9
Statement of Witnesses:
Angelle, Scott A., Secretary, Louisiana Department of Natural
Resources.................................................. 22
Prepared statement of.................................... 24
Response to questions submitted for the record........... 30
Borne, Dan S., President, Louisiana Chemical Association..... 64
Prepared statement of.................................... 66
Danos, Hank, Chief Executive Officer, Danos & Curole Marine
Contractors................................................ 55
Prepared statement of.................................... 56
Davis, Mark, Executive Director, Coalition to Restore Coastal
Louisiana.................................................. 40
Prepared statement of.................................... 42
Falgout, Ted M., Executive Director, Greater Lafourche Port
Commission................................................. 37
Prepared statement of.................................... 39
Guidry, Greg, Exploration Manager, Shell Exploration and
Production Company......................................... 49
Prepared statement of.................................... 51
Randolph, Charlotte, President, Lafourche Parish, State of
Louisiana.................................................. 34
Prepared statement of.................................... 36
Readinger, Thomas A., Associate Director, Offshore Minerals
Management, Minerals Management Service, U.S. Department of
the Interior............................................... 11
Prepared statement of.................................... 15
Smith, William Clifford, Chairman of the Board, T. Baker
Smith, Inc................................................. 58
Prepared statement of.................................... 59
Response to questions submitted for the record........... 61
Walker, Allen, Gulf Productions, Inc......................... 67
Prepared statement of.................................... 70
Additional materials supplied:
Wells, Ken, President, Offshore Marine Service Association,
Statement submitted for the record......................... 74
OVERSIGHT HEARING ON THE BENEFITS OF OFFSHORE OIL AND GAS DEVELOPMENT
----------
Saturday, August 13, 2005
U.S. House of Representatives
Subcommittee on Energy and Mineral Resources
Committee on Resources
Port Fourchon, Louisiana
----------
The Subcommittee met, pursuant to call, at 9:30 a.m., at
the Operations Center, 108AO Rappelet Road, Port Fourchon,
Louisiana, Hon. Jim Gibbons [Chairman of the Subcommittee]
presiding.
Present: Representatives Gibbons and Jindal.
STATEMENT OF THE HON. JIM GIBBONS, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEVADA
Mr. Gibbons. Ladies and gentlemen, good morning. This is
the field hearing of the Subcommittee on Energy and Mineral
Resources for the U.S. Congress. We are pleased to be here
today.
Before we begin this morning, we have a tradition. We would
like to ask you all to rise, and we'll ask our Boy Scouts and
Cub Scouts over here to present the colors and lead us in the
Pledge of Allegiance.
[Pledge of Allegiance.]
Mr. Gibbons. We also have another tradition we do before we
take testimony here: We swear in our witnesses. So, if I can
get our witnesses to rise and raise their right hands and
repeat after me.
[Witnesses sworn.]
Mr. Gibbons. Let the record reflect that each of our
witnesses answered that oath in the affirmative.
The process this morning will be to have opening statements
from the Members here from Congress, and then we will ask our
witnesses to testify, and then we will ask questions of them.
I will begin by submitting my full and complete written
statement that I have here for the record. What I would like to
do is just take a moment, before I turn to Mr. Jindal and his
statement, and tell you what my experience has been here in
Louisiana so far.
I have been hosted by Mr. Jindal and Mr. Melancon. They
have invited our Committee down to this area to see the
infrastructure, to see what it is that this great state is
contributing to both the security and the economy of the United
States.
We took a trip out to Anadarko's deepwater drilling ship
yesterday. We stopped by Chevron's rig that--the Petronius rig,
and then we toured the LOOP area of the infrastructure and then
came in and looked at the Port Fourchon facilities.
Let me say that, throughout the whole day while we were on
this little expedition, I met some of the greatest people I
have ever met. I truly have to admit that, when we talk about
heroes, we oftentimes talk about our military; but when you go
out to these ships that are so far out in the middle of the
ocean, the Gulf of Mexico, people who live out there for weeks
on end, doing nothing but 12-hour shifts of hard work to
provide the energy for this country, the energy that drives the
economy, you have to admit, these are heroes for the American
public.
So, I want to say thank you for not only everything that
your state does, but what the contribution of this great state
and this industry provide for the rest of the nation.
I come from Nevada. We are an extractive industry state,
but ours isn't oil or gas. Our industry is mining. We
understand what it takes to contribute to the economy, what
work it requires, what commitment it demands from people.
We are thrilled when we came here to be hosted by your
Representatives in Congress, we are thrilled to be hosted by
the industry, we are thrilled to be hosted by your community.
It is fantastic to be here. I'm very pleased.
I met one individual named Paul on the Petronius, he works
for Chevron, and his wife is a school teacher. So, not only is
Paul out there working 12-hour shifts for this country, his
wife is teaching young boys and girls what it takes to be a
hard-working, contributing part of our society as well.
And these are the kinds of American heroes that are out
here in our communities.
So, I just want to finish up real briefly by saying thank
you. Thank you from those of us in Nevada and thank you from
those of us in Congress, who represent America, for what you do
and what you give. We understand the problems. We understand
the infrastructure needs. We understand the security much
better today. We understand the problems with the coastal areas
of this state much better today than we ever did before.
The information that we will gather today will be taken
back to the U.S. Congress to the Committee on Resources, and it
will be very, very valuable to our--not only better
understanding the problems, but interpreting what the solutions
should be from the Federal side, so that we can do our job
better to help you do your job, to make the quality of life we
all enjoy so much better.
With that, I want to thank all of you for coming. I want to
turn now to Mr. Bobby Jindal from Louisiana for any opening
remarks he might have.
[The prepared statement of Mr. Gibbons follows:]
Statement of The Honorable Jim Gibbons, Chairman,
Subcommittee on Energy and Mineral Resources
American consumers are feeling the pinch caused by increased costs
to produce and deliver goods and services while the federal government
continues to foster domestic energy policies that restrict access to
geologically prospective areas and discourage investment in the
production of larger energy supplies here at home.
Consequently, jobs are being sent overseas while our Nation retains
high natural gas prices. Similarly, high oil prices also impact every
aspect of our economy. From truckers and airline pilots getting goods
to markets throughout the country to mothers and fathers loading up the
car for a trip to grandma's house, the rising cost of oil has increased
the economic burden for everyone.
Increasingly, domestic U.S. energy production is found offshore
where a majority of future oil and natural gas resources are believed
to be located. In fact, according the Minerals Management Service, it
is estimated that 60 percent of the oil and 59 percent of the natural
gas yet to be discovered in the United States are located on the Outer
Continental Shelf (OCS).
Furthermore, domestic offshore oil and natural gas production
currently provides approximately one-quarter of the natural gas and 30%
of the oil produced in the United States.
But this engine of energy supply is also a huge revenue raiser. In
2004, the domestic offshore oil and gas development generated some $8
billion in royalties.
So, why don't we have more offshore oil and natural gas development
in other areas of the country--on the Atlantic and the Pacific, or even
just a few hundred miles from here in the Eastern Gulf of Mexico? It is
my belief that these States just don't understand all the positive
impacts associated with offshore energy development.
That is the reason this Subcommittee meets today--to hear testimony
on the benefits of offshore oil and gas development. From secure and
reliable supplies of energy to jobs and economic growth, the domestic
offshore oil and gas industry positively impacts the nation, its
producing states and their communities.
Now, is this system that employs thousands of Louisianans, provides
huge tax revenue, and supplies the country with its energy needs
perfect? No.
And are there ``lessons learned'' that the federal government
should take into account as it seeks to modernize its laws and looks to
other offshore areas of the country for offshore development? Yes.
For example, unlike the Mineral Leasing Act that governs onshore
federal lands leasing, States do not share in federal revenues
generated beyond their waters. Our Committee sought to change this
anomaly in the Energy Security Act just signed into law by President
Bush, but owing to Senate objections, the provision was not included in
the new law.
Our full committee Chairman Richard Pombo has stated that our
efforts to extend a State revenue sharing provision on submerged lands
beyond the State waters will continue, because we believe revenue
sharing with Coastal States off whose shores federal leasing takes
place is justifiable by precedent and practice, and should serve to aid
communities who receive impacts from any offshore development.
I expect we'll discuss these and a variety of other related issues
today, and I welcome all our witnesses and thank them for coming out to
testify before the Subcommittee on this beautiful Southern Louisiana
Saturday in August.
I also want to thank Congressman Melancon and Congressman Jindal
for hosting the committee in their fine state.
Before recognizing the witnesses, I now turn to my good friend from
just north of here--Congressman Bobby Jindal--for any opening remarks
he may wish to make.
I also understand that a representative of Congressman Melancon is
here and is prepared to deliver brief opening remarks on behalf of Mr.
Melancon.
______
STATEMENT OF THE HON. BOBBY JINDAL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF LOUISIANA
Mr. Jindal. Thank you, Mr. Chairman. With your permission,
I would also like to submit my official opening statement for
the record.
First of all, I want to thank so many people that are here.
Obviously, our hosts for the last couple of days, starting
obviously with the Chouests, but also Chevron and some of the
others. The MMS and so many others have gone out of their way
to show the Chairman and me and other Committee staff what is
involved in producing energy for our great nation.
I also want to thank our state representatives and senators
that are here as well and that have come today to show their
support for the area and the industry. I want to make just a
few points.
First of all, I am going to apologize to the Chairman and
Charlotte for repeating a story that I shared with them last
night at dinner. One of the reasons that I know that Charlotte
and I both felt this was so important to have our Committee
come down here, I want to share a story about my little three-
year-old girl.
We took her strawberry-picking at the beginning of this
year in Ponchatoula, Louisiana. Now, I'm going to tell you this
story because it kind of reminds me of some of the attitudes
sometimes here outside of Louisiana and Congress when it comes
to producing energy.
We were taking my little girl for her first time to go
visit a farm. I said to her, ``Now, Sweetheart, we are going to
see where strawberries come from and potatoes and onions'' and
I said, ``You know where all those things come from?'' I was
trying to prepare her for going out on this farm and riding the
tractors and having a good time. She looked at me like her
Daddy didn't know a lot. She said, ``Of course, Daddy, I know
where those things come from. They come from Wal-Mart.'' They
come from farms.
Let me explain to you why that is important. So often when
we debate our nation's energy needs, sometimes I believe there
are people out there that think that energy just comes when you
turn on a switch, or you go to the gas station and you listen
to some people that don't want production, or don't want any
type of production. And then they wonder why gasoline costs $3
a gallon. They wonder why we are losing our industry overseas.
They are wondering why Louisiana the last few years has already
lost over 5,000 petrochemical jobs.
My family--I was born and raised down here. My family has
grown up in this industry. The reason we have jobs in my family
is because there is an oil and gas industry. My wife is an
engineer, my father is an engineer, my father-in-law is an
engineer, my wife's uncles are all engineers. I was kind of the
disappointment in the family. I couldn't be an engineer, so I
went to Congress instead.
But I want to make four quick points not only for the
record but for my colleagues here. First is that Louisiana is
proud to do more than its share to secure our nation's energy
demands. We, as everybody in this room knows, we provide 25 to
30 percent of the nation's energy; 18 to 20 percent comes
through this port alone. For decades, we have done more than
our share to make sure we have a domestic source of energy.
Congress has just passed an energy bill reaffirming our
commitment to becoming energy independent over the next 25
years. We've got within North America reserves to do that. It
will develop the technology and it will develop those fields. I
don't think any of us needs a reminder of how dangerous it is
for us to become overly dependent on foreign sources of energy.
We have seen what that can do to our economy. We can see now,
in an international competitive economy, we can see what that
does for our dollar. We are now increasingly fighting China and
other countries for limited energy resources.
Second, I want to make sure that we are very aware of the
infrastructure which is required to support that industry.
Everybody here knows the importance of the Leesville Bridge. We
had a nice conversation last night about the rising costs of
that global economy is causing the cost to build our
infrastructure to increase dramatically. And how foolish would
it be for our country not to invest in a little bit of
infrastructure to continue to have access to this great energy.
To me, it seems like it is such an easy argument to make, that
the Federal government should be working with us building that
bridge, and working with us to help this port expand.
The Chairman asked some great questions yesterday about the
port's ability, and we will hear some testimony about the
port's ability to accommodate growth, and what a great thing
that here in this state we do want to accommodate that growth,
we do want to expand the infrastructure. But we need our
nation's help. We are willing to provide the nation's energy,
but we need our nation's help.
Which brings me to the third point. No conversation about
this topic would be complete without a conversation on coastal
erosion and subsidence. 30 miles a year. And, clearly, this is
not just a Louisiana problem, this is a national problem. And
we had a wonderful presentation last night. We will hear some
more today about the problems, the levees and the other things
that have contributed to not only the national economy and
economic growth, but have also contributed to a loss of our
land right here in Louisiana. We just have had this year
already a record number of named storms so early in the
hurricane season. We have seen levees that were built for Level
4 hurricanes can't withstand Level 3 hurricanes. We are losing
our barrier islands. We're losing the marshlands that not only
protect our fragile and unique ecosystem, but protect lives and
protect property.
Now, this Committee was very supportive of a provision we
got in the House-passed energy bill that would have given
Louisiana a recurring source of revenues of a billion dollars a
year. With the Chairman's indulgence, I want to make this point
very strongly. Other states that have drilling on their Federal
land get to keep 50 percent of those revenues. The State of
Texas gets to go out 10 miles off their coast. All we asked for
in the House-passed energy bill was just 18 percent. Listen,
we're not even asking for the billions of dollars you made in
previous years; we're not even asking for 50 percent that other
states get. We just want 18 percent. That would have been a
billion dollars a year. Think what we could have done to
restore our coast and rebuild the infrastructure.
Now, I'm thrilled we are able to get through conference a
billion dollars. I'm thrilled that Louisiana will get hundreds
of millions of dollars over four years. Over $500 million. I'm
thrilled that that will be shared with the parishes in the
state. Don't get me wrong, that is the most money we have had
from the Federal government for our coast in the history of
our--in our country's history. I'm thrilled that we stand
poised to get as much as $1.9 billion out of the water bill.
I'm thrilled that we now have an explicit commitment from the
Federal government that this is a Federal responsibility. We
have an explicit commitment from them; they understand this is
not just a Louisiana problem.
But we have to make sure, and one of the reasons I'm so
excited to have the Committee down here, we have to make sure
the people in Congress understand, there is an ongoing Federal
responsibility. This is not a problem that we've fixed. We are
taking the first critical steps at a Federal level to address
this. But in the same way that New Mexico, to pick one state,
New Mexico gets $1 million a day from their Federal lands by
sharing those revenues, it is only fair that Louisiana should
also benefit.
Fourth, and finally, is that one of the amazing things we
were able to show the Chairman and other staff members is that,
here in Louisiana, we are able to promote and encourage energy
production, while at the same time also protecting and
preserving our environment. It is not either/or here. As we
were going out yesterday, we saw shrimp trawlers out there with
supply boats. And the beautiful thing is, right here at this
port, we've seen firsthand how you are dedicated to reclaiming
fragile wetlands. At the same time, you are supporting our
nation's energy needs, you are playing a very strong role in
protecting and restoring our environment.
Now, I could talk to you all morning. You are not here to
hear from me, we are here to hear from you. I want to thank our
witnesses for driving, flying, coming down here. I want to
thank our local witnesses for hosting us, allowing us to come
visit your parish. Thank you for allowing the Committee to come
and learn. And I especially want to thank our Chairman for
taking time out of his busy schedule to come here and spend a
great amount of time. With that, I will yield back.
[The prepared statement of Mr. Jindal follows:]
Statement of The Honorable Bobby Jindal, a Representative in Congress
from the State of Louisiana
I want to first thank Chairman Gibbons and his staff for conducting
this hearing on the many benefits of the oil and gas industry and
welcome them to Louisiana. It is one thing to hear of the benefits in
Washington, but field hearings like these give members and staff an
opportunity to see firsthand the successes and effects the industry has
on the port area, state and country.
As we will hear shortly, the oil and gas exploration on the Outer
continental shelf is vital to Louisiana as well as our nation. Roughly
twenty percent of our country's oil and gas comes through Port
Fourchon. Production on the OCS directly results in 21,000 jobs and
supporting industries employ an additional 55,000.
As we attempt to reduce our dependence on foreign sources of energy
and put a stop to rising prices at the pump, it is imperative that we
look to the Gulf of Mexico to provide us with these valuable resources.
It is estimated that 59% of the undiscovered oil and natural gas is
located on the Outer Continental Shelf. However, the moratorium only
allows for a little over half of the Gulf OCS to be explored. Louisiana
has seen firsthand the benefits of opening the OCS up to safe and
efficient exploration and production, and I look forward to hearing the
testimony today that will elaborate on that point.
Obviously, the primary benefit the 4,000 production platforms
provide is the energy sources they are producing. However, these
marvels of modern engineering also provide new habitat for marine
species and, by acting as an artificial reef, protection for our coast.
While the oil and gas industry in our state is producing necessary
energy for our country, our coast and wetland areas are unfortunately
being lost at a remarkable rate, approximately one football field per
hour. I was pleased to see the recently passed energy bill include a
provision that will provide Louisiana with $540 million to help battle
coastal erosion. Unfortunately, that program only lasts through 2010
and we need to continue to fight for long term assistance.
To that end, I am grateful for the House Resources committee's and
subcommittee's support for a provision that I authored and was included
in the House version of the Energy bill that would have utilized the
economic resources provided by the oil and gas industry to assist
Louisiana and other coastal states yearly with billions of dollars to
work towards projects that deal with coastal erosion and hurricane
protection. The House version would bring $350 million to the state in
the short term and more that $1 billion a year after 10 years.
In order to continue to produce the oil and gas in our state that
is necessary for our country, we need to preserve our coast and
consider the environmental concerns that inevitable come with energy
exploration and production. I look forward to working with my
colleagues in Congress, as well as individuals such as those who are
testifying today, to see that Louisiana continues to provide the energy
needed to keep our country running, while at the same time enhancing
efforts to save our precious coast and wetlands.
Again I want to thank all of you coming today and look forward to
hearing your testimony.
______
Mr. Gibbons. Thank you, Mr. Jindal.
Let me, before I turn to a representative from Mr.
Melancon's office, recognize who I should have recognized very
early on. That was the wonderful young Cub Scouts from Pack 333
and their Cub Master, Leo Bourg, Assistant Cub Master Nathan
Eymard--if I get your name wrong, it's because I took French in
high school and probably forgot--Assistant Cub Master Aaron
Guidry, and the scouts themselves, Brody Eymard, Bryant Eymard,
Joseph Bourg, Alex Vedros, Jovan Fuselier and Max Guidry. I
think we all owe them a round of applause.
Thank you.
Mr. Jindal. Your pronunciations reminded me of one other
thing I wanted to point out to the audience. We made sure that
the Chairman had several very good Louisiana seafood meals, and
the highlight of many of these meals were the oysters prepared
every which way we could possibly think of. The point being, to
show him and just to remind the Committee that oysters are not
endangered in Louisiana, despite the problems we're facing on
the Gulf Coast. They may be endangered after all the oysters we
ate this week, but I have a bill in front of the Committee to
make sure that whatever Maryland does, if they want to declare
their oysters endangered, that does not devastate our industry
down here.
So I want to thank you for agreeing to partake and taste
all our oysters.
Mr. Gibbons. It reminded me of how many times I want to
come back.
Thank you very much. I have to admit that I did learn a new
French phrase, ``Laissez les bon temps roulet,'' during that
whole evening affair, which I think was great.
I would like to turn now to the Chief of Staff for Charlie
Melancon, who is unfortunately recovering from an appendectomy
and couldn't be here for this trip. He wanted to be here. We
are going to ask that his chief of staff, Casey O'Shea, give
his remarks.
Casey, welcome. The floor is yours.
Mr. O'Shea. Thank you, Mr. Chairman.
On behalf of Congressman Melancon, I would like to thank
all of the witnesses and all the elected officials and folks
who worked so hard at Port Fourchon this morning for being
here. With the Chairman's indulgence, I would like to read a
statement into the record.
``As the only Cajun in Congress, I wish I could be with you
in person this morning to welcome you to the Third District,
the heart of Cajun Country. As you may already know, I recently
underwent a routine, though unexpected, medical procedure and
am unable to join you.
``Chairman Gibbons, thank you for your leadership on energy
issues and thank you for allowing my testimony to be read into
the record today. I would also like to present you a copy of
Bayou Farewell: The Rich Life and Tragic Death of Louisiana's
Cajun Coast, by Mike Tidwell, which will further underscore
points in my testimony about the importance of Louisiana's
coast and America's wetlands.
``Congressman Jindal, I appreciate your interest and
steadfast support of Port Fourchon and the LOOP. Ted, your work
is tireless and sometimes thankless. I want you to know how
much the people appreciate what you do to keep Louisiana's only
port on the Gulf of Mexico up and running.
``Mr. Chairman, Louisiana's delegation's work on behalf of
Port Fourchon and the LOOP has been bipartisan and enormously
fruitful. In the Transportation and Reauthorization Bill, we
secured $60 million for improvements of La. 1, including the
upgrade of the Leesville Bridge to Port Fourchon. The bridge is
the weakest and most critical link in the La. 1 system, and its
improvement is a key part of the ongoing La. 1 project.
``I also included language in the worded bill that extends
authorization for the dredging of Port Fourchon by 6/10ths of a
mile to encompass new marine terminals that were recently
built. The bill also corrects a senate error that would have
mistakenly had the effect of deauthorizing the project by
deauthorizing Bayou Lafourche.
``The Energy Policy Act of 2005 included $540 million over
the course of four years, beginning in Fiscal Year '07, for
coastal restoration efforts here in Louisiana. Lafourche
Parish, where we are today, will receive $9.76 million.
Neighboring Terrebonne and Jefferson Parishes will receive $30
million over four years, part of the nearly $117 million in
direct assistance to the parishes of the Third Congressional
District.
``The money secured through this Congress not only goes to
protecting America's wetlands, but by protecting those natural
barriers against hurricanes and flooding, and will also help
secure our energy infrastructure at Port Fourchon.
``Also in the new energy bill, I demanded new tax credits
that would give incentives for energy production. We achieved
$11.5 billion in tax incentives over 11 years. $2.6 billion of
that total includes direct incentives to the oil and gas
industry, seven-year depreciation for natural gas gathering
lines, refinery expensing provision and a small refiner
definition for refiner depletion.
``Additionally, I was able to include language which allows
a revenue-sharing mechanism to provide incentives for future
alternative energy projects so that South Louisiana can remain
in the forefront as new sources of energy are developed along
our coastline. Our local oil and gas industry is constantly
looking for new ways to compete in the global marketplace, and
that's why I am proud to announce today the South Louisiana
Economic Council's Caspian Sea Initiative. I have been working
closely with the Kazakhstan government to develop a framework
for our companies to access this huge oil and gas market. We
will soon be releasing more information on how our companies
will be able to take advantage of these new opportunities.
``Finally, I would like to announce my plans for a South
Louisiana Energy Summit. I will be inviting representatives
from across South Louisiana's energy industry to participate in
a day-long summit to discuss the impact of the Energy Policy
Act of 2005 with representatives of the relevant Federal
agencies. Through these efforts and others, I will continue to
do my part in Washington and work with those of you who
service, support, plan and execute the operations of Port
Fourchon and the LOOP. I know from my years in economic
development that the energy industry is a key economic driver
in the Third District. It's a simple equation: Energy equals
jobs.
``I'm happy to continue that work as South Louisiana's
Congressman and look forward to bringing more Federal attention
to the LOOP and Port Fourchon. I will continue the process of
educating the American public about the importance of the LOOP
and Port Fourchon and to providing affordable energy to the
nation. At a time when oil prices are over $60 a barrel, it is
more important than ever to increase domestic production. The
Port's prospects look good in this market environment.
``Mr. Chairman, Congressman Jindal, I thank you again for
coming to see what Cajun ingenuity has built at Port Fourchon,
and welcome to the Third District.''
[The prepared statement of Mr. Melancon follows:]
Statement of The Honorable Charlie Melancon, a Representative in
Congress from the State of Louisiana
As the only Cajun in Congress, I wish I could be with you in person
this morning to welcome you to the 3rd District, the heart of Cajun
country. As you may already know, I recently underwent a routine,
though unexpected, medical procedure and am unable to join you.
Chairman Gibbons, thank you for your leadership on energy issues and
thank you for allowing my testimony to be read into the record today.
I'd also like to present to you a copy of Bayou Farewell: The Rich Life
and Tragic Death of Louisiana's Cajun Coast by Mike Tidwell which will
further underscore points in my testimony about the importance of
Louisiana's coast.
Congressman Jindal, I appreciate your interest and steadfast
support of Port Fourchon and the LOOP.
Ted (Falgout), your work is tireless and sometimes thank less, I
want you to know how much the people appreciate what you do to keep
Louisiana's only port on the Gulf of Mexico up and running.
Mr. Chairman, the Louisiana delegation's work on behalf of Port
Fourchon and the LOOP shows that in spite of the rank partisanship that
seems to delay and divide us at every turn in Washington, our
delegation can still throw off our party labels and work together to
get things done for the people of our state and nation.
It is a good sign to all of us that the Committee has chosen Port
Fourchon for this hearing. I thank the Chairman for bringing national
attention to the critical nature of the facilities based here. Indeed
for the first time in a long time there is a lot of good news coming
from Washington. I'd like to share some of that good news with you and
give you a glimpse of my vision for the future of the energy industry
in South Louisiana.
So here's the good news:
Through the Transportation Reauthorization bill, we have secured
$60 million dollars in improvements for LA-1 including an upgrade for
the Leeville Bridge to Port Fourchon. The bridge is the weakest and
most critical link in the LA-1 system and its improvement is a key part
of the ongoing LA-1 project. The small two-lane draw bridge currently
in place is the only evacuation route for thousands of Lafourche Parish
residents and energy workers, and the entry point for 18% of the
nation's energy supply. I would like to especially thank Roy Francis
and the LA-1 coalition for their leadership on this important project.
I have also included language in the WRDA bill that extends
authorization for Port Fourchon by 0.6 mile. This will allow the Corps
to maintain the Port's channel for an additional length that
encompasses new marine terminals that were recently built. The bill
also corrects a Senate error that would have mistakenly had the effect
of de-authorizing the Port Fourchon project (by de-authorizing Bayou
Lafourche).
I hope that we use this hearing as an opportunity to educate the
rest of the nation about Port Fourchon and the LOOP's role in
satisfying our demand for affordable energy. But with every opportunity
comes a challenge. The challenges that now confront us are serious and
systemic. Our coast is vanishing at the rate of a football field every
30 minutes. The half billion dollars secured for coastal restoration by
the bipartisan work of our delegation through the energy bill represent
an historic commitment on the part of the federal government and is a
good down payment. But coastal erosion is a $14 billion dollar problem
that is unrelenting. It will take a serious and concerted effort for
many years to come to bring back to Louisiana all the resources it
deserves to rebuild her coast after decades of fueling the economic
engine of our country.
The Energy Policy Act of 2005 included $540 million over the course
of four years (beginning in Fiscal Year '07) for coastal restoration
efforts. 35% of that money will be divided between coastal parishes.
The other 65% of the $540 million goes to the state for its efforts in
coastal restoration. The good news there is that much of that money
will likely be spent in South East Louisiana because that is where the
most immediate need is. Local government has some latitude with the
coastal money, but they must have their plans approved by the state and
the Department of Interior. Lafourche Parish where we are today will
receive more than $9.76 million. Neighboring Terrebonne Parish will
receive $12.8 million over four years. The money secured this Congress
not only goes to protect America's Wetlands, but by protecting those
natural barriers against hurricanes and flooding it will also help
secure our energy infrastructure at Port Fourchon.
My work for the Port started in the 1970's when I was the head of
the South Central Regional Planning and Development Commission. At that
time there wasn't much more than a water line and an old shell road
where the Edison Chouest facility now stands. Mr. Chairman, in the 70s
we realized that we were in a unique position to create jobs, jobs,
jobs, for the people of South Louisiana by turning that water line and
old shell road into what you see today. The work was hard and people
like the Chouests who undertook the effort knew that there was risk
involved, but they did it anyway and their investment has become the
focal point of deepwater oil and gas activities that services 75
percent of Gulf of Mexico deepwater production.
I am happy to continue that work as South Louisiana's Congressman.
I look forward to bringing more federal attention to the LOOP and Port
Fourchon. I will continue the process of educating the American public
about the importance of the LOOP and Port Fourchon to sustaining
affordable energy prices to the rest of the nation. At a time when oil
prices are over $60 a barrel it is more important than ever to increase
domestic production. The Port's prospects look good in this market
environment. In the recently passed energy bill, I demanded new tax
credits that would incentive-ize energy production. We got $11.5
billion in net tax incentives over 11 years. $2.6 billion of that total
includes direct incentives to the oil and gas industry: seven year
depreciation for natural gas gathering lines, a refinery expensing
provision, and a small refiner definition for refiner depletion. It was
a promise I made on my campaign and I am excited to say that we kept
that promise in my first 6 months in office. The Minerals Management
Service projects that Port Fourchon will service 44 percent of pending
future deepwater plans. I intend to do everything in my power as your
Congressman to continue to increase domestic production in the Gulf of
Mexico.
In the new global economy, we must maintain our competitive edge. I
am always looking for new markets to expand our home-grown oil and gas
industry. Those small and medium size companies need to compete in a
global marketplace. That is why I am proud to announce today the South
Louisiana Economic Council's Caspian Sea Initiative. I have been
working closely with the Kazakhstan government to develop a framework
for our companies to access this huge oil and gas market. During a
recent mission to Kazakhstan, SLEC representatives met with the
Kazakhstan Minister of Energy and Resources and we now have his
endorsement for this very important initiative. We will soon be
releasing more information on how our companies will be able to take
advantage of these new opportunities.
Finally, I would like to announce my plans for a South Louisiana
Energy Summit. I will be inviting representatives from across South
Louisiana's energy industry to participate in a day long summit to
discuss the impact of the Energy Policy Act of 2005 with
representatives of the relevant federal agencies.
Through these efforts and others I will continue to do my part in
Washington and work with those of you who service, support, plan and
execute the operations of Port Fourchon and the LOOP. I know from my
years in economic development that the energy industry is a key
economic driver in the 3rd District. It is a simple equation: energy =
jobs.
Mr. Chairman, thank you again for coming to see what Cajun
ingenuity has built at Port Fourchon, and welcome to the 3rd District.
______
Mr. Gibbons. Thank you very much. Appreciate that.
Ladies and gentlemen, for those of you who may not know,
the people sitting on either side of Mr. Jindal and I are
either Committee staff or personal staff. We bring our staff
with us. They do the hard work: Making sure that we stay on
time, stay on course, and making sure that the information that
we gather here today gets back into the congressional record.
As you see them here, they will be taking notes and making sure
that we run on time.
What I would like to do now is introduce our first panel
that we have today.
Mr. Gibbons. We have Tom Readinger, Associate Director,
Offshore Minerals Management Service; we have Scott Angelle,
Secretary, Louisiana Department of Natural Resources; we have
Charlotte Randolph from Lafourche Parish, President of
Lafourche Parish; Ted Falgout--I'm mispronouncing that----
Mr. Falgout. I've been called a lot worse.
Mr. Gibbons.--Executive Director of the Greater Lafourche
Port Commission; Mr. Mark Davis, here as the Executive Director
of the Coalition to Restore Coastal Louisiana.
Ladies and gentlemen, welcome to the Committee. We look
forward to your testimony. We will begin, just go from left to
right, starting with Mr. Readinger.
Tom, the floor is yours.
By the way, we have asked them all to kind of limit their
statements to five minutes. We can have great flexibility,
since I'm in charge, and nobody is going to care. But your
written statement will be submitted for the complete record. If
you want to summarize and talk extemporaneously, we encourage
that as well.
Thank you. Tom, the floor is yours. We look forward to
hearing from you.
STATEMENT OF TOM READINGER, ASSOCIATE DIRECTOR, OFFSHORE
MINERALS MANAGEMENT SERVICE
Mr. Readinger. Thank you, Mr. Chairman. On behalf of the
MMS and the United States Department of Interior, I certainly
appreciate the opportunity to appear here today to provide the
Committee information concerning the vital role of the Federal
offshore lands for meeting the nation's energy needs. As you
said, Mr. Chairman, I have submitted written testimony, and
right now I will summarize and highlight some key points
concerning--especially at your request, that I address the
benefits that the Nation obtains and derives from the Federal
outer Continental Shelf.
The principal benefits can be divided in three categories.
First, the energy benefits that are generated from--really, as
a value to the Nation to sustain our quality of life.
Second, the economic benefits, which derives to both
consumers and producers, are generated in the private sector of
our economy.
Third, environmental benefits attributable to a program,
which I would like to talk about, that compares favorably
compared to other supply options the country faces. I will also
touch on, very briefly, the secondary information benefits
derived from the conduct of the program which help inform the
public policy debate.
As to the energy benefits, the Federal OCS is a major
supplier of oil and gas for the domestic market, contributing
more oil and natural gas for U.S. consumption than any single
state or country in the world. A steward of these resources on
1.76 billion acres of the nation's OCS, MMS has over the past
30 years managed production, which cumulatively has totaled 15
billion barrels of oil and more than 155 trillion cubic feet of
natural gas. To give you some point of reference, that is
enough oil to supply the entire nation's needs for three full
years and enough natural gas for seven years.
Today, MMS administers more than 8,400 leases and oversees
4,000 facilities on the OCS, accounting for 30 percent of the
nation's oil production and 21 percent of natural gas
production. Within the next five years, offshore production
will likely increase that share and provide more than 40
percent of our domestic production, 26 percent for gas, owing
primarily to deepwater Gulf of Mexico discoveries supported
right here by the facilities in Port Fourchon.
The deepwater activity in the Gulf/production from sites--
we use to measure a thousand feet of water or greater--has been
a major United States economic and energy success story. There
are now about 140 deepwater discoveries, of which more than 90
are producing. This has helped increase total offshore
production from 980,000 barrels per day in 1995 to 1.7 million
barrels per day in 2003.
And the same ingenuity that you witnessed yesterday,
Congressman, in deepwater, is also evidenced in the shallow
water deep-gas Shelf drilling, where operators are targeting
deep horizons for natural gas reservoirs, drilling to 15,000,
20,000 and even up to 35,000 feet deep through extremely high
temperature and pressure conditions.
As is the case for deepwater, the Administration has
provided economic incentives to promote investment, encourage
it, in these high-risk, high-cost ventures. The new Energy
Policy Act of 2005 codifies and extends such incentives. The
new Energy Act also directs MMS to manage the development of
nonconventional renewable energy resources on the OCS, and we
intend to apply and adapt the same guiding principles we use in
our oil and gas program, along with Secretary Norton's
directives to consult with local and state officials and other
affected parties to make the balanced decisions we need to
efficiently manage these resources.
Turning to economic benefits, MMS has documented program
contributions to Federal revenues, private sector producer and
consumer benefits; and, three, related direct and indirect
employment. OCS lease sales and production have generated more
than $156 billion in Federal revenues from bonus bids, rentals
and royalties.
Annual revenues range from $4 to $10 billion each year and
are likely to increase with high energy prices and increase
production from deepwater discoveries in the Gulf. This amount
of money doesn't count the tax revenues associated with Federal
production which also provides the Federal treasury a
significant--billions of dollars, I'm sure.
MMS has documented substantial private sector benefits.
They are difficult to measure, any economist will tell you, but
we do have some models that have generated estimates that
private sector value from the OCS could range from two to five
times the Federal revenue apportioned. If you are interested in
that, we have documented that in each of our programs
supporting documentation that we put out. For the current
program in April of 2002, we issued a report that provides by
planning area some of this value that is generated.
The OCS oil and gas industry directs employment that
accounts for 42,000 workers, mostly in the Gulf of Mexico area,
concerning direct employment; but indirectly, if you count what
suppliers provide to support the industry, we estimate that
there are another 90,000 or more jobs throughout the country.
Another indirect economic benefit relates to advancements
in technology that are attributable to offshore ventures. Over
the last 30 years, technological advances in offshore have made
production safer, more environmentally sound and more
economically efficient. In the area of exploration,
technological advances help companies better identify
prospects, allow for more effective well placement, improve the
development of resources, reduce the number of dry holes and
cut exploration time.
Regarding environmental benefits, MMS environmental
analyses and studies help provide decisionmakers a basis to
balance environmental impacts that may occur. Yes, our studies
do show that impacts may well incur, as in all industrial
activities; however, the record is also very clear that most of
the potential impacts can be mitigated, and there is clear
evidence that the impacts are decreasing as technology
improves.
Over the past three decades, MMS has documented a
continuous improvement in the OCS environmental and safety
records. The oil spill rate has declined each decade resulting
in a 67 percent decrease over this 30-year period. Offshore
production today is proving to be, indeed, one of the safest
ways to supply our nation's energy needs.
In fact, concerning the discussion that you often hear
about how the argument is phrased, you often hear how
alternatives to domestic production, such as conservation and
efficiency, are environmentally preferable. However, we believe
that framing the discussion in those terms can really present
an essentially false choice comparison.
For example, MMS analysis for the current five-year program
reveals that, indeed, adoption of the no-action alternative,
not producing the OCS, is more likely to result in increased
importation of oil by tanker than conservation.
In economic terms, importing oil is the most likely supply
substitution alternative to not pursuing domestic production of
hydrocarbons. If the responsible development of the OCS
alternative is environmentally preferable, it would logically
follow that environmental benefits would result from pursuing
this better alternative.
OK. But what does the record show in this comparison? Well,
it shows that the OCS natural gas production ranks favorably in
comparison to, say, imported oil, from an environmental
standpoint. You don't have any oil spill risks, natural gas is
good for meeting clean air standards and so on.
For oil production, the record reveals that the risk of an
oil spill from the OCS oil and gas has decreased over the last
30 years, and is about six or seven times less than the risk
posed by tankering imported oil. While the trend for both,
tankering and the OCS, has declined, looking at the period from
1985 to 2001, for every billion barrels of oil transported,
worldwide tankers filed about 53,000 barrels; whereas, OCS
production lost about 8,000 barrels.
Of note, according to a recent national academy report,
natural seeps of oil from underground accumulations emit 150
times more oil into the North American ocean environment as
compared to OCS.
Policymakers have also realized substantial information
benefits owing to the conduct of the program. Environmental and
technological issues raised by state and local governments,
environmental groups, industry, and others, have helped shape
our research agenda. Much of MMS's research is accomplished,
indeed, through cooperative funding from universities,
interagency agreements and joint funding with industry.
Owing to this, the environmental studies program is
responsible for numerous scientific discoveries, such as sperm
whales in the Gulf of Mexico; deepwater chemosynthetic sea
communities; the documentation of artificial reef communities
that provide habitat for unique biological communities. They
are also responsible for the discovery of deepwater coral
communities, never before discovered until very recently out in
the deepwater and intertidal biological communities offshore
California.
In those small ways, the conduct of the OCS program has
increased the science base for our nation's OCS resources.
In conclusion, the environmental record of the OCS program
is outstanding and improving. No significant platform spill has
occurred in the last 35 years. Over the last 34 years, looking
at the California situation, over 1 billion barrels of oil were
produced. Over that time, on average, about 33 barrels of oil
were spilled each year. In comparison, over the same time
period, natural seeps release 140,000 barrels annually offshore
of southern California.
Natural gas production offshore represents one of the most
environmentally sound energy investments this country could
make. A decision to not produce the OCS also carries with it
environmental consequences. Mostly, it will mean more imported
oil and LNG to meet our nation's needs. Importing these
resources poses risks to the worldwide environment, as well as
financial and security costs.
Finally, Mr. Chairman, you might also ask, will these
benefits continue? There are estimates that the OCS holds about
60 percent of the undiscovered U.S. reserves of oil and 40
percent of natural gas. The OCS also may hold a tremendous
potential for more natural gas in the form of these methane
hydrates that industry and government are studying.
However, our estimates are highly uncertain in this regard.
Estimates for conventional resources are based on old data and
old technology. There has been no seismic exploration in many
areas for over 25 years and no exploration drilling.
The new Energy Act calls for the MMS to conduct an
inventory of OCS potential, but this review will be limited by
these constraints. We will, however, review and consider
alternative geologic theories to provide policymakers some
measures of the bounds of this potential.
As part of all this analysis, we will consider the
significant exploration results from worldwide offshore
drilling, for example, offshore Canada and Africa, which could
provide useful geological analogs for some of our frontier
areas. But regarding this longer-term view, I must also note
that there are long lead times for accessing frontier areas of
the OCS. Lease sales cannot be held unless they are on a five-
year program. Once the sale is held, it can take five to ten
years for drilling to commence. Commencement of production can
take another five years after discovery.
In a very real sense, Mr. Chairman, regarding OCS policy
decisions, if we wish to continue with these OCS benefits that
we are seeing, the future is now. In this time of uncertainty,
the MMS stands ready to respond to apply our science and
technology and management principals to benefit the nation.
Mr. Chairman, this concludes my statement. Please allow me
on behalf of MMS and the Department to express our sincere
appreciation for the continued support and interest of this
Committee for the Federal offshore program.
[The prepared statement of Mr. Readinger follows:]
Statement of Thomas A. Readinger, Associate Director, Offshore Minerals
Management, Minerals Management Service, U.S. Department of the
Interior
Mr. Chairman and Members of the Committee, my name is Thomas
Readinger, Associate Director, Offshore Minerals Management. I
appreciate the opportunity to appear here today to highlight for you
the significant and vital role of Federal offshore lands for meeting
our Nation's energy needs.
In response to your request, I will address the benefits the nation
obtains from the federal Outer Continental Shelf (OCS) program. The
major program benefits can be divided into three general categories:
(1) energy benefits, (2) economic benefits, and (3) environmental
benefits. I will also touch upon the secondary information benefits
derived from the conduct of the program which help inform the public
policy debate.
Federal Offshore Energy Program--General Context
As this committee well knows, energy use sustains our economy and
our quality of life. This is why high energy prices and increasing
dependence on foreign energy supplies raise important national policy
issues.
The President's 2001 National Energy Policy (NEP) report laid out a
comprehensive, long-term energy strategy for securing America's energy
future. This strategy derived from the conclusion that the issue was
complex, long in the making, and without a short-term solution. The
recommendations recognize that, to reduce our rising dependence on
foreign energy supplies, we must increase domestic production, while
also pursuing energy conservation and the use of alternative and
renewable energy sources. Achieving the goal of secure, affordable and
environmentally sound energy supply would require diligent, concerted
efforts on many fronts for both the supply and demand sides of the
energy equation.
Good stewardship of resources dictates that we use energy
efficiently and conserve resources. Fossil fuel development is only a
part of the solution to our Nation's energy challenge.
The recently enacted Energy Policy Act of 2005 recognizes the need
for diversifying our energy sources and directs specific government
actions intended to move our nation toward a more secure future.
Important provisions of the new law will define the future for our OCS
energy contribution.
The Outer Continental Shelf Lands Act directs the Secretary of the
Interior to make resources available to meet the nation's energy needs.
The accompanying Congressional Declaration of Policy states, ``The OCS
is a vital national resource reserve held by the Federal Government for
the public, which should be made available for expeditious and orderly
development.'' The Administration has directed the Minerals Management
Service (MMS) to meet this charge through specific policy initiatives
provided in the President's National Energy Policy plan. This direction
is all the more critical in the face of increasing strains on worldwide
energy supply. Congress and the President have now enacted energy
legislation that will not only make conventional energy sources more
available and economically attractive, but also allow for the orderly
development of non-conventional and renewable resources on the Outer
Continental Shelf.
As the Department of the Interior's offshore resource management
agency, the MMS has a focused and well established ocean mandate--to
balance the benefits derived from exploration and development of oil,
gas and marine minerals resources with environmental protection and
safety impacts.
Current Energy Picture
Oil is vital to the American economy. Currently, oil supplies more
than 40 percent of our total energy demand and more than 99 percent of
the fuel we use in our cars and trucks. With crude oil prices currently
around $60 per barrel, consumers are bearing the cost. Gasoline prices
in 2005 are projected to remain high, at an expected average of $2.28
per gallon for the April to September summer season, 38 cents above
last summer. High world oil demand will likely continue to support
crude oil prices and increase competition for gasoline imports. In
spite of these high prices, U.S. petroleum demand is projected to
average 20.9 million barrels per day in 2005, up 1.7 percent from 2004.
According to the Energy Information Administration, over the next
20 years, Americans' demand for energy is expected to grow at an annual
rate of 1.4 percent. This growth projection incorporates continued
gains in energy efficiency and movement away from energy-intensive
manufacturing to service industries. Despite a continuing emphasis on
expanding renewable sources of energy, petroleum products and natural
gas are projected to account for almost 65 percent of domestic energy
consumption in 2025, a slightly larger share than today.
U.S. natural gas consumption is expected to grow from 22 trillion
cubic feet (tcf) in 2003 to almost 31 tcf in 2025. Domestic production,
however, is expected to grow only from 19.1 tcf to 21.8 tcf, meeting
only about 30 percent of demand growth. In the past, any difference
between the growth in demand and the growth in domestic production was
predominantly met by imports of gas from Canada. However, Canada's
National Energy Board has concluded that their future production will
not support increased U.S. imports. Most additional supplies will need
to come from Alaskan natural gas and from imports of liquefied natural
gas (LNG).
Predictably, markets are responding to this outlook with higher
energy prices, and an increased demand for OCS resources. This is
apparent from recent interest in lease sales and an increasing pace of
exploration and development. The mandates of OCSLA, the NEP, and the
Energy Policy Act direct MMS to make available energy resources to
contribute to the nation's economic well-being and energy security.
Energy Benefits
The Federal OCS is a major supplier of oil and natural gas for the
domestic market, contributing more oil and natural gas for U.S.
consumption than any single state or country in the world. As steward
of the mineral resources on the 1.76 billion acres of the Nation's OCS,
MMS has to date managed OCS production that cumulatively totals 15
billion barrels of oil and more than 155 trillion cubic feet of natural
gas for U.S. consumption.
Today, MMS administers more than 8,400 leases and oversees over
4,000 facilities on the OCS, which account for about 30 percent of the
Nation's domestic oil production and 21 percent of our domestic natural
gas production. Within the next 5 years, offshore production will
likely account for more than 40 percent of oil and 26 percent of U.S.
natural gas production, owing primarily to deep water Gulf of Mexico
discoveries.
As the federal OCS mineral resource management agency, MMS has
worked diligently for over 20 years to create an efficient framework
for OCS mineral resource development. Guiding principles include:
conservation of resources; assurance of a fair and equitable return to
the public for rights conveyed; protection of the human, marine, and
coastal environments; involvement of interested and affected parties in
planning and decision-making; and minimization of conflicts between
mineral activities and other uses of the OCS. MMS also has over two
decades of experience working with coastal states regarding coastal
zone management issues. The U.S. Commission on Ocean Policy in its
report, ``An Ocean Blueprint for the 21st Century,'' stated, ``the
scope and comprehensiveness of the OCS oil and gas program can be a
model for the management of a wide variety of offshore activities.'' We
must now meet the challenge of new responsibility provided in the
Energy Policy Act, to manage the development of non-conventional and
renewable energy resources on the Outer Continental Shelf. We intend to
apply, and adapt, these same guiding principles, along with Secretary
Norton's directives for consultation with affected parties, to manage
these resources in the public's interest.
MMS has implemented a number of National Energy Policy directives
to increase domestic energy supplies and enhance national energy
security by ensuring continued access to offshore Federal lands for
domestic energy development, and by expediting permits and other
federal actions necessary for energy-related project approvals.
Energy Benefits from Gulf of Mexico Deep Water and Deep Gas Horizons
The U.S. is now in its tenth year of sustained expansion of
domestic oil and gas development in the deep water area of the Gulf of
Mexico (Gulf). Deep water oil production has risen 386 percent and deep
water gas production is up 407 percent since 1996. Deep water means
that from water surface to where a drill bit first touches mud is about
1,000 feet.
In 2004, operators initiated production on 14 new deep water
projects and announced another 12 new deep water discoveries.
Anticipated production from fields with names such as Thunder Horse,
Atlantis, and Mad Dog, and will dramatically increase OCS production in
2005 and 2006. We expect that it will be several years before deep
water areas of the Gulf reach their full potential. The deep water
activity in the Gulf has been a major U.S. economic and energy success
story.
There are now about 140 deep water discoveries of which more than
90 are producing. This has helped to increase total offshore production
from 980,000 barrels per day in 1995 to 1.7 million barrels per day in
2003. Additional deep water rigs are being built or moved to the Gulf
from other parts of the world. The number of deep water exploration
wells drilled in 2004 increased 27 percent compared to 2003.
The same industry ingenuity witnessed in deep water is also
evidenced in shallow water shelf drilling operations where operators
are targeting deep horizon natural gas reservoirs that require drilling
15,000, 20,000 and in some instances 35,000 feet deep through extremely
high temperature and pressure conditions. Currently, operators are
drilling the Blackbeard project to more than 35,000 feet--6 miles. This
well will take almost a year to drill and there is no guarantee of
success.
Energy Benefits--Hydrates
The Nation's energy potential may not rest entirely on conventional
hydrocarbon resources. Industry and government scientists are now
studying the possibility that a unique and puzzling frozen ``ice''
crystal may hold the key to future energy resources. Methane hydrates
are naturally occurring ice-like solids in which compressed gas
molecules are trapped. Hydrates are found in locations with high
pressure and low temperature. Over 98 percent of natural gas hydrate
resources are estimated to occur in offshore ocean sediments.
Discovering a method to locate, produce and transport the gas from
formations to the market is the key to unlocking their potential energy
benefits. Researchers drilled two wells in the Gulf earlier this year
in hopes of advancing our understanding of this potential energy
resource.
Energy Benefits--Estimates of Remaining OCS Resources
There has been a steady upward trend in the portion of domestic
energy production from public lands. Overall, Interior-managed
resources today account for about 32 percent of the nation's total
energy production, up from 13 percent in 1970. OCS contribution is
projected to grow significantly over the next few years as the OCS is
believed to hold about 60 percent and 41 percent of the Nation's
remaining undiscovered oil and gas resources, respectively. It also may
hold a potential future supply of methane hydrates that could, if it
proves safe to develop, supply another important source of natural gas
for domestic consumption.
MMS conducts a comprehensive national assessment of the
undiscovered oil and gas resources on the OCS every 5 years. The main
objective of these assessments is to forecast the oil and natural gas
endowment of the U.S. OCS for planning purposes, but there is much
uncertainty in the estimates due to a lack of data in many areas,
especially in those OCS areas which have been off limits to exploration
and development for many years.
The Energy Policy Act requires us to conduct analyses and inventory
the oil and gas resources from all OCS areas within 6 months and every
5 years thereafter. The MMS has begun developing this inventory by
reanalyzing existing seismic data with new analysis techniques and in
light of new drilling information from Canada and Mexico.
Energy Benefits--Alternative Uses of the OCS
The oceans may also hold the key to realizing significant potential
new energy sources to support America's growing energy needs--for
example: wind, wave, and solar energy. New authority in the Energy
Policy Act now gives us the ability to manage alternative energy
resources with the same balanced view toward meeting our nation's needs
for energy; safe working conditions; and a clean, healthy environment.
Placing the management of these various ocean energy resources in one
agency provides MMS an opportunity to balance the multiple interests in
development of our nation's resources.
This new Energy Policy Act provision provides a structure for
managing certain offshore activities that were never contemplated when
previous statutes were enacted. It provides the basic tools for
comprehensive management of energy-related activities on the OCS. These
tools include the authority to grant rights to the seabed for energy-
related projects, through competitive or non-competitive means; charge
appropriate compensation for use of the seabed; ensure safety and
environmental protection through regulation, inspection, and
enforcement; and require financial surety to ensure any facilities are
removed and the seabed restored at the end of project life. As it does
for its other offshore activities, the Department will provide a focal
point for a coordinated review and approval process involving all
affected parties.
In addition, the Energy Policy Act now specifies that we can
authorize energy or marine related uses of existing OCS facilities.
Platforms built for oil and gas activities can now be used for other
approved activities. There are proposals to convert platforms to a
variety of uses, including aquaculture, scientific research, and LNG
terminals. The oil and gas industry is also contemplating ancillary
projects, such as staging areas and emergency medical facilities, to
support ongoing activities in the deep water Gulf of Mexico.
Economic Benefits
The economic benefits associated with federal OCS energy
development are substantial by any measure. MMS has documented economic
contributions to (1) federal revenues, (2) producer and consumer
benefits to the private sector, and (3) related direct and indirect
employment.
OCS lease sales and production have generated more than $156
billion in federal revenue from bonus bids, rentals, and royalty
payments. Annual revenues range from $4 to $10 billion and are likely
to increase with the higher energy prices and increased production from
deep water discoveries in the Gulf. Tax revenues associated with
federal production also provide significant contributions to federal
revenues.
In addition, MMS has documented substantial private sector economic
benefits as required under the OCSLA section 18 analysis for each 5-
Year Program. Though difficult to measure, our economic models have
generated estimates that reveal that private sector and consumer
benefits can range from 2 to 5 times higher than the federal revenue
benefits. In economic terms, these benefits include both supply-side
producer surplus (the difference between product price and production
costs) and demand-side consumer surplus (the difference between
consumer willingness to pay and the product price).
The OCS oil and gas industry directly employs about 42,000 workers,
mostly in the Gulf of Mexico area. Indirect employment by suppliers and
other companies that support the industry is estimated to account for
another 90,000 or more jobs throughout the country.
The billions of dollars MMS collects annually from energy companies
for offshore and onshore oil and gas leasing and production constitute
one of the largest sources of non-tax revenue to the Federal
Government. OCS leasing and production provides the majority of oil and
gas annual revenue collected by MMS--about 66 percent of the $8 billion
collected in FY 2004.
Economic incentives adopted as a result of the President's NEP
promote discovery of new sources of energy for the Nation and stimulate
domestic oil and natural gas production. For 2001-2005 OCS lease sales,
we continued the royalty incentive program--first established by the
Deep Water Royalty Relief Act of 1995--to promote continued interest in
deepwater leases, and expanded the incentive program to promote
development of new natural gas from deep horizons in the Gulf's shallow
waters. A new regulation in January 2004 extended the deep gas
incentive to existing leases, issued before the incentives were first
provided in 2001, to promote additional deep drilling for natural gas
on the shelf. MMS has also developed policies for extending lease terms
to aid in planning wells to be drilled to sub-salt and ultra-deep
prospects, accounting for the additional complexity and cost of
planning and drilling such wells. MMS has also provided economic
incentives for all Alaska OCS lease sales to promote leasing interest
and encourage oil and gas exploration development in this area of high
cost and little infrastructure. The recently enacted Energy Policy Act
formalizes and extends some of these incentives and gives us new
opportunities to encourage companies to step into extremely challenging
areas like offshore Alaska and in ultra-deep water depths (>2,000
meters). We are working now to develop the regulations to implement
these additional incentives.
Economic Benefits--Technological Advances
In the last 30 years, technological advancements in the offshore
oil and natural gas industry make production safer, more
environmentally sound, and more economically efficient. In the area of
exploration, technological advances help companies better identify
prospects, allow for more effective well placement, improve the
development of resources, reduce the number of dry holes, and cut
exploration time.
Once production begins, advanced recovery techniques allow for
increased production, recovering 50 percent more oil and 75 percent
more gas from a well than was recovered 30 years ago. Improved
reservoir management reduces the amount of water produced. Other
improvements include better treatment of produced water, better air
pollution control, more energy-efficient production, and reduced
emissions of greenhouse gases.
Technology applied to reservoir management includes artificial
lift, for increased production; downhole oil/water separation; and
advanced data management. Advancements in materials engineering have
led to the increased use of advanced composite materials for parts of
structures and mooring systems. These materials are strong,
lightweight, and able to withstand the offshore environment.
Offshore technologies today allow remote control of drilling
operations from control rooms that are miles away; dynamic positioning
of drill ships using multiple engines that are the size of the meeting
room we are sitting in; floating production platforms; anchoring cables
to hold facilities in place that are made of a combination of
traditional steel and synthetic materials; pipe laying ships that can
lay pipelines in thousands of feet of water. In fact, the recent
Thunder Horse development required over one hundred technological
advancements--things that had not been done before--to bring online the
largest oil field discovered in the U.S. in the last 30 years.
Environmental Benefits--Safety and Accident Prevention
MMS environmental analyses and studies provide decision-makers a
basis to balance potential environmental impacts or costs associated
with OCS development with national energy and economic benefits. These
documents reveal that impacts occur, as in all industrial activities.
However, the record also is clear that most of the potential impacts
can be mitigated and there is evidence that the impacts are decreasing
as technology improves.
In general the MMS regulatory requirements and monitoring of
operations are specific and stringent. For example, we require:
specific training for offshore workers in well control
and production safety systems;
regular testing and maintenance of drilling, production,
and pipeline safety systems;
that submissions for approval of exploration and
development/production plans include comprehensive environmental
reports and oil spill contingency plans; and
application of the best available and safest technology.
MMS also has a comprehensive accident investigation program to help
prevent recurrence of similar incidents; and an effective and vigorous
civil and criminal penalties program.
Over the past three decades, MMS has documented a continuous
improvement in the OCS environmental and safety record. We have seen
the oil-spill rate continue to drop each decade resulting in a 67
percent decrease over this 30 year period. Offshore production today is
proving to be one of the safest ways to provide for our nation's oil
and natural gas energy needs.
The MMS and the offshore oil and gas industry share the paramount
goal of preventing offshore accidents. MMS has increased its inspection
activities more than 60 percent since 1999; and thanks to technological
advances and industry's commitment to safety, the number of Lost
Workday Incidents is down 65 percent since 1996.
MMS has a permanent workforce inspecting offshore facilities for
compliance with safety regulations and has particular expertise in
structural engineering and environmental mitigation. The MMS conducts
almost 25,000 inspections of offshore facilities each year. MMS
recently began an interagency partnership with the U.S. Coast Guard, in
which MMS conducts inspections on behalf of that agency. The MMS also
partners with Federal, state, and local agencies in standardizing oil
spill plan requirements, response standards and in conducting regular
drills.
MMS continues to investigate technology, practices, and procedures
that might further reduce risks to offshore workers and the
environment. In that regard, our offshore program has benefited
tremendously from our international research partnerships. For the past
25 years, we have worked with international agencies on offshore safety
research projects--one quarter of our 529 safety and pollution
prevention projects have involved international partners or
contractors. Participating countries include Canada, Norway, the United
Kingdom, Sweden, Germany, France, Italy, Mexico, Brazil, Argentina, the
Netherlands, Kazakhstan, Japan, Russia, Australia, and South Korea.
This cooperation enables us to leverage our research funds and gain
access to the world's leading technical specialists.
Environmental Benefits--Supply Substitution
The discussion concerning environmental risks from oil and gas
development is often framed as a false choice between increased energy
conservation/efficiency and increased development of this resource. But
as the President's National Energy Policy outlines, a balanced approach
relies on both greater energy efficiency and wise stewardship and usage
of our nation's energy resources. We recognize conservation alone will
not make up for our growing demand for oil and gas. MMS analysis
reveals that adoption of the ``no action'' alternative--no development
of OCS resources--is more likely to result in increased oil importation
than conservation. Environmentally sound use of OCS resources will
allow our country to meet this need.
What then does the environmental record show concerning how the OCS
compares to other supply alternatives? From an environmental
standpoint, OCS natural gas production ranks favorably in comparison,
say, to imported oil, which increases tanker traffic into U.S. waters
and often comes from countries with less stringent environmental
requirements. As to OCS oil production, the record reveals that the
risk of an oil spill has decreased over each of the past three decades
and is about 6 or 7 times less than the risk posed by tankered imports.
Although the trend is improving for both sources, based upon the data
for the period 1985-2001, for every billion barrels transported,
worldwide tankers spill about 53,000 barrels, whereas OCS production
loses about 8,000 barrels for every billion barrels produced. For the
most recent decade the OCS rate was down to 6,500 per billion barrels.
Of note, according to a recent National Academy report, natural seeps
of oil from underground accumulations emit 150 times more oil into the
North American ocean environment than U.S. OCS production.
Information Benefits--Science Based Decision-Making
MMS is committed to rigorous scientific research to ensure that
decisions are based on the best available information. Environmental
and technological issues that have been raised by state and local
governments, other federal agencies, environmental groups, and
industry, help shape our research agenda. Much of MMS research is
accomplished through co-operative funding with universities, inter-
agency agreements, and joint funding with industry.
MMS conducts applied research specific to issues associated with
OCS mineral leasing and development through its Environmental Studies
Program, its Oil Spill Research Program, and its Technology Assessment
and Research Program.
This is a particularly exciting time for ocean science and resource
management, and the MMS is in a unique position to participate with
other agencies as a developer, implementer, and user of our Nation's
ocean and coastal science data. The U.S. Commission on Ocean Policy
recommended the development of an Integrated Ocean Observing System
(IOOS). In response to this recommendation, the Administration, in its
U.S. Ocean Action Plan, stated support for the development of IOOS.
Under the U.S. Ocean Action Plan, a governance structure has been
established to oversee the development of IOOS. The Joint Subcommittee
on Ocean Science and Technology has established an Interagency Working
Group on Ocean Observations. MMS was identified as a key component of
the plan as demonstrated by its November 2004 Notice to Lessees (NTL)
establishing an ocean current monitoring and data-sharing program in
the Gulf of Mexico; a cooperative effort between MMS, NOAA, and the OCS
industry. Due to a need for more site-specific data for forecasting
ocean currents that may affect structural design, fatigue criteria, or
daily operations--issues which fall squarely under the societal goals
of IOOS--MMS and its partners established and implemented an ocean
current monitoring and data-sharing program in the Gulf of Mexico.
Under this program, deepwater oil and gas platform operators will
collect ocean current data from deepwater drilling and production
sites. They will then report their information to the NOAA National
Data Buoy Center website, making it publicly available to help ensure
that OCS activities are conducted in a safe and environmentally sound
manner.
MMS manages several other monitoring and study programs in
partnership with other Federal or academic agencies focusing on many
aspects of ocean science. MMS also supports the goal of advancing
international ocean science and policy. The MMS takes an active
approach to identify and become involved in international initiatives
that promote better integration of safety and environmental concerns
into offshore decision-making. To do this, MMS focuses on:
monitoring, developing, and refining safety and
environmental standards;
technical and information exchanges with our
international regulatory counterparts; and
providing technical advice to the U.S. Department of
State.
The MMS Environmental Studies program is responsible for a number
of the discoveries, including: sperm whales in the Gulf of Mexico, deep
water chemosynthetic communities, the documentation of artificial reef
communities which provide habitat for unique marine communities as well
as a preferred fishing prospect for charter boats, deep water coral
communities, and the documentation of intertidal biological
communities. In no small way, the conduct of the OCS program has
increased the science base of the nation's ocean resources.
Conclusion
The Department of the Interior's OCS program is a significant
contributor to the nation's energy supply. With the increasing activity
in the deepwater Gulf of Mexico, the contribution from federal offshore
areas will increase substantially in the upcoming years. There are
substantial national economic benefits from the program--federal
revenues, private sector productivity gains, and employment.
The environmental record of the OCS program is outstanding and
improving. A significant platform spill has not occurred in the last 35
years. Over the past 30 years of production offshore California, over 1
billion barrels of oil have been produced with, on average, about 33
barrels of oil spilled per year. In comparison, over this same time
period, natural seeps ``spilled'' about 140,000 barrels of crude oil
annually offshore Southern California. The program's excellent spill
record has improved dramatically in each of the last 3 decades,
according to the recent study by the National Academy.
Regarding the longer term, there are long lead times for accessing
frontier areas of the OCS. Lease sales cannot be held unless they are
scheduled in a 5-year program. Once a lease sale is held, it could take
5 to 10 years for drilling to commence. Commencement of production
could take another 5 years after a discovery. In a very real sense,
regarding OCS policy decisions, if we wish the OCS to continue
contributing this significant role, the future is now.
The expansion of MMS's ocean responsibilities on the OCS will also
expand our oceanographic information needs. As such, MMS, NOAA, USGS,
and other partners are already working to ensure that OCS relevant
information needs are better integrated into the IOOS through even
closer stakeholder input. These efforts also include working with all
the Federal partners on the Interagency Working Group on Ocean
Observations. The flurry of recent scientific news releases concerning
record-breaking wave heights recorded in the Gulf of Mexico during
Hurricane Ivan--information from research supported by the MMS and the
Office of Naval Research--highlight the importance of ocean
observations for proper stewardship of OCS resources.
Natural gas production offshore represents one of the most
environmentally sound energy investments this country could make. A
decision to not produce OCS resources also carries environmental
consequences. Mostly, it will mean more imported oil and LNG to meet
our nation's energy needs. Importing these resources poses risks of
potential environmental impacts as well as financial and security costs
to the nation.
In this time of uncertainty, MMS stands ready to respond--to apply
our best science, technical experience, and sound management principles
to benefit the nation.
Mr. Chairman, this concludes my statement. Please allow me to
express my sincere appreciation for the continued support and interest
of this committee for MMS's programs. I would be pleased to answer any
questions you or other members of the Subcommittee may have at this
time.
______
Mr. Gibbons. Thank you, Mr. Readinger. I also want to thank
the MMS for yesterday and allowing us and facilitating our tour
of the offshore facilities that we took. It was very important,
and your testimony is very important to the overall
understanding of that.
We turn now to the Secretary of Louisiana's Department of
Natural Resources, Mr. Scott Angelle.
Welcome, Scott. The floor is yours.
STATEMENT OF SCOTT ANGELLE, SECRETARY,
LOUISIANA DEPARTMENT OF NATURAL RESOURCES
Mr. Angelle. Thank you, Mr. Chairman, and welcome to you
and the distinguished Congressman from Louisiana and the staff
members here. It is indeed a pleasure to welcome you here to
the eighteenth state of our great Union where we talk a little
different, if you haven't noticed, and sometimes we act a
little different, like we did last night.
Louisiana is the most unique and diverse state in the
country, and perhaps today you have the most important 1,000
acres of real estate in America's energy production.
Louisiana is the epicenter of crude oil/natural gas
exploration, production, refining and distribution for the
nation, as well as for imports for foreign crude oil and
liquified natural gas. I make that statement with an immense
sense of pride on behalf of all the citizens of Louisiana who
are currently--approximately 34 percent--34 percent of the
nation's natural gas supply, and almost 30 percent of the
nation's crude oil supply is either produced in Louisiana,
produced offshore Louisiana, or moved through the states and
its coastal wetlands, some of which you are seeing on your
visit here this week. Together with the infrastructure in the
rest of the state, this production is connected to nearly 50
percent of the total refining capacity in the United States.
As most of you know, and as Congressman Jindal has said,
the offshore area beyond 3 miles from the Louisiana coast is
Federal territory. Other than any 3-mile transition zone, the
Federal government receives all of the mineral revenue from
production in the OCS. Based on 2004 data, OCS production--
you've heard a lot about OCS production--OCS production off
Louisiana's coast alone constitutes 91 percent of the oil and
75 percent of the natural gas production from all of the OCS in
America. Louisiana provides our nation with one of the largest
contributing factors to America's strategic security and
economic prosperity, which allows for the high standard of
living that we all enjoy.
Here is one example of how that translates. The pump price
of gasoline has recently been hitting the $2.50-per-gallon
range in many parts of the country. If it were not for
Louisiana's role in petroleum supply, Americans would likely be
paying in the range of $4 per gallon for gasoline today. That
does not take into account the price for electricity, food and
all the other things fueled by or made from oil and natural
gas.
Offshore petroleum production is essential to the well-
being of the United States. As you are aware, there are not
many coastal states that allow new production. Currently, the
states are only Alabama, Alaska, Louisiana and Texas. Offshore
production provides economic prosperity for coastal states in
the form of jobs, and for the service industries, providing the
logistic support for the offshore industry.
While the jobs are important, and the energy is critical to
fueling America, we have come to understand that what we are
doing here in Louisiana is nation-building. Men and women of
Louisiana work hard to explore, produce, transport, refine and
distribute oil and gas. Through this work, we know we are
building a stronger America. And I am here to tell you that we
are proud of what we have done when it comes to producing the
energy to fuel this great country. But I am also here to tell
you that we are prepared and we want to do more for this
country. We simply need your help.
Louisiana has suffered some negative impacts in the past
from offshore production, but we know that oil and gas
production is compatible with protecting and preserving the
environment with now the oversight of several state and Federal
regulatory agencies. Yes, we have to deal with some of these
legacies of the past, but that's because Louisiana pioneered
offshore production in the days before modern technology,
before the awakening of America's environmental consciousness
and before the advent of environmental regulatory agencies.
Louisiana's first oil well was drilled onshore in 1901. The
first oil well ever drilled over water was in Louisiana in
1910, and it was in north Louisiana, in Caddo Lake. The first
well drilled offshore Louisiana was in 1938. Things have
changed dramatically since then. Louisiana is not looking back,
we are looking to the future. With your help, we will create an
even stronger energy pulse for America. We understand our role.
One of our roles is to produce the fuel for America.
You may be asking yourself, what can you do to make the
energy pulse stronger in America in Congress? One of the many
ideas that industry executives and government officials has
examined is extending Section 29 of the IRS code to deep and
ultra deep production, and to immediately begin sharing with
the states a portion of the royalties from drilling in shallow
waters of the Gulf.
And finally, access, access, access, to open up some of the
other areas of America to oil and gas development. Louisiana is
continuously challenging itself to build a stronger energy
pulse for America, but our biggest opponent is the elements of
nature and the Federal decision to levee the Mississippi River.
Louisiana loses more than 24 square miles a year of our coastal
land, believed to be the fastest rate our planet, and we cannot
continue to fight alone. We need your help to keep the energy
pulse of the Nation beating strongly.
One way to achieve a strong energy pulse is to share with
the coastal-producing states some of the offshore revenues
generated off their coasts. This would encourage coastal states
to pursue more development and, in turn, would help offset
infrastructure costs that are associated with that development.
When states like Wyoming, New Mexico, Colorado and others host
drilling on Federal on lands onshore, they receive 50 percent
of those revenues in direct payments and, consequently, have
the financial resources to support that infrastructure.
In Fiscal Year 2004, Wyoming and New Mexico together
received about $928 million from those revenues, which we
believe is an appropriate revenue-sharing procedure. We just
want that rule to apply to us as well.
In contrast, for example, in 2001, of the $7.5 billion in
revenues produced in the Federal OCS, only a fraction of 1
percent went back to the coastal states. We believe this
inequity is truly profound. Production off Louisiana's shore
alone contributes an average of $5 billion. Of that $7.5
billion, $5 billion alone comes from Louisiana. It is the
second largest source of revenue for the Federal government,
and that is when oil and gas was less than half of the $60 per
barrel it is selling for today.
We ask two questions: Doesn't it make sense to encourage
the coastal-producing states, which provide that revenue and
energy supply for the benefit of the rest of the nation; and
doesn't it make sense that the Nation protect those who make
these resources possible? The total value of the Louisiana
Federal offshore infrastructure and onshore infrastructure
support, including pipelines and port facilities, is over $100
billion. This infrastructure is vulnerable if not protected by
the state's barrier islands, saltwater marshes and freshwater
wetlands. As these erode and disappear, infrastructure is
exposed to the open sea and all of its fury.
The coastal impact assistance money provided in the Energy
Policy Act of 2005 that you just helped us pass--and on behalf
of all the people in Louisiana, we thank you for your efforts--
is tremendous news. Yet, the $540 million provided over four
years, as Congressman Jindal says, for coastal restoration, is
only a down payment for the $14 billion needed to solve this
problem.
In conclusion, it is vital to the nation's security and
prosperity that new energy sources be developed. The OCS is
probably the single most promising area of the U.S. to obtain
significant new energy supplies, whether conventional oil and
gas, imported oil, imported LNG, wind and ocean energy. The
development requires the support of coastal states to
cooperate, supply and maintain critical production and support
infrastructure. Louisiana is prepared to cooperate.
By receiving an equitable share of revenue generated
offshore, coastal states that do not currently allow offshore
development will have an incentive to consider it, and the
coastal states that do will be in a position to further develop
it, and ensure that its production will be made available to
the rest of the nation.
Louisiana stands ready to provide the leadership to build a
stronger nation with a strong energy pulse. We believe that
good relationships are like good bank accounts: You got to make
a few deposits to make a few withdrawals. And when it comes to
energy, Louisiana has made her fair share of deposits to this
country.
[The prepared statement of Mr. Angelle follows:]
Statement of Scott A. Angelle, Secretary,
Department of Natural Resources, State of Louisiana
Mr. Chairman, Mr. Ranking Member, and distinguished members of the
House Committee on Resources, it is indeed my pleasure to welcome you
to Louisiana--America's Energy Corridor. Louisiana is the epicenter for
crude oil and natural gas exploration, production, refining, and
distribution for the nation, as well as for imports of foreign crude
oil and Liquified Natural Gas. I make that statement with an immense
sense of pride on behalf of the citizens of the State of Louisiana in
reflection of the enormous contribution Louisiana makes to the energy
supply of your constituents and to the rest of the citizens of this
great nation.
It is imperative that we, as a nation, stop reacting to energy
situations imposed on us by outside forces, and instead, proactively
start shaping our energy future. One of the ways to do that is to
develop the full potential of the nation's offshore energy resources
and to assist those states that make that production possible off their
coasts. This can be accomplished by sharing with those coastal
producing states some of the offshore revenues generated off their
coasts. This would encourage those states to pursue more development,
and it would help offset infrastructure costs those states incur that
are associated with that development.
Supplying the Nation: Louisiana--America's Energy Corridor
Where we are right now at Port Fourchon, is ground zero for the
offshore petroleum supply of the nation. Louisiana has a long and
distinguished history of oil and gas production, both on and offshore.
Currently, approximately 34% of the nation's natural gas supply and
almost 30% of the nation's crude oil supply is either produced in
Louisiana, produced offshore Louisiana, or moves through the state and
its coastal wetlands, some of which you are seeing on your visit here
this week. Together with the infrastructure in the rest of the state,
this production is connected to nearly 50% of the total refining
capacity in the United States.
When it comes to developing the nation's offshore petroleum
resources, there simply would not be much if it were not for
Louisiana's leadership and participation. The offshore territory off
Louisiana's coast is the most extensively developed offshore territory
in the entire world. As most of you know, the offshore area beyond 3
miles from Louisiana's coast is federal territory called the Outer
Continental Shelf, or OCS. Other than in a 3-mile transition zone, the
federal government receives ALL of the mineral revenue from production
in the OCS. Based on 2004 data, OCS production off Louisiana's coast
constitutes 91% of oil and 75% of natural gas production from all U.S.
OCS areas combined. Additionally, Louisiana OCS territory has produced
88.8% of the 14.9 billion barrels of crude oil and condensate and 82.3%
of the 150 trillion cubic feet of natural gas ever extracted from all
federal OCS territories since the beginning of time.
Offshore Energy Development and Economic Prosperity
This service that Louisiana provides to the nation is one of the
largest contributing factors to America's strategic security and
economic prosperity, which make possible the high standard of living
that we all enjoy in this country. Let's look at just one example of
how this translates to you. The pump price of gasoline has recently
been hitting the $2.50 per gallon range in many parts of the country.
If it were not for Louisiana's role in the petroleum supply of the
nation, you and your constituents would likely be paying in the range
of $4.00 per gallon for gasoline today, and that does not address how
sky-high prices would be for electricity, food, and all of the other
things fueled by, or made from, oil and natural gas.
Offshore petroleum production is not only good for the country, but
it is essential to the well-being of the USA. Offshore production is
also good for coastal producing states, and there are not many of us--
coastal states, that is, that allow new production off our coasts. The
list currently consists of only Alabama, Alaska, Mississippi,
Louisiana, and Texas. Even without being able to share in the mineral
revenue produced for the federal treasury off our coasts, offshore
production produces economic prosperity for coastal states in the form
of jobs for the service industries providing the logistics support for
the offshore industry. This includes, among others: equipment and
materials suppliers; food service; helicopter and boat transportation;
communications services; engineers, geologists, boat and rig crews;
other industry staff and employees; and many others. The offshore
industry also supports many jobs far removed from the coastal states,
including a multitude of employees who, because of the week on, week
off type of schedules, commute up to 500 miles or more from places like
Arkansas, Tennessee, and Georgia to work offshore in the Gulf.
Offshore Development Includes LNG
Stepping up to the plate to help the nation obtain new supplies of
energy including LNG (liquefied natural gas), Louisiana is the home of
the largest throughput facility (Southern Union in Lake Charles) of the
four existing LNG import terminals in the U.S., and it is undergoing
more than a doubling of capacity from 1 billion cubic feet per day to
2.5 billion cubic feet per day. While almost every state in the nation
is trying to prevent the siting of any new LNG facilities, Louisiana is
the site of the largest permitted LNG import terminal in the nation
(Cheniere Energy's 2.6 billion cubic feet per day facility in Sabine
Parish).
Louisiana is also the home LOOP (Louisiana Offshore Oil Port), the
only deepwater offshore oil import terminal in the world.
Offshore Development and Preserving the Environment Are Compatible
I am also here to tell you, that oil and gas production is
compatible with protecting and preserving the environment. Louisiana
can look at experience and footnote that offshore development and the
associated onshore infrastructure construction and operations are done
in an environmentally responsible way today and are done so under the
oversight of several state and federal regulatory agencies.
Louisiana has suffered some negative impacts in the past from
offshore production. And, yes, we still have to deal with some of those
legacies of the past, but that is because Louisiana pioneered offshore
production in the days before modern technology, before the awakening
of America's environmental consciousness, and before the advent of
environmental regulatory agencies and regulations.
Louisiana's first oil well was drilled in 1901. The first oil well
over water in the world was in Louisiana in 1910 in Caddo Lake. The
first well drilled off the coast of Louisiana was in 1938 near Creole,
Louisiana. Louisiana was the site of the first well drilled out of
sight of land in 1947. Things have changed dramatically since 1910,
1938, 1947, or even 1960, 1970, or 1980. Simply put, it was like the
old Wild West out there. Just as in other industries in other parts of
the country in other times, there was once a time, long, long ago, when
almost anything in the name of progress was accepted. Everything is
different now. That era and those practices have nothing more in common
with modern exploration, production, and environmental techniques than
transportation by horse and buggy in 1800's has in common with jet
airliners flying overhead today.
Louisiana's Role as a Producing and Consuming State
Energy is the lifeblood of an industrialized nation and a key
economic driver for the country. A reliable and affordable supply of
energy is necessary for economic development, prosperity, and
expansion. Although technological improvements and investments in
energy efficiency have reduced this country's energy consumption per
unit of Gross Domestic Product over the past 20 years, increased
economic prosperity is still dependent on increased energy consumption.
In the U.S., the availability of energy has generally been taken for
granted, but recent blackouts in California and other parts of the
country, the emergence of 60 plus dollar per barrel oil and $7 to $8
per million BTU natural gas, and the drive to build terminals to import
foreign natural gas in the form of a cryogenic liquid, have highlighted
the need for addressing energy supply.
I come to you representing a state to which energy is its middle
name. The words Louisiana and energy are almost synonymous. Among the
50 states, Louisiana ranks (2004 Energy Information Administration--EIA
data):
1st in crude oil production
2nd in natural gas production
2nd in total energy production from all sources
The importance of energy to Louisiana is further highlighted in the
following rankings in which Louisiana is (2003 EIA data latest
available):
2nd in petroleum refining capacity
2nd in primary petrochemical production
3rd in industrial energy consumption
3rd in natural gas consumption
5th in petroleum consumption
8th in total energy consumption
but, only 22nd in residential energy consumption
Usually, when national energy issues are discussed, Louisiana is
cast in the image of a rich producing state floating in a sea of oil
and gas that is being inequitably shared with the consuming states.
Often misunderstood or overlooked, is the fact that about two thirds of
the production from the state is in the Louisiana federal OCS (Outer
Continental Shelf) territory and, hence, produces no revenue for the
state, while at the same time incurring significant infrastructure
support costs to the state, which I will discuss in more detail later.
Also often overlooked or not explained, is the fact that, though
Louisiana is the 2nd highest energy producing state in the nation,
Louisiana is also 8th highest in total energy consumption. Therefore,
Louisiana is more of a consuming state than 42 other states! This story
is never told, nor are Louisiana's difficulties as a key consuming
state given much concern at the federal energy policy level. Thus, when
Louisiana, the energy producing state speaks, it is also Louisiana, the
energy consuming state speaking. Louisiana is inexorably tied into the
issues of all states in the nation, whether considered producing states
or consuming states. However goes the energy situation in Louisiana, so
goes the energy situation in the United States of America.
Louisiana's Role as a Through-Processor of Hydrocarbons for the Nation
All of the preceding represents only the direct supply line of oil
and natural gas. Additionally, Louisiana's 8th highest ranking among
the states in energy consumption is attributable to the fact that
Louisiana is consuming most of this energy as a through-processor of
energy supplies for the rest of the nation, consuming colossal amounts
of energy for their benefit. An example of how Louisiana is consuming
energy resources for the primary benefit of other states is petroleum
refining. The energy equivalent of 10% of Louisiana's entire petroleum
product consumption is required just to fuel the processes that refine
crude oil into gasoline, diesel fuel, jet fuel, heating oil and other
products consumed out of state. The oil refining industry employs only
about 10,400 workers in the state; whereas tens of millions of jobs
throughout the country are dependent on the affordability and
availability of the products from the continued operation of these
refineries and associated petrochemical facilities in Louisiana.
Many other examples could be cited of the numerous energy intensive
natural gas and oil derived chemical products Louisiana (and also
Texas, Oklahoma, and California) through-processes for the rest of the
U.S. per unit of output, these industrial processes in Louisiana are
characterized as capital (equipment), energy, raw material, and
pollution discharge intensive, and low in labor requirements and dollar
value added, essentially the opposite of the downstream industries in
other states that upgrade these chemicals into ultimate end products.
Much of the energy Louisiana technically consumes is really the
transformation of oil and gas into primary chemical building blocks
that are shipped to other states where the final products are made,
whether it be plastic toys, pharmaceuticals, automobile dash boards,
bumpers and upholstery, electronic components and cabinets, synthetic
fibers, or thousands of other products dependent on this flow of energy
and high energy content materials out of Louisiana.
OCS Infrastructure and Its Impacts and Needs
It is important to understand that there is no free lunch.
Louisiana, like other coastal producing states, sustains impacts on
coastal communities and bears the costs of onshore infrastructure
required to support this production activity.
Saving Louisiana's Wetlands that Protect Offshore and Onshore
Production Infrastructure
Louisiana's unique and fragile coastal wetlands introduce yet an
additional issue: land loss. Louisiana loses more than 24 square miles
of our coastal land each year. In fact, if what is happening today in
coastal Louisiana were happening in our nation's capital, the Potomac
River would be washing away the steps of the Capitol today, the White
House next year, and the Pentagon soon after that. In fact, during the
course of this morning alone, Louisiana will lose a football field wide
area from the Capitol Building to the Washington Monument.
There are many causes of this coastal erosion in Louisiana,
including what may be the most significant factor: building levees and
channeling the Mississippi River. Whatever the cause of its demise, the
health and restoration of Louisiana's coastal wetlands are vital to
protecting the offshore and onshore infrastructure that is essential
for the continuation, as well as the expansion, of offshore energy
production in the Gulf of Mexico.
Once the State realized the magnitude of the coastal erosion
problem, we got serious about doing something about it. In 1980, the
coastal restoration permitting program was moved to the Department of
Natural Resources (DNR). In 1981, $40 million of state oil and gas
revenue was set aside in a legislative trust fund for coastal
restoration projects. The State has a dedicated revenue stream of up to
$25 million per year, depending on the level of revenue collections
from oil and gas production within the state, to replenish the fund. In
the past few years, that replenishment stream has been at the $25
million level. In 1989, the Office of Coastal Restoration and
Management was created in DNR, and the magnitude of the program was
greatly expanded.
The War Against the Elements
Let me emphasize something extremely important to this nation's
energy supply. Here along the coast, WE ARE AT WAR. It is a war in
which the enemy is the elements of nature. It is an enemy with names
like Andrew, Ivan, and Dennis--hurricanes. It is an enemy with names
like wave erosion, storm surges, sedimentary subsidence, soil
consolidation, salt water intrusion, and leveeing of the Mississippi
River.
We are part of a team called the USA, but it often seems like Team
USA expects Louisiana and a few other coastal states to have
supernatural power to go out, wage war against the elements and bring
back the victory prize of oil and gas supplies and mineral revenue for
the whole country armed only with a slingshot, like the Biblical David,
when the enemy is a Goliath throwing 50-foot waves, 25-foot storm
surges, and 150 mile per hour winds against the fragile wetlands that
protect and make possible America's offshore production infrastructure.
If you see something wrong with that picture, you are right. As you
sit here at Port Fourchon on the pulse of the nation's vulnerable
energy heart, I hope you will recognize the need to do more to help us,
the coastal producing states, keep the energy pulse of the nation
beating strongly for the benefit of you and your constituents.
Extent of Louisiana Infrastructure Supporting OCS Production
The total value of the Louisiana OCS infrastructure and the onshore
infrastructure supporting it is difficult to ascertain. The estimated
depreciated investment in offshore production facilities is over $85
billion, depreciated offshore pipeline infrastructure is over $10
billion, and public coastal port facilities is $2 billion, for a total
of approximately $100 billion, depreciated, and not counting highways,
sewer, water, fire and police protection, schools, and other public
works structures that also have ongoing operation and maintenance
costs. The replacement of all of this would be several times the $100
billion depreciated figure. It also does not count the onshore coastal
infrastructure of pipelines, storage facilities, pumping stations,
processing facilities, etc.
This infrastructure is vulnerable if not protected by the State's
barrier islands and marshes. As these erode and disappear,
infrastructure is exposed to the open sea and all of its fury. As the
coast recedes, near shore facilities become further offshore and
subject to greater forces of nature, including subsidence, currents,
and mudslides. Erosion in the coastal zone is already beginning to
expose pipelines that were once buried.
A Wake-up Call from Hurricane Ivan
To bring home the point of infrastructure vulnerability, we need
only look back to this past Summer. Hurricane Ivan was not even a
direct hit on Louisiana's offshore and coastal oil and gas
infrastructure, striking two states away; yet, its effects on the
nation's supply of oil and gas were significant, even many months after
it hit. Most of the damage occurred along pipeline routes rather than
actual structural damage to the producing platforms. As of February 14,
2005, when the Minerals Management Service (MMS) released its final
impact report on Ivan, 7.42% of daily oil production and 1.19% of daily
gas production in the Gulf of Mexico was still shut-in. The cumulative
shut-in production through February 14 was 43.8 million barrels or
7.25% of annual Gulf of Mexico OCS production and 172.3 billion cubic
feet of natural gas or 3.9% of annual Gulf of Mexico OCS gas
production.
As more of the protection from Louisiana's barrier islands and
coastal wetlands wash away, increasingly more of this offshore
production will be damaged or destroyed by even less powerful storms
than Ivan, and particularly by storms whose paths more directly pass
through the producing areas off of Louisiana's coast. Direct hits to
the prime production area by hurricanes and tropical storms will cause
incalculable damage to this production infrastructure, as well as to
the onshore support infrastructure.
How to Increase Offshore Energy Production
Share Offshore Revenue with the States that Allow Offshore Production
The most effective way to help is to assist those states that make
offshore energy production possible off their coasts. This can be
accomplished by sharing with those coastal producing states some of the
offshore revenues generated off their coasts. This would encourage
those states to pursue more development, and it would help offset
infrastructure costs those states incur that is associated with that
development. Louisiana, like other coastal producing states, sustains
impacts on coastal communities and bears the costs of onshore
infrastructure to support this production activity.
When states like Wyoming, New Mexico, Colorado, and others host
drilling on federal lands onshore, they receive 50% of those revenues
in direct payments, and consequently have the financial resources to
support that infrastructure. In Fiscal Year 2004, Wyoming and New
Mexico together received about $928 million from those revenues, which
IS an appropriate revenue sharing procedure.
In contrast, for example in 2001, of the $7.5 BILLION in revenues
produced in the federal OCS area, only a fraction of one percent came
back to those coastal states. The inequity is truly profound.
We are pleased this committee is investigating ways to increase
offshore energy production. The need to sustain the existing supply
that Louisiana provides must simultaneously be addressed. The most
effective answer to both issues is to share offshore revenues with the
coastal producing states that make that production possible. It is
critical that coastal producing states receive a fair share of revenues
to build and maintain onshore infrastructure and, in Louisiana's case,
to help stem our dramatic land loss, which is occurring at a rate
believed to be the fastest on the planet.
Production off Louisiana shores alone contributes an average of $5
BILLION dollars a year to the federal treasury, its second largest
source of revenue. And, that was when oil was less than half of the $60
plus per barrel price it is selling for today.
Does it not make sense to encourage the coastal producing states
which provide that revenue for the benefit of the rest of the nation?
Does it not make sense, that when so many, like the U.S. Ocean
Commission, are targeting offshore OCS revenues to pay for worthwhile
preservation of natural resources, that this nation first protect those
who make these resources possible?
Already, in Louisiana's coastal zone, many of the pipelines and
other infrastructure that our wetlands have historically protected are
now exposed to open Gulf of Mexico conditions. I shudder to think of
the production infrastructure damage and the economic impacts to this
nation, had Ivan gone a relatively few miles further west with a direct
hit on the infrastructure off Louisiana's shore. According to analysts,
oil prices would realistically have hit $75 dollars a barrel. Since oil
prices have risen since then, the price rise would be even higher now.
Maintaining any ongoing operation requires reinvestment to
maintain, repair, and replace worn out or outdated equipment and
facilities. As any farmer can tell you, you cannot just take from the
land forever without putting something back into the operation. Out of
the harvest of crops, the farmer has to set aside a portion as seed to
plant for the next harvest. He has to fertilize the land to replace
depleted nutrients, plow and till the soil, rotate crops, control
runoff and erosion, irrigate, apply pesticides and herbicides, buy and
repair machinery. Likewise, to maintain, much less increase, production
from off our coasts, we must reinvest in the infrastructure that makes
all of the activity possible, whether it be port facilities, roads to
transport equipment and supplies, erosion control, or barrier island
and wetlands storm protection.
Assistance from the Energy Policy Act of 2005
The Coastal Impact Assistance Money provided in the Energy Policy
Act of 2005 that you just helped pass is tremendously good news for the
state's coastal restoration efforts. Yet, the $540 million provided
over four years for coastal restoration is only a drop in the bucket
compared to the total of $14 billion needed over 20 to 30 years for
Louisiana's unique coastal restoration needs.
En act Legislation to Extend Section 29 Tax Credits to Deep and Ultra-
Deep Production in States Allowing Offshore Production and to
Immediately Share with the States 50% of the Royalties from
Deep Drilling in the Shallow Waters of the Gulf:
Section 29 of the Internal Revenue Service (IRS) Code granted a tax
credit for the production of natural gas from unconventional resources
(coal bed methane and tight sands gas). The effect of the application
to coal bed methane gas production was astounding in those areas of the
country that have significant deposits of this kind, which is not along
the Gulf Coast. Natural gas reserves from coal bed methane rose from
6.3% of U.S. reserves at the end of 1993 to 9.9% at the end of 2003.
Annual natural gas production from coal bed methane rose from 4.2% of
U.S. dry gas production in 1993 to 8.2% by the end of 2003.
Deep natural gas reserves (15,000-24,999 feet sub-surface) and
ultra-deep gas reserves (greater than 25,000 feet sub-surface) are the
next most immediate resources for meeting the supply and deliverability
needs of the U.S. market. These resources should be granted the same
tax credit as was granted to coal bed methane producers. The resulting
stimulus to production should be at least equal to the coal bed methane
results, and would very likely far exceed it in time as capital is
brought to bear on this drilling domain. The federal Minerals
Management Service (MMS) has recently instituted significant deep shelf
royalty incentives for the shallow federal waters of the Gulf of Mexico
shelf. This does no good for the adjacent state waters and onshore
areas. The Section 29 credits need to be instituted for state waters
and onshore areas, at least in those states allowing federal offshore
production.
Another thing that is needed immediately, is to share with coastal
producing states 50% of the royalties from new deep drilling in the
shallow federal waters on the shelf. The MMS royalty deep shelf
suspension program is a good program, but it is draining investment
from our parishes by shifting drilling across the boundary line into
federal waters, causing loss of investment and tax revenue from lost
drilling in state territory. Louisiana should receive 50% of royalties
from deep drilling on the shelf immediately.
Encourage New Energy Sources and Technology
Recent studies show that the Gulf of Mexico has a significant wind
energy potential. Although wind power does not have the energy density
of petroleum, it is an inexhaustible, renewable source of clean energy.
Again, much to my consternation, it appears that there are many parts
of the country that use a lot of energy and want it at low prices, but
do not want production of any kind, anywhere near them, including wind
energy. Again, Louisiana is stepping up to help encourage this clean
energy source. The State of Louisiana is currently working with private
sector investors who are interested in developing wind farms in state
and federal waters off Louisiana's coasts. My office submitted wind
power legislation which the Louisiana Legislature passed earlier this
year to facilitate offshore wind power development in Louisiana's State
offshore waters.
Natural gas hydrates probably offer the greatest untapped energy
resource the nation has. The Oil and Gas Journal recently reported that
the U.S. Geological Survey estimates that methane hydrate deposits are
greater than all other forms of fossil fuels combined. Large deposits
of gas hydrates are believed to lie below the offshore waters of the
U.S. Unfortunately, technology to tap these resources needs to be
developed. Once the technology is available, the first areas to be
developed will be the areas adjacent to the existing offshore producing
areas where the infrastructure is in place to get it to shore and into
the nation's pipeline distribution system. The federal government needs
to fund meaningful research into developing the technology to produce
gas hydrates, assessing the resource base, and delivering it.
In Conclusion
It is vital to the nation's security and prosperity that new energy
sources be developed. The federal government has proven that it has the
ability to steer investment, as in the case of deep water drilling in
the Gulf and coal seam gas. In addition to its significance in
producing 30% of oil and 23% of natural gas produced domestically,
which is mostly off Louisiana, the OCS is probably the single most
promising area for the U.S. to obtain significant new energy supplies.
These supplies, whether conventional oil and gas, imported oil,
imported LNG, wind and ocean energy, or gas hydrates, need the support
of coastal states to cooperate and to supply and maintain critical
production and support infrastructure.
LNG facilities are being built where the existing U.S. pipeline
infrastructure exists (essentially Louisiana and Texas) in order to get
the gas from the coast into the delivery system to supply the nation.
The same will be true when the technology is developed to commercialize
methane hydrate production off the coasts. This Louisiana and Texas
infrastructure will also be used when deep and ultra-deep shelf
production comes on stream. This is another reason why offshore revenue
should be shared with the coastal producing states and why the
extension of Section 29 tax credits should be extended to deep gas
exploration at least in the states that are allowing onshore and
offshore drilling and allowing the siting of LNG facilities to make
energy available to the rest of the country.
With effective policies and incentives, the federal government can
steer investment into the offshore areas, and by receiving an equitable
share of revenue generated offshore, the coastal producing states can
be in a position to ensure that this production will be made available
to the rest of the nation. As the granddaddy of all producing states,
literally and figuratively, Louisiana desperately needs immediate
revenue sharing financial assistance from a source not subject to
annual appropriations, to continue to maintain existing, and to develop
future energy supplies for the nation.
It would be a travesty for the Congress to enact national energy
legislation without substantial OCS revenue sharing in the form of
direct payments to the coastal producing states from the revenue
derived from offshore production, similar to the automatic payments for
drilling on federal lands onshore, and before any other dispersal of
those monies.
Thank you for coming to Louisiana and for this opportunity to
appear before you.
______
Response to questions submitted for the record by
Secretary Scott A. Angelle
1. At this point it would seem that, if the federal government ever
worked out a system whereby oil and gas development could occur
in a least a portion of the Eastern Gulf of Mexico, that
portion would be nowhere near the Florida coast. Is Louisiana
prepared to continue to support--through Port Fourchon, for
example--any offshore activity that might occur there?
Louisiana regards the full exploration and development offshore all
coasts of the U.S. to be in the strategic and economic interests and
benefit of the nation. Louisiana is ready and willing to support the
development in the Eastern Gulf up to the full limits of the capability
of the infrastructure. There are physical and economic limits as to
what is the ultimate development activity level the state could expand
to accommodate. With sufficient funding, in the form of dedicated
revenue sharing assistance, the state could readily expand capabilities
to support major new offshore development in the Eastern Gulf.
2. If the federal government could move legislation that provided some
sort of revenue sharing to states that support offshore
development, what sort of ``sharing'' would you like to see?
a. An annual hard dollar amount?
b. A percentage of OCS revenues?
Either approach or a combination of the two could work. Our
preference would be for the state to receive 50% of revenue from all
production in the Louisiana federal offshore area (MMS Central Gulf
Planning Region) and a portion of revenues from the production in the
Eastern Gulf logistically supported from Louisiana infrastructure. That
would provide sufficient revenue for the state to address both the
massive funding needs of coastal erosion and wetlands restoration in
the state, as well as funds to update and expand the ports and other
coastal and onshore infrastructure needs created by existing and
expanded development of the Eastern and Central Gulf.
3. Does this revenue sharing need to be dollars that are directly
funded? Or can they be appropriated? Why?
It is crucial that these shared funds be directly funded. In
Louisiana, we urgently need these funds for multi-billion dollar
capital projects that require extensive research, planning, design,
construction, monitoring, and management outlays. For coastal
restoration projects alone, Louisiana needs a minimum of $14 billion
(in today's dollars) over the next 20 to 30 years. Added to that are
other large capital projects such as widening, elevating, and / or
replacing highways across the marshes, port development and expansion,
water supply, drainage, and flood control.
Construction and maintenance of highways is a very expensive
engineering challenge in Louisiana's vast coastal wetlands. These
highways, such as Louisiana Highway 1, the only land route to Port
Fourchon, are the logistical supply lines for hundreds of thousands of
truck deliveries to and from the ports, as well as the transportation
routes of the offshore workforce. In times of hurricane and other
serious storm threats, these highways are the only escape route to
higher ground for tens of thousands of coastal and offshore families
and workers. Additionally, state and local governments must supply
public safety and health services such as fire, police, municipal waste
disposal, hospitals, etc.
The preceding projects require long term planning horizons, large
capital expenditures, and long term expenditure commitments. It is not
feasible to accomplish these objectives with unstable or unreliable
funding sources, such as would be the case with annual appropriations
subject to varied Congressional and Presidential budget considerations
each year. Additionally, Louisiana is only asking for the same revenue
sharing percentage (50%) and mechanism (automatic direct payments
exempt from the appropriation process) that is used to share revenue
with states that have oil and gas production from federal lands
onshore.
4. Would you prefer to see that the federal government set up a system
prescribing how states would be eligible for this money?
No, we would prefer the mechanism now used to share revenue with
states for oil and gas production from federal lands onshore.
5. Would you prefer to see that the federal government set up a system
prescribing how states could spend this money?
No, we would prefer the mechanism now used to share revenue with
states for oil and gas production from federal lands onshore.
6. Mr. Falgout, noted in his testimony that the oil and gas industry
co-exists with many other coastal users, and that it doesn't
have to be one or the other. The committee agrees with him that
it is a false choice to believe America must choose one or the
other. Mr. Davis also noted a similar theme in his testimony
that the ``belief that OCS development is incompatible with
environmental stewardship and the best interests of communities
is widespread and it runs deep''. I open this question to the
entire panel. How then, can a Florida, or a California, be
convinced that the industry can--and does--coexist with other
uses, and the environment? Please provide specific examples if
you can.
Perhaps answering the question of how can a Florida or a California
be convinced of this, requires answering the question, ``Why should
they take a chance?'' As things are now, what reason does a coastal
state have to allow drilling off their coast? They look at Louisiana, a
state that could not cooperate more to facilitate offshore drilling,
and see how Louisiana, as a COOPERATIVE state, is treated by the
federal government when it comes to revenue sharing, funding coastal
restoration, wetlands mitigation assistance, etc., and have to wonder
what overriding benefit is in it for them.
They get the benefit of the energy and revenue produced off
Louisiana's coast without having to risk any costs or damage, real or
perceived, by exposing their coastal areas to any oil and gas activity.
Add to this the fear created by lack of familiarity. As people
learn more about a subject, experience it, and see its effects, they
get more comfortable. Louisiana has a long experience with oil and gas
production, and a large percentage of Louisiana citizens are familiar
with the industry and know how exploration and production are done
today.
A visit to Louisiana's coastal ports in areas such as Venice and
Port Fourchon will make it very clear that a major saltwater sport
fishery is associated with offshore oil and gas platforms. Large
numbers of fisherman pursuing snapper, mackerel, tuna, cobia, spotted
seatrout and many other species concentrate much of their successful
angling efforts around offshore oil and gas production platforms off
Louisiana. The fact that Louisiana's commercial fisheries landings
(dominated by coastal-dependent species) lead all other Lower 48 States
is also evidence that oil and gas development is compatible with high
levels of biological productivity.
Most of Louisiana's environmental issues related to oil and gas
development stem from two primary factors. One, Louisiana has a unique
coastal wetlands geology (See the answer to question 7 below for more
on this.), which has made Louisiana's coast ultra-sensitive to
disturbances of any kind, and there have been many, both man-made and
natural. Two, Louisiana was the pioneer in developing coastal and
offshore oil and gas development dating from back in the days of little
knowledge of, almost no awareness of, and no regulation of,
environmental impacts. Times, experience, technology, regulation, and
conscientiousness related to oil and gas development and preserving the
environment have all changed since the pioneer days. As a legacy of the
past, it is true that pipelines originating in the OCS have had
significant adverse impacts on Louisiana's coastal wetlands and barrier
shorelines. Over the years, however, modern construction techniques and
improved technology have substantially reduced such impacts. For
instance, even large pipelines can be directionally drilled under
barrier islands to minimize damages to those sensitive features.
Louisiana can look at experience and show that offshore development
and the associated onshore infrastructure construction and operations
are done in an environmentally responsible way today and are done so
under the oversight of several state and federal regulatory agencies.
We have been the proving ground, and others can benefit from our
experience.
7. This committee appreciates the willingness of your state to play
host to a large percentage of the oil and gas that fuels our
economy. Furthermore, we commend you for taking initiative to
address the coastal erosion problems you are currently facing.
How much money do you think it will cost to fully address the
coastal erosion problems as you see them?
As I mentioned in response to question 3 above, Louisiana needs a
minimum of $14 billion (in today's dollars) over the next 20 to 30
years. Louisiana has quite a unique geology relative to the rest of the
country. The Louisiana coast is geologically the youngest part of the
U.S. and, prior to manmade interference from leveeing and channeling
the Mississippi River and other activities, was still accreting land
mass faster than it was losing it to subsidence, erosion, salt water
intrusion, sea level rise from global warming, and other causes. The
science of coastal geology and the expertise of coastal engineering to
counter these forces is in its infancy, as it has never in the history
of civilization, been attempted on the scale it must be implemented in
South Louisiana. Also, we are dealing with a situation that is
continuously subject to changing dynamics, such as more frequent and
more powerful hurricanes, the apparently increasing effects of global
warming, etc. Hence, we cannot be assured that, ten or more years down
the road, we will find that the estimated $14 billion price tag is an
adequate estimate.
8. What is the average amount of 8(g) money flowing to Louisiana
today? Has this number been steady? Building? Declining?
Section 8(g) settlement payments, which had increased to an annual
amount of $8.4, ended in 2001. Since then, the state has been receiving
only the 27% share of royalties (including rentals and bonuses) for the
3-mile wide Section 8(g) zone. This 8(g) royalty payment varies up and
down with oil and gas prices and production activity. Below are the
8(g) payments (excluding the discontinued settlement payments) to
Louisiana for 1993 through 2003. We do not have a figure for 2004 yet,
but estimate it to be about $38 million:
1993 -- $14.5 Million
1994 -- 20.6
1995 -- 15.0
1996 -- 23.1
1997 -- 26.6
1998 -- 20.2
1999 -- 15.3
2000 -- 22.7
2001 -- 40.6
2002 -- 11.9
2003 -- 29.6
2004 -- 38.0 (Estimated)
9. In your written testimony you recommend extension of Section 29 tax
credits to deep and ultra-deep natural gas production in the
Gulf of Mexico. Please explain the benefits that you believe
would come from such action.
Deep natural gas reserves (15,000-24,999 feet sub-surface) and
ultra-deep gas reserves (greater than 25,000 feet sub-surface) are the
most immediately available resources capable of providing a substantial
increase in domestic production of natural gas. Substantial deep gas
reserves are known to exist, and a deep gas well can have the
productive capacity many fold over that of coal seam wells and as much
as five to ten times that of conventional shallower wells. For example,
a typical coal seam gas well may produce 100,000 cubic feet (CF) per
day, a good conventional 15,000 foot well could produce 1 to 2 million
CF per day, and a deep gas well could produce in excess of 50 million
CF per day. The richest deep gas domain known in the U.S. underlies the
onshore area and adjacent offshore shallow water shelf of the Gulf of
Mexico. A 1998 study of the Potential Gas Committee put estimates of
the U.S. deep gas resource base at possibly 170 Trillion Cubic Feet.
The deep gas domain along the Gulf Coast underlies the existing surface
infrastructure of pipelines, gas processing plants, and other drilling
/ production support infrastructure to move this gas into the U.S. gas
supply immediately.
One problem is that, while productivity increases with depth in
elevated reservoir pressure wells, drilling costs rise exponentially
with well depth, and the drilling of one deep well takes a year or
more. For example, conventional wells less than 15,000 feet normally
cost between $100,000 and $2 million to drill. The deeper 15,000, plus
foot range wells average around $6 million, 20,000 foot wells about $16
million, and 25,000 to 30,000 foot wells are in the range of $25
million, plus. Hence, the capital at risk for a dry hole is
substantial, which makes the ability to fund such ventures difficult.
Additionally, deep wells require leading edge drilling technology. Due
to the limited amount of deep drilling done, few companies have the
experience, technological capabilities, and financial resources to
undertake this high return, but high risk activity. Of the few
companies that have the ability to drill in this domain, most are the
major oil companies, who have focused their financial resources on the
more lucrative oil reserves of the deep water Gulf and drilling in
foreign countries. Substantial new financial incentives could
significantly reduce the entry hurtle, increase the reward to risk
ratio, and reduce barriers to capital access, particularly for the
independent companies who now do most of the onshore drilling in this
country.
The effectiveness of using the Section 29 credit approach has
already been demonstrated. Section 29 of the Internal Revenue Service
(IRS) Code granted a tax credit for the production of natural gas from
unconventional resources (coal bed methane and tight sands gas). The
effect of the application to coal bed methane gas production was
astounding in those areas of the country that have significant deposits
of this kind, which is not along the Gulf Coast. Natural gas reserves
from coal bed methane rose from 6.3% of U.S. reserves at the end of
1993 to 9.9% at the end of 2003. Annual natural gas production from
coal bed methane rose from 4.2% of U.S. dry gas production in 1993 to
8.2% by the end of 2003.
______
Mr. Gibbons. Thank you, Mr. Secretary. While you may speak
funny, you speak very clearly for the people of Louisiana and
this country. We really appreciate what you have said. You are
a strong advocate for your position and it comes across very
clear. It is greatly appreciated, what you have said today.
We turn now to the President of Lafourche Parish, Charlotte
Randolph. Thank you. We enjoyed our time we spent last night
getting to know each other and look forward to your testimony.
STATEMENT OF CHARLOTTE RANDOLPH,
PRESIDENT, LAFOURCHE PARISH
Ms. Randolph. Good morning to you, Chairman Gibbons. It was
a delight last night.
Congressman Jindal, good morning, as well. Mr. O'Shea, on
behalf of Congressman Melancon, and to the other members here,
on behalf of the residents of Lafourche Parish, I would like to
formally welcome you today to Port Fourchon, the hub of
Louisiana's offshore oil and gas industry and a portal to much
of the nation's oil imports.
Port Fourchon is at the tail end of Lafourche Parish, yet,
we are eager to report that this tail is wagging the dog.
Lafourche had been supporting and encouraging the
exploration of oil and gas for over 60 years. The economy of
the parish has been and continues to be dependent on oil and
gas revenues. The majority of the top taxpayers in the parish
are involved in the petrochemical industry, both directly and
in service-related businesses. Oil royalties from onshore
operations comprise 5 to 10 percent of our revenues and provide
funding for capital improvement projects, roads, bridges and
drainage projects. Royalty revenues recently provided
collateral for a $15 million road improvement program in the
central and northern parts of Lafourche Parish.
These revenues allow us to maintain the infrastructure of
our communities and supplement basic operations, such as the
detention center, our court system and the district attorney's
office. The funds are also used to partner with the state and
Federal governments to stabilize and protect Louisiana Highway
1, the only link to Port Fourchon.
Forty-five years ago, Act 222 of the Louisiana legislature
created the Greater Lafourche Port Commission. The people of
the Tenth Ward of Lafourche Parish agreed to tax themselves to
create this port. The men who comprise the commission over the
years developed Lafourche Parish into the focal point of the
Gulf of Mexico's domestic deepwater oil and gas production,
changing the economy of Lafourche. Unskilled laborers were able
to secure good paying jobs and comfortably retire years later.
Fishing boats were converted into oil field service vessels,
creating companies that are now supporting the third generation
of family members and employing thousands.
As a testament to our prowess in industry, Lafourche
mariners were integral to the successful development of oil
fields in the North Sea. The experience in the industry allowed
many local residents to prosper when the North Sea was
flourishing.
The construction of the Louisiana Offshore Oil Port in 1979
is an important milestone in our parish's history. LOOP is a
consortium of private energy firms operating the offshore
terminal for offloading imported oil, conducting business from
a facility located in Galliano, and maintaining an east-west
LOCAP pipeline network. For many years, LOOP was the top
taxpayer in Lafourche Parish. They were removed from the top
spot by a marine service company. Pipeline companies are also
among the top ad valorem taxpayers.
Lafourche Parish starts nearly 90 miles to our north, in
the sugar cane fields along our namesake, Bayou Lafourche. The
economic engines providing for our citizens include
agricultural, seafood, shipbuilding and the oil and gas
industry. Thus, our motto, ``Feeding and fueling America.'' We
are that significant.
While oil and gas is often described as a cyclical
industry, nothing is more unpredictable than the agriculture
and fishing industries. Both succeed and fail at the hands of
Mother Nature. Our founding fathers were fishermen and farmers,
for we are rich in resources. Yes, we have come to rely on the
more stable oil and gas industry for our economic sustenance.
The shipbuilding industry has also flourished in
conjunction with the oil and gas industry. Large and small
shipyards dot Bayou Lafourche and the Intracoastal Waterways.
The energy industry does not only support our residents and
Lafourche companies. Workers from throughout the region, the
state and many other states travel here for shift work,
bringing home better paychecks than they could have earned
where they live and perhaps finding a good-paying job here when
none was available back home. They also leave behind precious
sales taxes, which pay for our schools and police departments.
The parking lots of Port Fourchon and the offices of the boat
companies contain many vehicles with out-of-state license
plates. The trucking companies, which traverse our highways,
bring products from many different parts of the United States,
providing jobs in the very important support industry
throughout this country.
Pipelines buried deep under sugar cane fields and cattle
pastures far north of here provide the property taxes for
recreation centers.
I would be remiss if I failed to mention the philanthropic
aspect of our partnership with oil and gas. Major companies
have provided a generator for an evacuation center, sponsorship
for BeachSweep here at Port Fourchon, the underwriting of
special projects at recreation centers and renovations to our
churches. No fund-raising effort is complete without generous
donations from oil-and-gas-related companies.
On a personal note, I'm an avid fisherman. It is the best
opportunity to escape close to home. Sometimes we go far enough
out into the Gulf where my cell phone doesn't work. And I have
to endure the admonishments of my husband for casting toward
the porpoises. There may be no fish there, but watching them
play is peaceful.
Also nearby are the trawlers, reminding us of our heritage
and harvesting the wonderful shrimp which abounds here.
Everywhere you look, there are oil and gas structures and
commercial marine vessels. We coexist happily. Thank you,
gentlemen.
[The prepared statement of Ms. Randolph follows:]
Statement of Charlotte Randolph, President,
Lafourche Parish, State of Louisiana
On behalf of the residents of Lafourche Parish, Louisiana, I would
like to formally welcome you today to Port Fourchon, the hub of
Louisiana's offshore oil and gas industry and a portal to much of the
nation's oil imports.
Port Fourchon is at the tail end of Lafourche Parish, yet we're
eager to report that this tail is wagging the dog.
Lafourche has been supporting and encouraging the exploration for
oil and gas for over 60 years. The economy of the parish has been and
continues to be dependent on oil and gas revenues. A majority of the
top taxpayers in the parish are involved in the petrochemical industry,
both directly and in service-related businesses. Oil royalties from
onshore operations comprise five to ten percent of our revenues and
provide funding for capital improvement projects--roads, bridges, and
drainage projects. Royalty revenues recently provided collateral for a
$15 million dollar road improvement program in the central and northern
parts of Lafourche.
These revenues allow us to maintain the infrastructure of our
communities and supplement basic operations such as the detention
center, our court system and the district attorney's office. The funds
are also used to partner with the state and federal governments to
stabilize and protect Louisiana Highway 1--the only link to Grand Isle
and Port Fourchon.
Forty-five years ago Act 222 of the Louisiana Legislature created
the Greater Lafourche Port Commission. The men who comprised the
commission over the years developed Port Fourchon into the focal point
of the Gulf of Mexico's domestic deepwater oil and gas production,
changing the economy of Lafourche. Unskilled laborers were able to
secure good paying jobs and comfortably retire years later. Fishing
boats were converted into oilfield service vessels, creating companies
that are now supporting the third generation of family members and
employing thousands.
As a testament to our prowess in the industry, Lafourche mariners
were integral to the successful development of oilfields in the North
Sea. The experience in the industry allowed many local residents to
prosper when the North Sea was flourishing.
The construction of the Louisiana Offshore Oil Port in 1979 is an
important milestone in our parish's history. LOOP is a consortium of
private energy firms operating the offshore terminal for offloading
imported oil, conducting business from a facility located in Galliano
and maintaining an east-west LOCAP pipeline network. For many years,
LOOP was the top taxpayer in Lafourche Parish. They were removed from
the top spot by a marine service company. Pipeline companies are also
among the top ad valorem taxpayers.
Lafourche Parish starts nearly 90 miles to our north, in the sugar
cane fields along our namesake Bayou Lafourche. The economic engines
providing for our citizens include agriculture, seafood, shipbuilding
and the oil and gas industry. Thus our motto ``Feeding and Fueling
America''.
While oil and gas is often described as a cyclical industry,
nothing is more unpredictable than the agriculture and fishing
industries Both succeed and fail at the hands of Mother Nature. Our
founding fathers were fishermen and farmers, for we are rich in
resources, yet we have come to rely on the more stable oil and gas
industry for our economic sustenance.
The shipbuilding industry has also flourished in conjunction with
the oil and gas industry. Large and small shipyards dot Bayou Lafourche
and the Intracoastal Waterway, building the vessels which work here and
throughout the world.
The energy industry does not only support our residents and
Lafourche companies. Workers from throughout the region, the state and
many other states travel here for shift work, bringing home better pay
checks than they could have earned where they live. And perhaps finding
a good-paying job here when none were available back home. They also
leave behind precious sales taxes which pay for our schools and police
department. The parking lots at Port Fourchon and at the offices of the
boat companies contain many vehicles with out-of-state license plates.
The trucking companies which traverse our highways bring products from
many different parts of the United States, providing jobs int the very
important support industry.
Pipelines buried deep under sugar cane fields and cattle pastures
far north of here in Lafourche provide the property taxes for
recreation centers.
I would be most remiss if I failed to mention the philanthropic
aspect of our partnership with oil and gas. Major companies have
provided a generator for an evacuation center, sponsorship for
BeachSweep here at Port Fourchon, the underwriting of special projects
at recreation centers, and renovations to our churches. No fundraising
effort is complete without generous donations from oil and gas-related
companies.
On a personal note, I am an avid fisher. It's the best opportunity
to escape close to home--sometimes we go far enough out into the Gulf
where my cell phone doesn't work! And I have to endure the
admonishments of my husband for casting toward the porpoises--there may
be no fish there, but watching them play is so peaceful. Also nearby
are the trawlers, harvesting the wonderful shrimp.
And everywhere you look, there are oil and gas structures and
commercial marine vessels. We coexist happily.
______
Mr. Gibbons. Thank you, Ms. Randolph. That was very
eloquently stated, and we certainly appreciate your perspective
on life in Louisiana, as well as the benefits the oil and gas
industry has provided for the people of Lafourche Parish.
We turn now to Mr. Falgout. Thank you for your hospitality
at the Port yesterday and today. We look forward to your
testimony. The floor is yours.
STATEMENT OF TED FALGOUT, EXECUTIVE DIRECTOR, GREATER LAFOURCHE
PORT COMMISSION
Mr. Falgout. Thank you, Mr. Chairman. It is a pleasure to
be here and have this opportunity to speak before you today. I
guess now my comments are going to pretty well pattern
Secretary Angelle and Parish President Randolph, so I guess we
are telling the truth because we are all saying it in a little
different way, a little different angle.
On behalf of our Commission--and we have several
commissioners here. I would like to recognize them. They are
elected individuals. In fact, we are the only elected Port
commission in this state. Let me recognize several of them
here. Our president, Donald Vejay--where are you?
Our Vice President, Jimmy Lafon, I saw him earlier. Harry
Cheramie, Treasurer--excuse me, Secretary. Larry Griffin,
Member; Chuckie Cheramie; Bo Martin, Commissioner.
Did I miss anybody? I can't see back there very well, but
these gentlemen are responsible for the policy and getting the
port moving the way it is, and certainly, they play a big part
in it and should be recognize for that.
On their behalf, I want to welcome you to the very
significant energy port, as has been pointed out, but we could
not imagine a more fitting place to have this hearing, one more
bountiful in resources than we have here in southern Lafourche
Parish. It is quite clear that this country's richest oil and
gas resources, by far, are located here in coastal Louisiana
and the infrastructure necessary to produce it is here, present
and operating, and we do it well with very little fanfare, as
you know.
So, this dominant industry co-exists with so many other
coastal users. You got to fly over the coast yesterday. Just
five minutes from here, you can drive down to the beach, and
you will see families crabbing and fishing, you will see
commercial shrimpers trawling in the Gulf offshore, you will
see recreational fishermen catching speckled trout on the
coast. You will see bird watchers. Then you will turn around
and see 100 oil and gas production platforms sitting out in the
Gulf of Mexico. And I think that's clear that it doesn't have
to be either/or, which is the position of so many states. They
can coexist, they work well here, and we are a prime example of
that happening.
The economic impact of the oil and gas industry in
Louisiana, totals nearly $100 billion annually. And nowhere is
it more prevalent than here in our community. Over the last
decade, this region has consistently had some of the lowest
unemployment rates in the country. It is not just the direct
oil and gas jobs, it is the shipyard workers, the grocery
stores, the hardware stores and so on. This industry certainly
drives our economy.
The impact of this Port on our community has been nothing
short of phenomenal. Since the passage of the Deepwater Royalty
Relief Act in 1995, offshore oil and gas activity in this Port
has virtually exploded. And I know with 9/11, that is not a
good term to use, but certainly, it has been phenomenal. Our
market share of the drilling activity in the Gulf of Mexico in
this last decade has increased from 12 percent to over 50
percent of the drilling rigs operating in the Gulf of Mexico
are being serviced by this facility. As a result of this, the
Port has tripled in size, causing an unprecedented boom in
construction.
This activity has also had a very favorable impact on the
tax base of our parish, as our parish president just indicated.
The sales tax district that this Port is in, is roughly about
one-third of the parish. It represents 58 percent of the taxes
paid in this parish, just to give you some idea of its
significance in sales tax. In ad valorem tax, eight of the top
ten ad valorem taxpayers are oil-and-gas-related companies and
have investments in the Port. The top taxpayer in this parish,
which is the Port's largest lessee, Edison Chouest, owns three
of the top ten taxpaying companies.
Another example of maybe a not so visible benefit is that
our potable water rates were subsidized, because almost a
quarter of this parish's water supply is being consumed by the
offshore activity in the Gulf of Mexico, and we call that
export water. And it brings a premium charge, which results in
a reduced household rate. So, actually, our households are
subsidized by the offshore oil and gas usage of our potable
water.
The historical boom/bust nature of this industry certainly
has had its impact. The bumper stickers that say, ``Last one
out of Morgan City, turn out the lights,'' hopefully are behind
us. As Mr. Readinger indicated, the deepwater Gulf of Mexico
remains an expanding frontier and the deep Shelf gas is
reviving fields that were thought depleted.
But as we convey to this country the benefits of oil and
gas development, this country must recognize the dominant role
that coastal Louisiana plays now and what is being demanded of
it in the foreseeable future.
An astounding 90 percent of the oil and 80 percent of the
natural gas from Federal waters is coming from offshore
Louisiana. It was mentioned, in addition to that, with LOOP
sitting 18 miles off of our coast handling 15 percent of the
nation's foreign oil connected to over 30 percent of the U.S.'s
refining capacity is just a huge--roughly 15 to 18 percent of
the nation's energy supply has some correlation to Port
Fourchon. If that is not significant, I don't know what is.
Much of the support infrastructure for nearly a third of
this country's oil supply is located in the most rapidly
deteriorating and vulnerable areas of coastal Louisiana. The
recent energy bill included a Coastal Impact Assistance
provision, which is a start, and we are very appreciative of
that effort. But, certainly, we think it fell short of direct
revenue sharing, which we think is necessary.
Until meaningful sharing of revenues directly with
offshore-producing states occurs, it is my belief that there
will not be enough incentive to attract other states into
offshore production.
Even if by some stretch of imagination, other states
beginning allowing exploration off their coasts, unless
something is done to protect coastal Louisiana and its critical
oil and gas infrastructure, this country is on a collision
course with an unprecedented energy shortage.
I thank you for this opportunity.
[The prepared statement of Mr. Falgout follows:]
Statement of Ted M. Falgout, Executive Director,
Greater Lafourche Port Commission
Mr. Chairman and members of the Committee, my name is Ted Falgout
and I have been Port Director of Port Fourchon for 27 years. On behalf
of our Commission I want to welcome you here, to this extremely
significant energy port. I could not imagine a site more fitting to
hold this hearing and one more bountiful in resources.
This country's richest oil and gas resources by far, are located
offshore from Louisiana, and therefore the majority of support
infrastructure runs through or is dependent upon coastal Louisiana.
This dominant industry co-exists with many other coastal users.
Just 5 minutes from here you can drive down to the beach and see dozens
of families crabbing and swimming, others bird watching, sport
fishermen catching fish, commercial shrimp boats harvesting nature's
bounty, and hundreds of oil and gas production platforms. It doesn't
have to be one or the other which is the position of many states.
The economic impact of the oil and gas industry in Louisiana totals
nearly 100 billion and nowhere is it more prevalent than in our
community. Over the last decade, our region has consistently had some
of the lowest unemployment rates in the country. It's not just the
direct oil and gas jobs; it's the shipyard workers, hardware, grocery
stores and so on. This industry drives our entire economy.
The impact of Port Fourchon on our community has been nothing short
of phenomenal. Since the Passage of the Deepwater Royalty Relief Act in
1995, activity of Port Fourchon has virtually exploded. The Port has
tripled in size causing an unprecedented boom in construction; our
market share of drilling activity has increased from 12% to over 50%
since 1995.
This activity has also had very favorable impacts on the tax base
of our parish. The sales tax district the Port is in, is only about 1/
4% of the Parish in size, but generates 58% of the sales tax.
Eight of the top 10 taxpayers are oil and gas related companies
that have investments in the Port. The top taxpayer, the Port's largest
lessee, Edison Chouest, owns 3 of the top 10 taxpayer companies.
Another example of a not so visible benefit is that our parish
enjoys some of the lowest potable water rates in the country, because
almost a quarter of our supply is shipped offshore for use. Export
water as it is called, brings a premium charge and therefore household
rates are subsidized.
The historical boom-bust nature of this industry has had its
impacts. The bumper stickers saying ``The Last One Out of Morgan City,
turn out the lights'' are hopefully behind us. The deepwater Gulf of
Mexico remains an expanding frontier and deep shelf gas is reviving
fields that were thought depleted.
As we convey to the country the benefits of oil and gas
development, this country must recognize the dominant role that coastal
Louisiana plays now and what is being demanded of it into the
foreseeable future.
An astounding 87% of the oil and 80% of the natural gas from
federal offshore waters is coming from offshore Louisiana. In addition,
LOOP, this nation's only offshore oil port which handles about 15% of
this country's foreign oil and is connected to over 30% of the U.S.'s
total refining capacity, sits just 18 miles offshore to Fourchon.
Much of the support infrastructure for nearly one third of this
country's oil and gas supply is located in the most rapidly
deteriorating and vulnerable areas of the Louisiana coast.
The recent Energy Bill included a Coastal Impact Assistance
provision which is a start, but fell short of direct Offshore Revenue
Sharing with states. Until meaningful sharing of revenues directly with
offshore producing states occurs, it is my belief that there will not
be enough incentive to attract other states into offshore production.
Even if by some stretch of the imagination, other states begin
allowing exploration off their coast, unless something is done to
protect coastal Louisiana and its critical oil and gas infrastructure,
this country is on a collision course with an unprecedented energy
shortage.
______
Mr. Gibbons. Mr. Falgout, thank you very much for your
testimony. I can understand much of what you just related to us
and realize that Congress itself has fallen short in
understanding the real implication of the revenue sharing part
of that.
In terms of sharing, I just wish that Louisiana would be
willing to share its water with Nevada. We could have a
wonderful partnership, and we would be able to subsidize a lot,
I'm sure.
Mr. Falgout. We can work up an arrangement. Maybe a gallon
of water for a pound of rock out of your mines.
Mr. Gibbons. We have a lot of rock. We could do just that.
Thank you very much.
We turn now to the Coalition to Restore Coastal Louisiana,
Mr. Mark Davis. Mr. Davis, welcome. We look forward to your
testimony. The floor is yours.
STATEMENT OF MARK DAVIS, EXECUTIVE DIRECTOR,
COALITION TO RESTORE COASTAL LOUISIANA.
Mr. Davis. Thank you, Mr. Chairman. Mr. Jindal. It is a
pleasure to be here. Committee members, staff.
The Coalition to Restore Coastal Louisiana, like so much of
the things you have encountered here in Louisiana, that is, an
unlikely harmony of interests that have come together in ways
that sometimes surprise those who don't know our communities or
don't know our issues so well.
The Coalition was actually put together in the mid 1990s
around the issue of the coastal collapse, the land loss. It was
at a time when land loss rates were approaching 40 square miles
a year. At that time, outside of parish government, there was
not a state program, and there was not a Federal agency that
even had the jurisdiction, much less the mandate, to act.
So, we essentially were living with a bucket that the
bottom had fallen from. The Coalition was put together by an
unlikely assemblage of local landowners, government, academe,
environmentalists, faith-based communities, civic
organizations, just about anyone with a stake in there still
being a south Louisiana and the resources that we produce to be
around 50 years hence to be argued over, which is one of our
principal sports here, which is arguing with one another in a
very, very spirited but congenial way.
I think in the period of time that we have been in
operation, we have seen an issue move from denial to the point
where, with the energy bill, the water bill, and the history of
the Breaux Act, where we have begun to make a commitment. And I
think that that is a commitment that we need to understand is
not just about Louisiana, and it is not just about wetlands. It
is really about a national heritage, national security, from a
transportation, energy, cultural and broader economic
standpoint, as well as the homes and lives of literally
hundreds of thousands of people.
Louisiana is a place of great beauty, contrast and
unexpected harmonies. I think in order to understand the
opportunities, the benefits and the constraints that this
nation faces in dealing with OCS policy, it is essential to
learn well and apply the lessons learned from here in
Louisiana. Because the benefits, which I think you have already
heard quite a bit about this morning, from OCS development are
largely national. And of course, Louisiana is part of that
nationally. We share in that.
But a number of the burdens--and, undoubtedly, if you have
read any of the Mineral Management Statements, Environmental
Impact Statements, if you have read any of the materials
developed in the Coastal Restoration Program, it is very clear
that there are burdensome impacts.
Secretary Angelle mentioned many of these began in an era
when we had different values, different technologies and a
different knowledge base. We still live with those impacts
because some of them are not limited to the footprint of the
original project, they become part of the landscape, and they
change with us.
Too frequently, the burdens have not been shared
nationally, but have been left to either the state of
Louisiana, local communities or future generations to deal
with; or, all too frequently, those burdens have been
unrecognized or under-recognized by our nation, and
accordingly, under-addressed.
Again, I think as you look out on the landscape and you
consider the changes that have been experienced in the
lifetimes of the people here, not talking about geologic time,
you're watching essentially a million acres that has
disappeared since 1930. That is a million acres that was
someone's tax base, someone's property, it was someone's storm
buffer and it was the nursery grounds for the shrimp that you
see our trawlers and our crab boats and our oyster fisherman,
it is their--it is the underpinning of their economy and our
way of life.
As I noted, the existence of these impacts is well
documented; but until very recently, and particularly in the
energy bill that just passed, there are some provisions in the
highway bill that just passed and in the Water Resources
Development Act, which is pending, which began to deal with
these, I think, on an honest basis. It has already been stated
by all the other speakers that these are beginning steps, but
they are being recognized, again, in the context not only of a
transportation issue, a wetlands issue, or whatever issue, but
as part of a broader issue of how we survive here and how we
continue to be a vibrant part of this nation's energy supply
regarding part of its transportation, and, in my judgment, one
of its greatest cultural treasures.
I think this nation truly needs to understand the
relationship between oil and gas activity and our coast, and
both from the perspective of dealing with the impacts and to
ensure the security of future supply. I cannot agree more with
Mr. Falgout that, unattended, the crisis in our coast poses an
unimaginable threat to our nation's energy supply.
The fact of the matter is, while there are natural
components to this, this is largely an engineered collapse.
From water resource policy, a number of other decisions that
were made frequently at the national level, for good reasons at
the time, but they have left us with a legacy of
unsustainability.
I think we need to recognize those things and learn from
them, both so we can have states like Louisiana continue to
play an active part in the energy role, because there are
limits to what this state and its communities can continue to
provide to this nation without greater assistance. But, also,
from the standpoint of encouraging other areas of the country
to consider what role they want to play in this.
Unfortunately, too frequently, when the question of
expanding OCS activity comes up, neighboring states and the
people who influence decisions there go no further than saying,
if Louisiana is what we would become, if the legacy of
unattended-to burdens is what we will inherit, we are not ready
to take that bargain.
And I believe that, again, it is not only a matter of
fairness, it is not only a matter of stewardship, it is a
matter of survival for this country's independence from an
energy standpoint and a matter of what is smart for our
futures.
So, we really do commend the Committee for coming here to
learn. This is not about blame, it is a matter of learning and
taking responsibility and it's about sharing that adequately at
all levels. We are delighted to be a resource to you in any way
we can.
And again, I think as much as you have learned in this
trip, it probably will take several more, and I'm sure that you
have any number of people who would be delighted to host you
and anyone else you could bring, because it is a place that is
almost unimaginable, as to what America would be or what it can
be, without the things--energy, culture, food, security--that
Louisiana and this topography of Louisiana has supplied. It is
truly America's wetlands.
Thank you.
[The prepared statement of Mr. Davis follows:]
Statement of Mark Davis, Executive Director,
Coalition To Restore Coastal Louisiana
My name is Mark Davis and I am the executive director of the
Coalition to Restore Coastal Louisiana. The Coalition is a non-profit,
non-partisan environmental education and advocacy organization formed
in the mid 1980s by conservationists, local governments, business,
environmentalists, civic and religious organizations who shared a
concern about the fate of the greatest coastal wetland and estuarine
complex in the 48 contiguous United States and a commitment to the
responsible stewardship of those natural treasures.
On behalf of the Coalition to Restore Coastal Louisiana I would
like to thank the subcommittee for inviting us to be a part of this
field hearing on Outer Continental Shelf oil and gas issues. Clearly,
energy issues are getting heightened attention at this time. Decisions
about how we define and meet our energy needs will affect the people,
environment and economy of this country for years to come. And if past
is prelude, they will affect the Gulf of Mexico region--particularly
coastal Louisiana and coastal Texas--more than anyplace else. To the
extent our experience can help inform those decisions we are pleased to
offer it to you.
Let me begin by stating that we appreciate the attention the
committee and the Congress have given to the needs of coastal Louisiana
in the recently enacted Energy Bill. The four year provision that
shares $1 billion with states that host OCS activity is an important
recognition that those state, Louisiana in particular, incur special
burdens as a result of those off shore activities that must be
acknowledged and addressed. We also recognize that we have a solemn
responsibility to make the best use of those funds to address the
problems facing our coast. This is particularly true because we believe
that the energy policies of this nation need to be rooted in both
meeting the nation's energy production and in recognizing and dealing
with the full range of costs and impacts that energy production
entails.
Simply put, it is our experience that the development of offshore
mineral resources has dramatic impacts--environmental, societal, and
economic--that need to be considered before our nation decides if and
how to expand OCS activity. Clearly, those impacts will be a mixed
bag--some good, some not. It is also clear that in many parts of this
country concerns about the negative impacts are a significant
constraint on the willingness of states and communities to support the
expansion of OCS activity. A look at coastal Louisiana will tell anyone
that those concerns are not unfounded. Indeed, when one considers the
landside impacts associated with supporting the exploration, production
and transport of OCS resources (impacts that are in the main under
mitigated) the inescapable conclusion one reaches is that if this is
how our nation treats the friends of OCS activity, is it any wonder
that it doesn't have more? I will go farther and say that the issue is
not just what the limits on OCS expansion are, but what are the limits
of those states that currently support OCS work to accept and support
more activity?
That said, it is clear that our nation needs to develop new energy
resources. Our ability to keep pace with our energy demands will be
driven by the desire to benefit from continued growth. It will also be
challenged by a combination of scarcity, technology, costs and societal
constraints. This is really nothing new but that doesn't make matters
any easier.
In thinking about what useful role we could play for the
subcommittee I recalled that several years ago we were asked to provide
advice to the subcommittee on some of the things that constrain OCS
development. In reviewing our earlier testimony it seemed that most of
what we offered then is still valid today and that it might be useful
to revisit that discussion.
Environmental Constraints
We know that there has been much discussion recently about whether
oil and gas activity puts a significant stress on the environment and
about whether the current state of the art is such that new activity--
particularly OCS activity can be done without significant impacts. From
the perspective of coastal Louisiana, we believe the record is clear
that the environmental and safety record of the industry has improved
greatly since the early days of offshore development. It is also clear
that oil and gas activity has had significant negative environmental
impacts and that future activity will likely have adverse effects. We
make this statement not to cast blame but make the simple--we believe
indisputable--point that environmental damage is not a question of
``if'' but of ``where, when, and how much''.
Coastal Louisiana bears witness to those facts. Our coast is laced
with evidence of oil and gas activity. Wells, production facilities,
supply bases, access canals, pipeline canals, fabrication yards, waste
pits, refineries, and other footprints are regular features of the
landscape. While there is debate about how much of Louisiana's crisis-
level land loss has been due to oil and gas activity, there is no
debate over whether it has been a material contributor. Most recently,
a study done here at the University of New Orleans with the assistance
of the U.S. Army Corps of Engineers and the U.S. Geological Survey
concluded that oil and gas activity was responsible for 36% of the land
loss in Mississippi River deltaic plain between 1932 and 1990. That is
249,152 acres of land that is now gone.
I do not mean to suggest that all of that land loss is due to OCS
activity or that such dramatic impacts are necessarily indicative of
what other coastal areas should expect. But it is clear that OCS does
contribute, directly and indirectly, to the environmental degradation
of this area and that no one should assume that it will not continue in
the future or that others would be spared their own version of our
experience if they do not plan for those impacts up front.
To confirm this, one need look no further than the Environmental
Impact Statements prepared by the Minerals Management Service for lease
sales in the Gulf of Mexico. For example, according to the EIS for
Lease Sale 181 in the Eastern Planning Area, up to seven new pipelines
were projected to transport oil and gas to shore. Even with today's
best practices, more than 6,000 acres of wetlands in Southeast
Louisiana were expected to be impacted. That is not insignificant. That
lease sale was also projected to create the need for three new
municipal landfills in coastal areas to accommodate the waste and
debris generated by the offshore industry and at least one new waste
facility for ``nonhazardous oil-field waste. I would like to point out
that in the latter case such waste is deemed ``nonhazardous'' by
Congressional fiat rather than by its actual nature, a fact that has
not made such facilities popular additions to local landscapes nor has
it boosted confidence in the Federal Government's ability to fairly
balance benefits and burdens when it comes to energy policy.
The list of other environmental concerns goes on to include brine
and produced water discharges, contamination and the introduction of
exotic species from ballast water, flaring and airborne releases, and
the destruction of coastal environments by the building or expansion of
the transportation and support facilities needed to conduct offshore
work. And, of course there is the issue of oil spills. It is important
to up front and honest about spills. They will happen. Whether due to
natural catastrophe, mechanical failure, human error, or other causes
spills will occur and our ability to clean them up and remediate their
harm is limited at best.
Societal Constraints
In coastal areas, there is a close relationship between the
environment and our local cultures and quality of life. Coastal areas
have traditionally supported and been defined by local activities such
as commercial and sport fishing, hunting and trapping, and beach
oriented tourism. In recent years, however, there has been an explosive
growth in coastal areas as retirees, ``second-home vacationers'',
casinos and mass-market tourism have taken hold. A desire for a better
quality of life and a desire for a ``sun and sea'' lifestyle often spur
these developments. These trends have redefined the economies and
cultures of many coastal areas and have taxed the ability of local
governments, sanitary and transportation infrastructure, and the
natural environment to support this growth. All of this presents a
problem for OCS development.
First, as I just mentioned, many coastal areas are expanding so
fast that their ability to accommodate the offshore industry may be
problematic. Waste handling facilities are already being stretched,
transportation arteries are beyond their capacity and areas that were
once industrial are now being shifted to other uses. The Gulf coasts of
Alabama and Mississippi are prime examples of these trends. There are
limits to what these areas can support and offshore development may be
constrained by those limits.
Second, and perhaps more importantly, community values and economic
development plans for many coastal areas are just not compatible with
oil and gas activity. Whether these positions are based on hard
science, perceptions, or just rooted in self-serving NIMBYism (not in
my backyard) is frankly beside the point. When people feel that their
property values, their quality of life, and the environment are about
to be diminished it matters, as I am sure all of the Subcommittee
members are well aware. There are reasons most of our OCS areas are
presently off limits to energy development and those reasons are as
much a part of the marketplace of values and costs as are pump prices
and our monthly utility bills. I won't pretend to substitute my
judgment or values for anyone else's but I will tell you that the
belief that OCS development is incompatible with environmental
stewardship and the best interests of communities is widespread and it
runs deep. That is, and will remain, a constraint. And I would caution
that though those objections often find their voice through such
Federal laws as the National Environmental Policy Act, Coastal Zone
Management Act, the Clean Water Act and the Endangered Species Act it
would be a mistake to believe that those laws are the source of
societal constraint.
Economic Constraints
The final constraint I will touch on is economic. When OCS energy
development is discussed in this country, the proponents usually point
to our economy's need for dependable, affordable oil and gas. The
economic issue that often goes undiscussed, however, is the cost that
states and local governments incur in supporting that industry. Costs
that often far exceed any economic benefits produced locally by that
activity. I know I don't need to belabor that point for the members of
Louisiana's delegation who have recognized that inequity and worked
tirelessly to address it as evidenced by the coastal impact assistance
provision in the Energy Bill. For the benefit of the other members of
the Subcommittee, however, let me put it bluntly--though OCS
development may be good economically for the country, it can be a bad
deal for the states and communities that serve as its logistical
support base. Again, the MMS Environmental Impact Statements can be
instructive.
According to the most recent EIS, virtually all waste generated off
shore must be disposed of in municipal landfills on shore. Managing
those sites and creating new waste sites is left to the locals to deal
with. When crew boats erode waterways the problems are left to the
locals to live with or fix. When truck traffic from oil-field service
ports cause roadways to clog and crumble, it is the state and local
governments' problem to deal with. When transient oil-field workers
occasionally run afoul of the law it is local jails that pick up the
tab. And when a pipeline or spill damages or destroys a wetland it is
the local fishery and tax-base that take the hit. In return for this,
the state and local communities, until the recent Energy Bill, did not
get a dime from the lease or royalty revenues that flow into the
Federal treasury.
Until those economic costs and inequities are understood and
addressed in a meaningful and ongoing basis they will to continue to
constrain the further development of OCS areas.
Conclusion
We are pleased to have had this opportunity to meet with the
subcommittee. We hope your visit here will deepen your appreciation of
the extent to which Louisiana and places like Port Fourchon are vital
to our nation's well being. We hope you will also understand and
appreciate the vital role that wetlands, waters and barrier shorelines
play in protecting our nation's energy supply and its natural heritage.
In many ways the revenue sharing provisions of the Energy Bill and the
proposed multi-billion dollar coastal restoration effort that is
currently pending in Congress are efforts to deal with the cost of
waiting too long to see the connections between the activities we
engage in as nation (and the manner in which we do them) and their
consequences. Louisiana has many lessons to teach about how to find,
extract and transport energy resources in ways that can only be called
inspiring. Louisiana also teaches many lessons about the direct and
indirect costs and impacts that all too often have seen us subsidizing
our nation's prosperity at the expense of the viability of our natural
resources and communities. Learning and applying these lessons should
be at the heart of OCS policy.
______
Mr. Gibbons. Mr. Davis, thank you very much for your--not
only your passion and commitment, but your dedication to this
project of restoring Louisiana's coastline. Certainly, I have
learned a great deal from not only your remarks, but from the
visual tour we had over the last couple of days of what is
happening here. And we will be much better prepared to deal
with this issue, and because of your work, the Coalition's
work, that you have done as well as the testimony.
Let me state that we have just a little over, or just about
an hour of time left for this hearing. And we do have a second
panel that we want to get to. We have allowed for some
testimonies to run a little over the five-minute mark, and that
does cut into our questions.
But as I listened from each and every one of your
testimonies, you answered many of the questions I would have
asked. But you also painted a picture. You painted a picture
that is so vivid and so clear that not many questions are
needed to be asked to understand the problems and understand
the benefits and the values that are going on right here to our
country.
So I'm not going to ask any questions, but I do want to
say, and this will hold for the other panel as well when we
bring them up, that the Committee may have some questions that
we would like to submit, and we will ask that you respond to
those and return them to the Committee as we go forward,
probably within ten days.
And as for the rest of the audience, if there are
statements that the rest of the audience wants to add for the
congressional record, comments that you think are important
that were not made in this hearing, we certainly will accept
those comments for the record, and they should be submitted to
the Committee within ten days. We will have an address here if
you want to check at the end of the hearing on where to send
those comments to, as well.
I'm going to ask Mr. Jindal if he has any questions of this
panel briefly before we thank them.
Mr. Jindal. Thank you, Mr. Chairman. I will be very brief,
given the time considerations. I do want to ask three very
targeted questions to elaborate on some of the points that were
made.
I will start with Ted. I had the privilege of coming here a
few weeks ago, and one of the things I would like you to
elaborate on is, our frustration that, despite all the evidence
we have heard today about the critical role that Fourchon plays
in our nation's energy needs, that we have not made the top
list of 66 ports that the Department of Homeland Security has
listed as the nation's most critical ports.
I have told you since then, I have talked to the Secretary
in an open hearing, and he is committed to reevaluating that
decision. If you could briefly tell us, why is it so important
for that Port to make that list and how you might be able to
use some of those additional resources if they were made
available to you in terms of homeland security.
Mr. Falgout. Thank you, Congressman. Most certainly, we
feel that there is some gap somewhere that would--the ability
to measure ports and the significance to this nation's
security, would let a significant entry port, such as Port
Fourchon, not fall on the radar screen. When we saw that, we,
again, appreciate your help in bringing that to light of the
persons in charge in D.C. But, certainly, it was the way they
chose to measure ports that did not fit.
And again, it is all part of this country not fully
understanding what it takes to turn your lights on and the role
that an energy port like this plays. And they just had no way
of measuring the significance. They use tonnage from the Corps
of Engineer's Waterborne Commerce Statistics, which does not
capture this type of port's activity as one of the major
parameters for choosing ports. And then population. Certainly,
we do not have a large population here. Very few people live in
Port Fourchon. But when you measure 18 percent of the nation's
energy supply and what that might cause to this country if, in
fact, we lose some portion of our capability to keep this
economic engine running, it is mind-boggling. And certainly,
we, through your help, we hope to correct this.
In earlier port security grants, we did qualify, we were
successful, we have gotten over $1.3 million to do security
camera systems and things that will start to make this port
more secure. But, certainly, to be left out of this last round
was somewhat disappointing, and through your help, we will not
let that happen again.
Mr. Jindal. Thank you. My second question that I direct,
again, both to Ted and Scott, I was struck by the fact that,
Ted, you talked about the Deepwater Royalty Relief Act in 1995;
Scott, you talked about Federal tax incentives as well to
encourage drilling.
The reason I was struck by this is Chairman Pombo asked me
to actually go to the Floor and help to explain and defend the
provisions in that energy bill that's been passed that allows
tax relief from deepwater production. I was struck by some of
the comments in opposition about it because, to me, it seems
just commonsensical that it will give companies a reasonable
incentive that will actually generate not only more production,
but more revenue for the Federal government. It's a win/win. It
generates more energy for our country, more revenue to the
Federal government.
And I would just like to go through, briefly, a comment you
had that struck me, that both of you talked about: The need for
additional incentives.
Can you both briefly comment on that need?
Mr. Falgout. While I have the microphone in front of me,
I'll just be brief, in that, again, I think it is just part of
this misunderstanding of what it takes to bring energy to the
gas pump.
And another thing is, as we explained in the tour
yesterday, even with $66 oil prices, we have companies sending
drilling rigs from the U.S. Gulf to Saudi Arabia for long-term
contracts. If we don't make the Gulf as attractive as we can be
on American waters, then those rigs, there is only a finite
amount of rigs, and they will be drilling in other places in
this world, and it will increase our dependency on foreign oil.
So those are some of the things we need to keep in mind
when we start to weigh these kinds of incentives. Yeah, nobody
says, ``I don't want to give it to big oil, they're making gobs
of money, why do we want to give them an incentive?'' Well,
they can make gobs of money in Saudi Arabia as well.
Mr. Angelle. Thank you. I certainly would agree with that.
I think we now, certainly, in Louisiana operate in my
department under a fundamental principal that companies have a
choice where they wish to spend their exploration dollars. This
is not my grandfather's country where Exxon and Texaco were
drilling and developing resources just in America. Companies
cannot only be here, but they can be anywhere, and unless we
are as productive as a competitor, then we see some of those
resources, obviously, going to other areas.
There are a couple of examples. Section 29 of the IRS code
that I mentioned, which gave me tax credit for production of
unconventional natural gas from unconventional resources, had a
dramatic impact steering investment dollars into those parts of
the country where those resources were found--and a dramatic
increase in the natural gas reserves from those particular
types of nonconventional resources.
So I think everything has to be on the table when you try
to develop a broad-based energy policy, and we need to
fundamentally understand that companies have choices. And I
have always said that we're not competing in my little world,
we are competing with Texas and Oklahoma where people say, how
can we--because in this particular state, working with Senator
Dupre and Representative Petrie and a host of other folks, we
were able to do an incentive program this past session for deep
stuff.
And while oil may be trading at $66 or $65 today in
Louisiana, it is also trading at $65 in Texas and Oklahoma and
Wyoming. So, we, I think, in Louisiana, understand that
companies have choices, and I think that America needs to
understand that companies have choices.
Mr. Jindal. This energy bill that we just passed has some
incentives also not only for deepwater, but for shallow water.
Some of these wells have not been active in recent years. So,
thank you both for your testimony.
My last question I will ask to Mark: I was struck in your
comments about how other states that currently are not allowing
drilling may be looking at Louisiana's example and saying,
Let's see how they're being treated. I know that when I offered
the amendment in the House to allow Louisiana to participate in
some of the Federal offshore revenues to help us restore our
coast, some of the most cynical opposition came from people
that said, ``Well, we're worried if we start treating Louisiana
better, that might induce the other states to allow drilling.''
My response was, why would we want--first of all, it's a
question of fairness and equity to Louisiana's coast; but,
second, why would we want to prevent other states from making
their only reasonable decisions?
I would like to expand that I was very struck by your
comments that as we have this debate about drilling off the
coast of other states, how they may be looking at Louisiana's
coast and learning examples of how we are being treated
currently by the Federal government.
Mr. Davis. Well, I think it's been a very enlightening
experience, since I don't live in those other states, so it's
very difficult for me to understand everything that drives
them. But it is very clear that when one considers the legacy
sites that we have, in particular, and when one reads the
environmental impact statements that talk about how many new
landfills you are going to need, what the impact on
transportation infrastructure is going to be, all of these
things, and there is frequently not a clear vehicle being
presented to the state and local governments of, ``Well, who is
going to pay for this,'' or, ``Is this going to be out-of-state
people coming through your state.'' And whenever the statements
been made that, ``We have figured out how to do this without
impacts,'' I have actually had calls from congressional staff
members from other states saying, ``Is that true?'' And the
answer is, ``Of course it is not true that you can do these
things without impacts.''
So, the real question is how you manage it and what
benefits you are seeking to get. Needless to say, if you are
worried only about your state being induced to open itself up
to irresponsible activity, you have a more fundamental problem
than an incentive. You have essentially an accountability and
governance issue. I can't speak to what is happening in those
states.
But, on the other side, I would point out that I have been
invited to at least three forums in other states where coastal
restoration activities of one sort or other--and, again,
restoration is normally dealing with the impacts of decisions
that were made over generations.
Again, often, this was noted by the secretary, before you
had environmental laws, before you had a number of the things
that, you know, affect how we do business today. And sometimes,
it is a mitigation program for, you know, previous activities
and previous generation's decisions.
But Louisiana is now being looked to as a model as to how
do you come to terms with these things and how do you put
environment and how do you put culture and how do you put
economics on the table and try to come up with an approach
which doesn't begin from the supposition that it is either/
other. That you must tradeoff your environmental heritage for
economic prosperity, or you must sacrifice in a viable economy
if you want to have a clean environment. Those are false
choices, in our judgment. But I think, unless you create the
vehicles for a better outcome, unfortunately, those are the
directions that people go.
Mr. Jindal. Thank you, Mark. And I thank each of the
panelists here for your testimony. I think you are making a
very important point for those of us who are interested in
seeing reasonable production throughout our country. I think
how we respect and treat Louisiana's coast can serve as a
useful map moving forward. I want to thank the panelists for
sharing so much valuable information with us.
Mr. Gibbons. Before the panel leaves, I also want to thank
you. I didn't get a chance to ask a question, but I do want to
ask one question that I don't want an answer from each of you
today, but I will submit a follow-up question. And that is:
What should be the dollar amount; how should the percentage be
allocated; what Federal requirements, Federal process should be
established in order to achieve an equal and fair revenue
sharing amount?
Think about that question over the next few days, few
hours; and if you will, submit it back to us, what your
estimate should be, then that would be greatly appreciated.
We have held you here now for the requisite literally hour
and a half, and we have had to cut into the other panel's time;
but I did want to thank you all for coming out today. It is a
Saturday, I know you are busy, you are making the world go
around, but we wanted to thank you.
The first panel is excused, and we will call up our second
panel today.
Mr. Gibbons. We want to welcome our second panel to our
hearing today. We apologize for taking a little longer than we
should have on the first panel, but everybody's testimony is
important, and we are here to listen.
Our second panel consists of Mr. Greg Guidry, Exploration
Manager for Shell Exploration and Production Company; Mr. Hank
Danos, Chief Executive Officer for Danos & Curole Marine
Contractors; Mr. Clifford Smith, President and CEO of T. Baker
Smith, Inc.; Mr. Dan Borne, Louisiana Chemical Association; and
Mr. Allen Walker, Gulf Productions.
We will begin with Mr. Guidry. Welcome. The floor is yours.
We look forward to your testimony.
STATEMENT OF GREG GUIDRY, EXPLORATION MANAGER, SHELL
EXPLORATION AND PRODUCTION COMPANY
Mr. Guidry. Thank you. Thank you, Chairman Gibbons,
Congressman Jindal and Chief of Staff O'Shea.
My name is Greg Guidry, and I am currently serving as asset
manager in the Gulf of Mexico for Shell. I just recently moved
from exploration manager. So that the noted--I'm covering both
ends of the life cycle there in terms of the EP life cycle.
I was born and raised in southern Louisiana. My family has
been here for several generations. I want to thank you for
inviting me to testify today; and it is certainly a topic that
is important to me personally, not so much--you know, part of
it, I work for Shell, but also, for my family and the
generations that I have, and the community.
Shell's presence in Louisiana goes back to 1916. We have
over 4,000 full-time employees and 2,700 pensioners, actually,
in the state. Shell operates two huge refineries and numerous
other facilities in this state.
The Gulf of Mexico is a very significant petroleum province
for Shell, and it has been for years. We currently operate
gross production of 450,000 barrels a day and 1.4 billion cubic
feet of gas in the Gulf of Mexico. On the order of a pretty
good size OPEC country, actually.
Shell pioneered exploration in the deepwaters of the Gulf
of Mexico. We continue to explore frontiers in the Gulf of
Mexico. These plays are very difficult to explore for. We have
been and we continue to use technology in order to crack these
plays. Just to give you an example of the timeframe, the
production that we enjoy today in the deepwater of the Gulf of
Mexico is a result of exploration activity that happened 25
years ago. Some of the initial discoveries made by Shell in the
deepwater.
Shell has also committed itself to enhancing the
environment of Louisiana and the Gulf Coast. We provided seed
money for the America's Wetland Campaign. We sponsor the Shell
Coastal Environmental Modeling Laboratory at LSU. And through
the Shell Marine Habitat Program, we are partnering with the
National Fish and Wildlife Foundation to help nearly 100
organizations conserve and restore marine habitat throughout
the Gulf Coast region.
Shell believes that Louisiana and the U.S. benefit greatly
from offshore oil and gas exploration and production. At $6
billion annually, oil and gas production from the OCS and
Federal lands is second only to the IRS in terms of Federal
revenue. According to the MMS, offshore and gas production
directly provides jobs for more than 40,000.
While the OCS is providing sound benefits for the nation's
economy and for the domestic supply, we face a number of real
challenges going forward. Decline rates in the Gulf of Mexico;
access to new OCS resources; and access to human resources and
technology are all great challenges.
Our decline rates in the deepwater Gulf are steep. Decline
rates on a given field can range on the order of 30 percent per
year. Overall decline rate, just in gas production in the
deepwater from 2003 to 2004, was on the order of 10 percent. To
offset these rapid declines, industry must develop technologies
and efficiencies to maximize recovery and production, but we
also must have access to additional resources.
In order to meet our long-term challenges, Shell believes
that the energy industry must do a better job of helping the
American public understand our industry and the contribution we
make to the economy and society. A theme that resonated in
Panel 1, for sure.
We believe that in order to change the political will, we
need to better educate the public about the oil and gas
industry and energy's impact on our lives. We also need access
to more resources and hope that there will be new opportunities
in the OCS emerging from the next MMS five-year plan.
We encourage Congress to take an active role in advocating
greater access to offshore resources during the five-year plan
process, which should begin very shortly. People are our
greatest resource that we have in the oil and gas industry.
Many of the professions in our industry require highly
technical backgrounds in science and engineering, much like the
space program.
The number of U.S. students seeking degrees in these
disciplines have fallen drastically over the last couple of
decades. Geoscience, for example. And fewer are pursuing
degrees in engineering and science and are applying them, or
choosing to apply them, to our industry. That, coupled with an
aging workforce and impending retirements, are resulting in
what we now refer to in industry as the ``great crew change.''
We encourage the Committee to continue to be advocates for
addressing workforce development, as it did through the
language in the energy bill. In the meantime, Shell and
industry as a whole are working to utilize our resources to
attract new talent to this industry. We want our efforts to
benefit the community as well.
As an example, we are making a number of things happen at
our Robert Training and Conference Center in Robert, Louisiana,
which is focused on operations training. And we are actually
building programs in partnership with Louisiana State
University and with some of the other mechanisms in the
community to leverage that, not just for training folks that
Shell needs, but also training folks that the industry needs.
While states and local communities benefit from OCS oil and
gas production, there are impacts on oil and gas development
that communities must address. Shell believes that,
historically, revenues from OCS oil and gas production have not
been adequately distributed to states and impacted local
communities. I think that is clear from the conversation this
morning. These monies could be used for infrastructure
projects, such as the Louisiana one here at Port Fourchon.
Shell has some ideas about revenue sharing that we can discuss
in detail during the questioning, or we will be happy to
advance some of those thoughts over the next couple of days.
Thank you again for allowing me to testify. I look forward
to addressing any questions.
[The prepared statement of Mr. Guidry follows:]
Statement of Greg Guidry,
Shell Exploration & Production Company
Good Morning. My name is Greg Guidry. I am an Asset Manager for the
Gulf of Mexico for Shell Exploration and Production Company. I was born
and raised in Southern Louisiana--in Abbeville--and my family has been
here for several generations. My career has been largely focused on oil
and gas exploration and production in the Gulf of Mexico and along the
Gulf Coast. I want to thank Chairman Gibbons and Congressman Jindal for
inviting me to testify today on ``The Benefits of Offshore Oil and Gas
Development.'' It is a topic that is of great importance to Shell, to
my family and my community.
Shell's presence in Louisiana goes back to 1916. We have over 4,000
full time employees in the state, many of whom work on offshore oil and
gas development. Additionally, we have over 2,700 pensioners in
Louisiana. Shell operates two refineries, two chemical plants, 459
retail stations, a major oil products terminal and numerous other
facilities in the state.
The Gulf of Mexico is a significant petroleum province for Shell,
one that we have operated in for more than five decades. These
operations provide more than 80 percent of our oil and gas production
in the U.S. Our net equity daily production in the Gulf of Mexico
averages about 267,000 barrels of oil and 1.1 billion cubic feet of
natural gas. We operate gross production of 450,000 barrels of oil and
1.4 billion cubic feet of natural gas per day. We hold an interest in
approximately 723 federal offshore leases, more than 80 percent of
which are in deep water.
Our strategy is to fully develop existing assets, aggressively
explore for new material oil and gas opportunities in established
areas, and continue to develop new emerging areas using sound
geological work combined with leading edge technology.
Shell pioneered exploration in the deep waters of the Gulf of
Mexico and used this deepwater strategy to find major fields in the
Gulf such as Mars and Auger. Recently Shell has pioneered new plays
with a hub-class discovery at Great White. We continue to explore in
frontier areas of the Gulf of Mexico. These plays are very difficult to
explore and produce. They are inherently high-risk with objectives that
are either in ultra-deep water or deep formations on the shelf. They
often involve high temperatures and high pressures. These areas are
often geologically challenging and are very difficult to interpret
using seismic data. To explore and produce in these areas we must use
cutting edge technology. We plan to continue aggressively exploring for
large volume, high-reward prospects in both the established plays and
the new emerging plays.
Outside of the Gulf of Mexico, Shell has recently demonstrated a
commitment to U.S. Outer-Continental Shelf frontier areas by being
awarded 84 leases in the Alaska Beaufort Sea. Offshore Alaska presents
a number of unique challenges, but we believe that, like the frontier
areas of the Gulf of Mexico, there are major hydrocarbon sources there
to be explored and produced.
I would like to thank Chairman Gibbons for his hard work on
numerous excellent provisions that were included in the Energy Bill
signed into law this week by President Bush. I want to especially thank
him for his work on the inclusion of the Oil Shale Leasing provision,
which may lead the way to the development of another frontier energy
resource in the Rockies.
Protecting Coastal Environments
Shell has also committed itself to enhancing the environment of
Louisiana and the Gulf Coast, both offshore and onshore. We are
vigorously pursuing this through two primary initiatives. The Louisiana
Wetlands Initiative and the Shell Marine Habitat Program.
To address the ongoing coastal erosion and disappearance of
critical coastal wetlands and wildlife habitat, Shell has taken a
leadership role in public education and awareness about the issue. We
are partnering with well-known NGOs, such as Ducks Unlimited, to
sponsor wetlands restoration projects throughout Louisiana. Shell is
also working with state and government agencies as world sponsor of the
America's Wetland Campaign and serves on the Louisiana Governor's
Coastal Advisory Commission. We are sole sponsor of the Shell Coastal
Modeling Laboratory in the LSU School of the Coast and Environment.
This laboratory is dedicated to understanding coastal loss and the
effectiveness of mitigation measures.
Through the Shell Marine Habitat Program we are partnering with the
National Fish and Wildlife Foundation to help nearly 100 organizations
conserve and restore marine habitat throughout the Gulf Coast Region.
Through this program Shell has spend $5 million as part of a total of
$17 million donated for marine habitat conservation activities
improving more than 160,000 acres of habitat and protecting more than
31,000 acres of key conservation lands. Projects include Ridley turtle
habitat enhancement, oyster reef restoration, and sea grass recovery.
Additionally, Shell is a supporter of the National Marine Sanctuary
Foundation. Through this program we have helped support and preserve
important marine habitat. We have been especially supportive of the
Flower Garden Banks in the Gulf of Mexico. One of the most beautiful
and healthy coral reefs in the world, the Flower Garden Banks has
existed for thousands of years and has thrived the last 4 decades with
oil and gas production on its perimeter.
Shell is committed to sustainable development wherever we operate
and we will continue to support habitat enhancement, education and
research.
Benefits of OCS Activities
Many of the witnesses here today are speaking about the benefits of
OCS activities on their businesses and communities. Shell believes that
Louisiana and the U.S. as a whole benefit greatly from oil and gas
exploration and production. At $6 billion annually, oil and gas
production on the OCS and Federal lands is second only to the IRS as a
source of federal revenue. According to the Louisiana Mid-Continent Oil
and Gas Association, offshore oil and gas production directly provides
jobs for more than 21,000 employees, 16,725 of whom are Louisiana
residents. The estimated payroll is $1.2 billion averaging $74,000 per
employee, some $10,000 greater than the national average salary. OCS
producers pay about $6 billion per year to vendors and contractors to
support those activities. In Louisiana the share is more than $3.7
billion. Those vendors employ an additional 55,376 people in Louisiana
alone.
While the OCS is providing sound benefits for the nation's economy
and for domestic supply we face a number of real challenges going
forward. In order for future generations to continue to benefit from
OCS energy production, we need to face some real challenges: decline in
Gulf of Mexico production, access to new OCS resources and access to
human resources and technology.
Decline in Gulf of Mexico Production
High decline rates in the Gulf of Mexico are not a new phenomenon;
they have been a feature of the Gulf subsurface characteristics since
offshore production began. Production decline rates in the deepwater
Gulf can be steep and they require operators to be aggressive in
leasing and to have high drilling success rates in order to maintain,
let alone increase, their production. To offset these rapid declines,
industry must develop technologies and efficiencies to maximize
recovery and production. The U.S. government must provide access to new
areas in the OCS. Policy makers cannot ignore the potential decline of
the Gulf of Mexico production.
Access to OCS Resources
Access to oil and gas resources on the OCS remains a significant
problem for future domestic production. Congressional moratoria place
virtually all of the Atlantic and Pacific OCS in the lower 48 states
off-limits for oil and gas production. Since 1982, congressional
moratoria and administrative withdrawals have grown to cover 266.5
million acres. Today about 85 percent of the offshore area off the
lower 48 states is off-limits to natural gas and oil development, areas
that according to the National Petroleum Council contain trillions of
cubic feet of recoverable natural gas resources. At the same time, as
fields mature in traditional producing basins a greater percentage of
future U.S. oil and gas production will need to come from the Federal
OCS and Federal lands onshore.
In order to meet our long-term challenges we need to develop long-
term goals for changing public perception and political will. Shell
believes that the energy industry can do a much better job of helping
the American public understand our industry and the contribution we
make to the economy and society. We believe that to change political
will we need to better educate the public about the oil and gas
industry and energy's impact on our lives. We look forward to
suggestions from Congress on how to implement and sustain a public
energy education program.
While an education program can help us meet some long-term access
challenges, in the short term we hope we may have an opportunity for
greater access on the OCS. In the coming days Minerals Management
Service (MMS) is expected to publish its scoping notice for the next
Five-Year Plan. This important process will determine where oil and gas
leases may take place on the OCS from 2007 through 2012. Shell is
hopeful that the next Five-Year Plan will make additional offshore
acreage available for leasing provided that appropriate environmental
regulations are implemented to ensure that industry's disturbance is
minimized and that biological resources and the environment are
protected.
The Five-Year Plan process involves public comment. We encourage
the Subcommittee on Energy and Mineral Resources and Congress as a
whole to take an active role in advocating greater access to offshore
resources during the Five-Year Plan process. We also hope that
consuming industries, our partners in the service and supply sector,
states, communities and NGO's can work together to find common ground
for opening selected areas in the OCS. If we continue to not allow
growth in the OCS for new leasing opportunities, our domestic oil and
gas supply is at risk.
Meeting the Challenge of the Major Crew Change Ahead
People are the greatest resource we have in the oil and gas
industry. It takes a lot of great minds from a number of disciplines to
meet the challenge of finding oil and gas on the OCS. Many of the
professions in our industry require a highly technical background in
science and engineering. The number of U.S. students seeking degrees in
these disciplines has fallen drastically over the past couple of
decades. And fewer of those pursuing degrees in engineering and science
are applying them to the oil and gas industry. Volatility in the
exploration and production sectors during the past couple of decades
made our business less attractive for many young people.
Between 1985 and 1998, enrollment in undergraduate petroleum
engineering fell 77% and geoscience degree programs fell 60%. Despite
the availability of well-paying jobs enrollment continues to decline
and competition for these graduates is fierce. This has a direct impact
on our industry's ability to expand and meet our nation's future energy
needs. The average age of employees in the exploration and production
industry is 47 to 50, with many long-term employees expected to retire
at 55. As a result, industry is now facing what we refer to as ``The
Great Crew Change''.
Shell would like to commend the House Resources Committee for
holding a hearing last year on this important topic. We also appreciate
that the Energy Bill mandates a study by the National Academy of
Sciences and the Interior Secretary on the availability of skilled
workers to meet America's future energy needs. We encourage the
Committee to continue to be advocates for addressing workforce
development.
In the meantime, Shell and the industry as a whole are working to
utilize our resources to attract new talent to our industry.
Specifically, Shell is:
Deepening our internal talent pool through additional
training and challenging assignments to ready younger workers to step
up as senior workers retire;
Broadening our access to talent through diversity
initiatives; and
Feeding the talent pipeline through support of math and
science programs.
We want our efforts to benefit the community as well. Through our
Robert Training and Conference Center, in Robert, LA, we are not only
training our own employees for challenges in the field, we have opened
up our facility to train and educate university students and spark
their interest in careers in the oil and gas industry. We are working
collaboratively with academia, local and state government in Louisiana,
and Greater New Orleans, Inc.--a public/private partnership charged
with spearheading economic development Greater New Orleans region--to
develop a Center for Petroleum Workforce Development in Louisiana to
help address the crew change challenge.
By training, recruiting and employing a skilled workforce, we will
have the human talent needed to develop and implement the technology
needed to address the challenges we will face in the offshore
frontiers.
Revenue Sharing
While states and local communities benefit from jobs, taxes and
other sources of revenue that result from OCS oil and gas production,
there are impacts from oil and gas development that communities must
address. Infrastructure, such as ports, roads and bridges are needed to
support industrial development. Environmental mitigation resulting from
infrastructure development is another impact states and communities
must face. Shell believes that historically revenues from OCS oil and
gas production have not been adequately distributed to states and
impacted communities.
Currently, states receive oil and gas revenues for oil and gas
production out three miles off their coasts--production in state
waters. Additionally, states receive a 27% cut of revenues in the so-
called 8(G) zone, three to six miles off their coasts. Revenues from
oil and gas production beyond six miles only go to the Federal
government. Despite the fact that coastal states may be impacted by
production beyond six miles, under the law, states are not able to
directly receive financial benefits for offshore oil and gas
production. Money from oil and gas production offshore and onshore
should be made available to state and impacted communities. These
monies could be used to infrastructure projects such as LA 1, a vital
link between Port Fourchon and the rest of Louisiana and a vital
corridor for the oil and gas industry.
The energy bill signed by the President earlier this week contained
language that allocates federal oil and gas revenues to states like
Louisiana to support a ``Coastal Impact Assistance Program''. Shell
appreciates the role that the Louisiana delegation played in making
this concept the law. We believe that it is an important first step in
the right direction. Shell supports going a step further by providing
all states and local communities with a fair percentage of offshore
production revenue from bonus bid, rents and royalties. Additionally,
MMS and state agencies are decreasing budgets to meet despite increased
demand to perform environmental work, monitoring, mitigation, and
enforcement. We believe that OCS revenues--bonuses, rentals and
royalties--should be disbursed directly to meet these requirements.
In total, Shell supports changes to current law that would:
Provide direct OCS revenues from Federal bonuses, rentals
and royalties to states and local communities affected by offshore oil
and gas development;
Provide direct OCS revenues from Federal bonuses, rentals
and royalties to MMS for environmental work, for monitoring,
mitigation, and enforcement; and
Provide direct OCS revenues from Federal bonuses, rentals
and royalties to a Marine Mammal and Coastal Wildlife Habitat Studies
and Enhancement Fund to be utilized by state marine and wildlife
management agencies and contractors as needed.
This same sort of initiative should also apply to the onshore oil
and gas royalty stream. We look forward to working with Congress to
support these concepts through legislation.
Thank you again for allowing me to testify. I look forward to
answering any questions you may have.
______
Mr. Gibbons. Mr. Guidry, thank very much. I think it is
important for of all us to hear that the industry is quite
supportive of the efforts of the people of Louisiana to supply
energy to the nation, and also, to solve some of the impact
problems that occur with that.
It is also refreshing to have an industry who works hand in
hand with the people of Louisiana on some of these issues as
well. Your commitment is appreciated.
We turn now to Mr. Danos. Thank you very much for being
here, Mr. Danos. We look forward to your testimony. The floor
is yours.
STATEMENT OF HANK DANOS, CHIEF EXECUTIVE OFFICER, DANOS &
CUROLE MARINE CONTRACTORS
Mr. Danos. Thank you, Chairman Gibbons. Danos & Curole is a
Louisiana company, and more than that, we are a Lafourche
Parish company. As we would say it, we are just a few miles up
the bayou from here.
We are a company that services and provides services to the
energy-related business by providing contract personnel, marine
liftboat services, offshore construction crews, shop
fabrication work to the oil and gas industry around the globe.
I'm very proud to represent Danos & Curole today. But I'm
also a member of several prominent trade organizations that
have an interest in what we are doing today. And one is the
National Ocean Industries Association, NOAA, which is a
national group representing all facets of our industry. I am
also part of the executive subcommittee of OOC, which is the
Offshore Operators Committee. I am a board member of Offshore
Service--Marine Service Association, OMSA, and recent past
chairman of Louisiana Association of Business and Industry. So
I'm proud of the groups I speak for and represent today.
Chairman Gibbons, Congressman Jindal and staff members,
again, thank you for the opportunity to speak.
Clearly, we are in an era of insecure and expensive oil and
gas imports. Expanding domestic oil and gas supplies is
critical to our economy and our energy security. It remains a
high priority for our country. We recognize that there is a
growing consensus amongst policymakers that we can only enhance
our energy security if we move forward on regulatory reform,
gain greater access to public land, and implement commonsense
environmental standards.
I can speak with some authority on these issues because
Danos & Curole has been in operation for over 50 years in the
oil and gas industry. As an oil field industry leader, we feel
that we are a flexible, responsible, full-service contractor
with a high standard of excellence. Ask any of our more than
900 employees or our many customers, and they will say that we
are a company committed to safety, environmental protection,
training and qualify development of our personnel.
The service and supply companies are the backbone of the
oil and gas industry. There are hundreds of companies here in
Louisiana and thousands of employees who earn high-end wages.
In light of the fact, a single paycheck can turn over seven
times, exchange hands seven times in any community. And
literally, every faction of our communities are affected by
those paychecks. Those paychecks, obviously, are affected by
the extraction of oil and gas.
Recent developments in offshore oil and gas exploration and
development in the Gulf of Mexico, as you have seen and heard,
brought new opportunities for Port Fourchon and the communities
around Port Fourchon. As other offshore service companies are
attracted to the area, additional jobs and additional
opportunities and additional economic spinoff will occur.
The oil and gas industry plays an important part in
Louisiana, and the only way the service sector can effectively
contribute to a continuous and adequate supply of oil and
natural gas is through an uninterrupted access to exploration
and production.
Many service companies have felt the devastation of the
past boom-and-bust cycles in our industry. Downturns and
prolonged interruptions of production cause serious impact to
the workforce. Thousands of former oil and gas worker employees
have left the industry to seek more stable employment
elsewhere. Consequently, we are seeing many out-of-state
workers. Many come to Louisiana on a rotation basis and take
their paychecks back to other states.
Just as rural America has seen the economic devastation and
social devastation of small communities that were dependent
upon certain industries, such as the lumber and timber industry
and others, we too depend on guaranteed, uninterrupted
production of hydrocarbons to ensure stability and general
health, safety and welfare for our communities. Without
assurance that new exploration and production will continue
through timely and consistent permitting, we lose the
confidence of investors, whose capital investment should drive
the economy of that needed infrastructure. A disruption in
supply and demand causes a domino effect that ripples from
service companies to grocery stores to gas stations, hospitals,
to municipalities, and on and on it goes.
The equation is simple. The citizens of the United States
demand energy. Louisiana has numerous forms of energy supply.
Louisiana has people who are willing to risk their capital and
devote their own working energy to responsibly meet the
national demand. Leadership and implementation from Federal
agencies, based upon fairness and facts, are urgently needed to
respond to this demand.
We, the service men and women of the industry are willing,
ready and able to respond. We urge Congress to assist and
encourage the Federal agencies to do likewise.
In closing, again, I would like to thank the Subcommittee
and the Congressmen for being here and allowing us to testify.
[The prepared statement of Mr. Danos follows:]
Statement of Hank Danos, Chief Executive Officer,
Danos & Curole Marine Contractors
I am Hank Danos, Chief Executive Officer of Danos & Curole Marine
Contractors located in Larose, LA. We are a company that serves energy-
related businesses by providing skilled contract personnel, marine
liftboat service, offshore construction crews, and shop fabrication
service to offshore oil and gas customers around the globe.
I am very proud to represent Danos & Curole today. I am also
pleased to represent the National Ocean Industries Association, the
only national trade association representing all facets of the domestic
offshore petroleum and related industries. I also serve on the Board of
directors of the Offshore Marine Service Association (OSMA) and am also
on the executive subcommittee of the Offshore Operators Committee (OOC)
I want to thank Chairman Gibbons and the entire Subcommittee for
holding this hearing on the importance of the offshore oil and gas
industry.
Clearly, we are now in an era of insecure and expensive oil and gas
imports. Expanding domestic oil and gas supplies is critical to our
economy and our energy security--it remains a high priority for the
country. We also recognize that there is a growing consensus among
policy makers that we can only enhance our energy security if we move
forward on regulatory reform, gain greater access to public lands, and
implement common sense environmental standards.
We can speak with some authority on these issues because Danos &
Curole has been in operation for over 50 years in the oil and gas
industry. As a leader in the oilfield industry, we are a flexible,
responsive full-service contractor with a high standard of excellence.
Ask any of our more than 900 employees or any one of our customers and
they'll say we are a company committed to safety, training and the
quality development of our personnel.
The service and supply companies are the backbone of the oil and
gas industry. There are over 100 such companies in Louisiana,
representing thousands of employees earning high-end wages. In light of
the fact that a single paycheck changes hands 7 times throughout a
community, literally every faction of our society and economy is
affected by the extraction and production of oil and gas.
Recent developments in offshore oil and gas exploration and
development in the Gulf of Mexico have brought new economic growth to
Port Fourchon and the surrounding community. As other offshore service
companies are attracted to the area, additional job opportunities and
economic spin-offs will occur.
The oil and gas industry plays an important role in the Louisiana
economy, and the only way that the service sector can effectively
contribute to a continuous and adequate supply of oil and natural gas
is through new and uninterrupted access to exploration and production.
Many service companies have felt the devastation of past boom and bust
cycles of oil & gas development. Down turns and prolonged interruptions
of production cause serious impacts to the workforce--thousands of
former oil and gas employees have left the industry to seek more stable
employment elsewhere. Consequently, we are seeing many out-of-state
workers. Many come to Louisiana to work a rotation, and go back home to
Texas, Oklahoma or other areas, without moving their families to
Louisiana.
Just as rural America has seen the socioeconomic devastation of
small communities that were dependent on timber harvest and sawmills,
we too depend on guaranteed, uninterrupted production of hydrocarbons
to ensure the stability and general health, safety and welfare of our
community. Without assurance that new exploration and production will
continue through timely and consistent permitting, we lose the
confidence of investors whose capitol investments drive the development
of needed infrastructure. A disruption in supply and demand causes a
domino effect that ripples from the service company to the grocery
store, to the gas station, to the hospital, to municipalities and local
governments, etc. etc.
The equation is simple: the citizens of the U.S. demand energy,
Louisiana has numerous forms of energy reserves, Louisiana also has
people who are willing to risk their capital and devote their own
working energy to responsibly meet the national demand. Leadership and
implementation from federal agencies, based upon fairness and facts are
urgently needed to respond to this demand. We, the service men and
women for this industry are ready, willing and able. We urge the
Congress to assist and encourage the federal agencies.
In closing, I would like to again thank the Subcommittee for the
opportunity to comment on these critical issues.
Thank you.
______
Mr. Gibbons. Mr. Danos, I can see there is great pride in
not just your company, but your history here in Louisiana and
your service to this industry and how it has affected the end
result, which many people don't understand and don't see
directly up front, because your name isn't Shell; it isn't
Chevron; it is Danos & Curole. And a lot of times, you are part
of that unsung hero group that helps out in ever so small ways
that makes it all work. Thank you for your contribution. Thank
you for being here.
We turn now to Mr. Clifford Smith from T. Baker Smith. Mr.
Smith, welcome. I can at least pronounce your name.
STATEMENT OF CLIFFORD SMITH, PRESIDENT AND CEO,
T. BAKER SMITH, INC.
Mr. Smith. Thank you, Mr. Chairman. Believe it or not, I am
a native of South Louisiana, too. I'm the only blonde-headed,
blue-eyed coonass in the world named Smith.
Thank you and members of the Committee, and welcome to
South Louisiana. Thank you for traveling to Port Fourchon,
literally, ground zero for the offshore oil and gas industry in
the Gulf of Mexico.
I personally believe that this is, frankly, the fastest
growing industrial area in the United States of America
primarily, of course, because of the offshore activities. I
appreciate the opportunity to speak to you about the benefits
of offshore oil and natural gas development.
My name is William Clifford Smith. I'm a lifelong resident
of Terrebonne Parish, Houma, Louisiana. I'm a civil engineer
and land surveyor and have owned and managed a consulting civil
engineering, land surveying and environmental service firm
since 1958. The firm was founded by my father in 1913. The firm
now has approximately 130 associates. I am also a Presidential
appointee to the Mississippi River Commission.
Over the years, our consulting/engineering firm has
provided professional services to major landowners, developers,
local, state and Federal government agencies, oil-and-gas-
producing companies, pipeline and electrical transmission
companies.
Houma is the economic center of Terrebonne Parish, located
about 65 miles southwest of New Orleans, 30 miles north of the
Gulf of Mexico and about 50 miles west of Port Fourchon.
Economically, everything is very positive for our community and
has been for most of my life.
Oil and gas was discovered in my parish in the late 1920s
and early '30s. The exploration and production of oil and gas
has had an unbelievable positive economic impact in my
community for the last 75 years. The knowledge and experience
our citizens have developed in the oil and gas industry has
been exported all over the world.
The infrastructure created by the major oil and gas
companies to originally collect and process our domestic oil
and gas production has transformed the entire Louisiana coast
from Texas to Mississippi into the biggest concentration of
petrochemical facilities in the world. I believe oil and gas
and its supporting activities represent at least 75 percent of
our economy. What is so gratifying is that with oil and gas
activities, which is a depleting natural resource, we also have
a recurring natural resource industry along our coast. With the
seafood industry, oil and gas and tourism, I truly believe this
is the most productive coastal area in the world.
We in Louisiana really cannot understand why the rest of
the Nation will not, with proper control and protection, permit
oil and gas exploration. New techniques for exploration and
production that were developed in coastal and offshore
Louisiana can provide other states protection for their
environment and the citizens of the coastal areas.
If other states would tap into their offshore natural
resources, the United States may become significantly less
dependent upon foreign sources of oil. Not only do we remain
vulnerable to the unstable politics of the Middle East, South
America and Africa, but we are stinting our own economic
development. Offshore drilling is a key component of better
securing our energy and economic future in America.
While South America fully embraces the benefits of the oil
and gas industry, we must make sacrifices and work hard to
protect all of our natural resources. We must face the reality
that the industry, as well as our very way of life, is being
threatened by coastal erosion. As our coastline recedes and our
communities slowly begin to fade away into the Gulf, billions
of dollars of oil and gas infrastructures are being exposed to
constantly impending threats of hurricanes and other national
security threats.
Annually contributing more than $5 billion a year to the
U.S. Treasury through the outer Continental Shelf Royalties,
Louisiana believes the government has the duty and
responsibility to help protect this critical infrastructure and
habitat. We lose a unique culture and way of life, as well as a
booming economic sector as a substantial portion of our
national energy supply.
I would like to extend my thanks and sing the praises of
this Subcommittee and the Members of Congress for your hard
work, particularly during the last 30 days. The Highway Bill
and the Energy Policy Act of 2005 will provide Louisiana and
the Nation with much needed relief and help support the oil and
gas industry and infrastructure. The funds dedicated to coastal
impact assistance from the offshore royalties are an essential
first step in restoring our eroding coast and barrier islands
that protect not only billions of dollars in oil and gas
infrastructures, supplying the Nation with energy, but also our
culture.
Beneficially tapping all of our resources, coastal
Louisiana provides the United States with over 20 percent of
their energy and 25 percent of the seafood consumed across the
country each year.
Again, Mr. Chairman, thank you for traveling to Louisiana
where the pavement hits the water. We will be glad to answer
any questions that you may have now and in the future.
[The prepared statement of Mr. Smith follows:]
Statement of William Clifford Smith, Chairman of the Board,
T. Baker Smith, Inc.
Mr. Chairman and Members of the Subcommittee, welcome to South
Louisiana. Thank you for traveling down LA1 to the Port Fourchon,
literally ground zero for offshore oil and gas in the Gulf of Mexico. I
appreciate the opportunity to speak to you about the benefits of
offshore oil and natural gas development. My name is William Clifford
Smith, and I am a life long resident of Terrebonne Parish, Houma,
Louisiana.
I am a civil engineer and land surveyor and have owned and managed
a consulting Civil Engineering, Land Surveying, and Environmental
Services firm since 1958, when I received a Bachelor of Science degree
in Civil Engineering from Louisiana State University. The firm was
founded by my father in 1913, who was a Civil Engineering graduate of
Tulane University. He, too, was a life-long resident of our community.
The firm now has approximately 130 associates and is owned and managed
by my children, one of whom is also a Civil Engineering graduate of
Louisiana Tech University. Due to my expertise in engineering, coastal
restoration, and the oil and gas industry, I am also a Presidential
Appointee to the Mississippi River Commission, which was established by
Congress in 1879 to advise the Chief of Engineering of the U.S. Corps
of Engineers on the development and improvements on the Mississippi
River.
Over the years, our consulting engineering firm has provided
professional services to major landowners; developers; local, state,
and federal government agencies; oil and gas producing companies; and
pipeline and electrical transmission companies. We provide assistance
in wetlands permitting, feasibility studies, and cost estimates;
perform field, property, and hydrologic surveys; and prepare plans,
specifications, and supervise and administer construction contracts. We
have literally lived on the land and waters of this area for over 90
years, three generations, and have made a living at it. Practically all
of the wealth we have accumulated over the years can be attributed to
Louisiana's unique abundance of natural resources and has been
reinvested into our community.
Houma is the economic center of Terrebonne Parish, located
approximately 65 miles southwest of New Orleans, 30 miles north of the
Gulf of Mexico, and 50 miles west of the Port Fourchon, where we are
now. I have lived in the community of Houma for 70 years, all my life.
My parish consists of approximately 1,300,000 acres of surface area. It
is the second largest surface area parish in Louisiana. We have
approximately 1,000,000 acres that I consider to be wetlands,
including: open water on the Gulf of Mexico, bays, lakes, saltwater
marshes, fresh water marshes, and swamps. Economically, everything is
very positive for our community and has been most of my life except in
the 1980's and early 1990's. We have had a 10% increase in population
over the last 10 years, 4% unemployment rate, and an 11% average
increase in sales tax collections per year. The economy of Terrebonne
Parish, literally the ``good earth'' in French, and South Louisiana is
dependent upon the plentiful assets of our coastal environment.
Oil and gas was discovered in my parish in the late 1920's and
early 1930's. The exploration and production of oil and gas has had an
unbelievably positive economic impact in my community for the last 75
years. The knowledge and experience our citizens have developed in the
oil and gas industry is exported all over the world. The offshore
activities off Louisiana have been a tremendous resource to the entire
nation. Not only are we exploring for oil and gas 200 miles south of
this location at Port Fourchon, but we are also importing, through the
LOOP project, a considerable amount of our nation's energy needs. We
are also going to import more L.P.G. from foreign sources into our
state, providing the country with the ability to receive low-cost
natural gas.
The infrastructure created by the major oil and gas companies to
originally collect and process our domestic oil and gas production has
transformed the entire Louisiana coast, from Texas to Mississippi south
of Interstate 10 and the Delta of the Mississippi River from Baton
Rouge to its mouth, into the biggest concentration of petrochemical
complexes in the world. All of this activity is to supply the nation
with the petroleum and chemical products that sustain our economy and
standard of living. All of this oil and gas activity has been the
economic blood of our community. I believe oil and gas, and its
supporting activities, represent at least 75% of our economy.
The oil and gas produced in the Gulf of Mexico off our coast for
the last 60 years has kept the East Coast and the Midwest running. In
Terrebonne Parish alone there are still approximately 2,000 oil and gas
wells, and we only need about two to supply our energy needs. On the
other hand, many states consume up to 22 times more energy than they
produce. Therefore, most of our valuable commodity is being consumed by
the rest of the nation.
What is so gratifying is that with the oil and gas activity, which
is a depleting natural resource, we also have a recurring natural
resources industry along our coast.
From my deck overlooking the Gulf of Mexico at my summer home 10
miles east of here at Grand Isle, Louisiana, I have spent the last 40
years observing one of the most bountiful regions in the world. Among
the greatest natural resources in Louisiana are our: oil, gas, sulphur,
salt, and various other minerals, fish, crabs, oysters, shrimp, and
crawfish. Nearly one-third of the fisheries catch in the lower 48
states is produced in Louisiana's prosperous wetlands and millions of
migratory birds flock to the marsh each year. Our ``Sportsman's
Paradise'' is home to lucrative commercial fishing, recreational
fishing and hunting, and an ecotourism industry. I truly believe this
is the most productive coastal area in the world.
My wife and I had the opportunity to go around the world some years
ago to Fiji, New Zealand, Australia, Hong Kong, Italy, Greece, and
England and we naturally migrated to the coast. Nowhere else do you see
what we have in coastal Louisiana. We have also seen the west and east
coast of the United States and Alaska--nothing has the economic value
that we see in Louisiana, and it all coexists together.
We in Louisiana really cannot understand why the rest of the nation
will not, with proper controls and protection, permit oil and gas
exploration. New techniques for exploration and production that were
developed in coastal and offshore Louisiana could provide other states
protection for the environment and citizens of coastal areas. The oil
and gas industry throughout the world looks to Louisiana for help to
properly secure their environment while drilling in sensitive offshore
ecosystems. Earlier this year a delegation of government officials and
private industry partners from Kazakhstan visited my firm in Louisiana
to be trained on this very subject. We in Louisiana are industry
leaders, paving the way for safe offshore drilling and pipeline
technology.
If other states would tap into their offshore natural resources,
the United States may become significantly less dependent on foreign
sources of oil. The United States loses on many fronts when we opt to
rely on foreign sources of oil rather than our own natural resources.
Not only do we remain vulnerable to the unstable politics of the Middle
East and South America, but we are stinting our own economic
development. We are paying more money at the gas pump and prohibiting
the growth of a lucrative industry that could create thousands of jobs
around the country. The oil and gas industry in South Louisiana is the
economic livelihood of Louisiana, directly and indirectly employing a
vast army of workers. The productive Louisiana workforce has the
expertise and infrastructure to produce safe, reliable sources of
energy that are in excess of our needs. Offshore drilling is a key
component of better securing our energy and economic future in America.
While South Louisiana fully embraces the benefits of the oil and
gas industry, we must make sacrifices and work hard to protect all our
natural resources. We must face the reality that the industry--as well
as our very way of live--is being threatened by coastal erosion. As our
coastline recedes and our communities slowly begin to fade away into
the Gulf, billions of dollars of oil and gas infrastructure are being
exposed to the constant impending threats of hurricanes and other
national security threats. Annually contributing approximately $5
billion to the U.S. Treasury through Outer Continental Shelf royalties,
Louisiana believes the government has the duty and responsibility to
help protect this critical infrastructure and habitat. If Louisiana
loses its coast, we all lose. We lose a unique culture and way of life,
as well as a booming economic sector and a substantial portion of our
national energy supplies.
I would like to extend my thanks and sing the praises of this
Subcommittee and the all Members of Congress for your hard work--
particularly during the last 30 days. The Highway Bill and The Energy
Policy Act of 2005 will provide Louisiana, and the nation, with much
needed relief and help support the oil and gas industry and
infrastructure. Specifically, the highway bill contains millions for
the elevation of LA 1--the highway we have all traveled down today that
is an essential corridor for delivering oil and gas to the nation.
Economists predict a drastic and immediate price hike at the pump
should LA 1 be closed for even a few days.
I extend my gratitude to you for your work making the energy bill a
reality. I was beginning to believe it would not be passed during my
lifetime. The funds dedicated to coastal impact assistance from the
offshore royalties are an essential first step in restoring our eroding
coast and barrier islands that protect not only billions of dollars in
oil and gas infrastructure supplying the nation with energy, but also
my culture. Our very way of life is endangered. There is still work to
be done, but this bill is a critical step to continue the production of
offshore oil and gas as well as the Cajun heritage and joie de vivre
that flourish along Louisiana's bayous.
Beneficially tapping all our natural resources, Coastal Louisiana
provides the United States with 20% of the energy and 25% of the
seafood consumed across the country each year. Sectors of the economy
dependent on oil and gas and the environment exist harmoniously in our
community.
Once again Mr. Chairman, thank you for traveling to Louisiana where
the pavement hits the water. The people of South Louisiana look forward
to working with you to proliferate our expertise while helping improve
our national economy and securing our energy needs. I will be glad to
answer any questions that you may have now and in the future.
______
Response to questions submitted for the record by William Clifford
Smith,
Chairman of the Board, T. Baker Smith, Inc.
1. At this point it would seem that, if the federal government ever
worked out a system whereby oil and gas development could occur
in a least a portion of the Eastern Gulf of Mexico, that
portion would be nowhere near the Florida coast. Is Louisiana
prepared to continue to support--through Port Fourchon, for
example--any offshore activity that might occur there?
Absolutely. The people of Louisiana are very supportive of
expanding offshore activity in the Gulf of Mexico. We recognize that we
have significant infrastructure already in place to support such
activity; however, assistance from the federal government would allow
us to improve our vital infrastructure, such as highways, bridges, and
navigation channels, which would permit us to provide support activity
more efficiently.
2. If the federal government could move legislation that provided some
sort of revenue sharing to states that support offshore
development, what sort of ``sharing'' would you like to see?
a. An annual hard dollar amount?
b. A percentage of OCS revenues?
Louisiana currently produces over $5 billion in offshore oil and
gas royalties to the United States Treasury each year and the state
receives less than a 1% return on royalties. On the other end of the
spectrum, western states receive approximately 50% of oil and gas
royalties within their boundaries based up on the Mineral Leasing Act.
This seems unjust and unfair. Why shouldn't the hardworking people of
Louisiana get their fair share?
My position is that fairness and precedent should be continued,
greatly increasing the percentage of offshore revenue sharing based
upon the 50% onshore sharing.
3. Does this revenue sharing need to be dollars that are directly
funded? Or can they be appropriated? Why?
Again, we seek rights that are fair and similar to revenue sharing
plans that are currently in place in the other states. This precedent
sets forth a plan for directly funded oil and gas royalty sharing, as
well as mineral and surface rights. These funds should not be
appropriated, but rather directly based on the benefits the U.S.
Treasury receives from Louisiana's assets.
4. Would you prefer to see that the federal government set up a system
prescribing how states would be eligible for this money?
Yes.
5. Would you prefer to see that the federal government set up a system
prescribing how states could spend this money?
I do not believe this is necessary. However, fairness and precedent
are the points I would like to stress again. Should the federal
government opt to set up a system prescribing how states spend revenue
sharing funds, it should be similar to any guidelines in the western
states. To the best of my knowledge, the federal government does not
have much oversight in this area.
6. Mr. Falgout, noted in his testimony that the oil and gas industry
co-exists with many other coastal users, and that it doesn't
have to be one or the other. The committee agrees with him that
it is a false choice to believe America must choose one or the
other. Mr. Davis also noted a similar theme in his testimony
that the ``belief that OCS development is incompatible with
environmental stewardship and the best interests of communities
is widespread and it runs deep''. I open this question to the
entire panel. How then, can a Florida, or a California, be
convinced that the industry can--and does--coexist with other
uses, and the environment? Please provide specific examples if
you can.
The oil and gas industry and environmental stewardship can co-
exist. In fact, they do. At this hearing, Congress observed the
harmonious co-existence of offshore oil and gas exploration and
drilling, tourism, and environmental consciousness in south Louisiana.
In addition to our tremendous tourist industry, an excess of 20% of our
domestically produced energy and 25% of the nation's seafood harvest
come across Louisiana's wetlands. To be convinced, skeptics should come
to Louisiana and witness our recreational fishing, commercial fishing,
bird watching, and scores of other thriving ecotourism activities.
Furthermore, assistance from the federal government to improve our
infrastructure may lead to a more productive co-existence of all our
industries.
7. Based on your experience, what restrictions and requirements would
you insist upon if you were setting up a system for drilling
off another coastal state?
First, I recommend an extensive 3-d seismic evaluation and
inventory using the latest modern technology of what and where specific
exploration and production could be most effective. From the inventory,
develop a specific plan to physically explore and act on these
production areas to minimize the possibility of duplicate facilities.
From this, some type of corridor for the production and transportation
of such resources should be established. In Louisiana we have roughly
10 million pipelines crisscrossing the state. I view this as our
``mistake'' in the industry; however, it happened because of the
evolution of the oil and gas industry over time. Other states can learn
from our experience here and draft detailed plans to minimize the
footprint for the development of these resources.
8. Is the tourism industry in Louisiana affected adversely by the oil
and gas industry?
The oil and gas industry has had a positive impact on Louisiana's
tourism industry, especially sport fishing. My father lived on the
coast his entire life and never went south of the coast into the Gulf
of Mexico. However, when my children grew up on the coast they were
fishing 30 miles offshore when they were merely 2 years old, primarily
because of the oil and gas facilities in the Gulf of Mexico. During the
hearing a video demonstrates the offshore platforms can have positive
benefits to the maritime environment. Programs such as Rigs to Reefs
create artificial reefs where aquatic life can flourish. There is no
doubt in my mind that the offshore oil and gas industry has bolstered
Louisiana's tourism industry.
9. What economic benefits has drilling had on your community?
The exploration and production of oil and gas has had an
unbelievably positive economic impact in my community for the last 75
years. I believe oil and gas, and its supporting activities, represent
at least 75% of our economy. It is the economic livelihood of
Louisiana, directly and indirectly employing a vast army of workers. In
addition to the economic development directly related to the offshore
drilling industry, the economy as a whole has benefited from increased
tourism and greater spending on various types of infrastructure,
everything from roads to hotels to schools.
10. What has been the most sever impact of drilling?
The most severe impact of offshore drilling in our community has
been the footprint left by the multiple pipeline corridors that
crisscross coastal Louisiana to bring the product onshore. This allows
for additional salt water intrusion into our freshwater marshes,
enhancing the rate of coastal erosion and threatening various
infrastructure, such as roads, bridges, navigation canals, airports,
heliports, and even schools and government facilities.
11. Do you recommend that other coastal states drill for offshore oil
and gas?
Yes, I recommend offshore drilling to other coastal states because
the process can be done in a manner in which the environment and human
occupants of the coastal areas are protected. Sectors of the economy
dependent on oil and gas and the environment exist harmoniously in our
community. New techniques for exploration and production that were
developed in coastal and offshore Louisiana could provide other states
protection for the environment and citizens of coastal areas. If other
states would tap into their offshore natural resources, the United
States may become significantly less dependent on foreign sources of
oil, enhancing both our national security and our personal pocketbooks.
12. Are industry experts in Louisiana willing to help other coastal
states institute safe drilling practices?
Experts in Louisiana have exported their expertise in the oil and
gas industry as others throughout the world look to Louisiana for help
to properly secure their environment while drilling in sensitive
offshore ecosystems. Earlier this year a delegation of government
officials and private industry partners from Kazakhstan visited my firm
in Louisiana to be trained on this very subject. We in Louisiana are
industry leaders, paving the way for safe offshore drilling and
pipeline technology. Of course, we are willing to assist other coastal
states as we have other nations and corporation across the world.
13. Has offshore drilling caused coastal erosion?
It is possible that 10 to 15 percent of Louisiana's coastal erosion
has been caused by offshore and onshore oil and gas activities;
however, this is minimal when compared to the erosion that has been
caused by other manmade and natural activities, such as leveeing the
Mississippi River.
14. Do you believe offshore drilling may cause erosion in other
coastal states?
The best way to prevent a problem is to learn from the mistakes of
others. Other states that decide to drill offshore should take a
careful look at some of the lessons and techniques that have been
developed in coastal Louisiana to provide for environmentally safe
offshore oil and gas drilling. As I have stated earlier, one important
factor for states that intend to develop new drilling regimes to
consider is the development of pipeline corridors to transport oil and
gas onshore. Minimizing the footprint of the industry is crucial to
diminish the overall environmental impact, including the possibility of
coastal erosion.
______
Mr. Gibbons. I still say you haven't lost your sense of
humor, even though you are--whatever you called yourself. Thank
you.
I want you to know that Nevada would be more than willing
to access its offshore resources, but we would first have to
push California out of the way.
Thank you very much for your testimony, Mr. Smith. We will
turn now to Mr. Dan Borne, Louisiana Chemical Association.
STATEMENT OF DAN S. BORNE,
LOUISIANA CHEMICAL ASSOCIATION
Mr. Borne. Thank you. Mr. Chairman, thank you very much.
Mr. Jindal and staff, thank you for inviting the Louisiana
Chemical Association to be here with you. I have asked the
staff to distribute some remarks that I have tweaked a little
bit from those that were originally in the packets.
I also have some paper slides here that are referenced in
the text of the testimony, Mr. Chairman, if you would like to
look at those as I proceed.
My name is Dan Borne, and I'm president of Louisiana
Chemical Association. The LCA consists of 69 chemical
manufacturers that operate at nearly 100 locations in
Louisiana. Our plants directly employ over 27,000 Louisiana
citizens, and indirectly account for tens of thousands more
jobs.
I'm appearing today on behalf of the LCA. My comments,
however, also reflect the views of the American Chemistry
Council and the Consumers Alliance for Affordable Natural Gas.
I am here to represent the views of major natural gas
consumers.
Most of the folks here have been on the putting-up end, or
on the taking-up end. I would like to explain why the
availability and price of natural gas are so important to my
industry, and to the entire American manufacturing economy. We
consume a large amount of energy, especially natural gas, to
power our plants and processes. But we also use natural gas
like a baker uses flour. The bakery shops of New Orleans use
flour to produce bread, especially French bread, sweet rolls,
muffins, bagels, croissants and, of course, King Cakes. We use
natural gas as feed stocks to make things, plastics, paints,
pharmaceuticals, adhesives, detergents, fertilizers, medicines
and a thousand other products that every one of us uses every
day.
And finally, we purchase a lot of power, much of which is
generated by natural gas. In fact, Louisiana is the third
largest consumer of natural gas in the United States;
Louisiana's industrial consumption ranks second in the United
States; Louisiana's industrial and power natural gas
consumption is nearly as large as China and is larger than
Australia, Spain, Brazil, New Zealand, Ireland, Portugal and
South Africa.
The U.S. chemical industry consumes more energy than
Mexico, more electricity than the state of New York, more
natural gas than California to produce a wide range of critical
products. Put another way, the chemical industry consumes more
natural gas than it would take to heat 30 million homes in a
year, about half of the nation's home heating requirements.
The availability and price of natural gas are our most
important economic issues. On Thursday, natural gas closed at
$9.30 per MMBTU. Yesterday, it closed at $9.50. $9.50. The
industry's natural gas costs have increased by $10 billion in
two years. That is 10 billion that we did not return to
shareholders or reinvest in new facilities.
The effect of these additional costs, think of it as a huge
energy tax, has been severe. We have seen a 20 percent decline
in natural gas consumption in the chemical industry. Economists
call it ``demand destruction,'' we call it ``job loss.''
American jobs are being out-forced by the rising cost of
natural gas.
Dozens of plants around the country have closed. Those jobs
have gone away and will be very hard to get back. Here in
Louisiana, chemical manufacturing has lost over 3,000 jobs due
to high gas costs. These jobs average nearly $60,000 a year in
wages alone.
U.S. chemical industry operations lost $50 billion in
business to overseas operations since 2000, as high natural gas
costs eroded competitiveness. We went from posting trade
surpluses in excess of $20 billion, the most successful export
industry in the history of this nation, to the U.S. being a net
importer of chemicals. More than 100,000 American jobs have
been out-forced in the chemical industry. A similar story is
being played out in the forest and paper industry, steel, glass
and other energy intensive-industries. Overall, U.S.
manufacturing has lost 3 million jobs. Even as employment
rebounds, manufacturing jobs continue to decline driven by
spiraling energy costs.
We are hemorrhaging because U.S. natural gas prices are the
highest in the world, many times higher than in certain parts
of the Middle East and Russia, and much higher than in the Far
East. That cripples the competitiveness of U.S. operations. It
is a case of too much demand chasing too little supply. At the
same time, existing supply basins are beginning to decline.
Promising new basins in the eastern Gulf of Mexico and on the
Atlantic and Pacific seaboards remain, by Federal fiat, off
limits.
The President signed the Energy Policy Act on Monday, and
we supported the bill because it helps somewhat to reduce the
natural gas demand-supply imbalance. But let's be clear about
one thing: It does nothing to change 25,000 years--25 years,
rather, of Federal policy on offshore oil development--it seems
like 25,000 years--and therefore, leaves the Nation short of
desperately needed new supplies of natural gas.
There's one very quick slide, Mr. Chairman, I would like to
point out to you. We call it the ``Jaws of Death,'' and it is
this one right here, which shows the worsening gap between
domestic natural gas supply and demand. So, while the energy
bill makes significant progress, more is needed if we are to
restore competitive natural gas prices and stop the erosion of
jobs.
U.S. policy continues to keep the most promising areas for
gas production off limits and that happens to be in offshore
waters. That policy was implemented at a time when gas prices
were low and supplies were thought to be high. Today, the
reverse is true and current policies must change to keep pace
with reality.
Louisiana is a leader in the production of natural gas. The
state is second overall in gas production, and first in Federal
offshore production bill a wide margin. So, we recognize the
concerns of some coastal communities, because our communities
have those same concerns, and we think the way to do it is what
has been expressed here earlier today. And that is, to have
states opt in to offshore development and give them a piece of
the action.
In closing, I would like to thank you for holding this
hearing again, and thank you for your continued interest in the
issue. How OCS access is resolved will have long-term
consequences for manufacturing and for the economy of America.
And I think we need to be responsible in how we evaluate
offshore energy production and make it a part of a balanced
domestic energy policy.
I will attempt to answer any questions that you and the
Committee might have.
[The prepared statement of Mr. Borne follows:]
Statement of Dan S. Borne, President,
Louisiana Chemical Association
My name is Dan Borne and I am the President of the Louisiana
Chemical Association. The LCA consists of 69 chemical manufacturers
that operate at nearly 100 locations in Louisiana. Our plants directly
employ over 27,000 Louisiana citizens and indirectly account for tens
of thousands more jobs.
I am appearing today on behalf of LCA. My comments, however, also
reflect the views of the American Chemistry Council and the Consumers
Alliance for Affordable Natural Gas. I'm here to represent the views of
major natural gas consumers.
I'd like to start by explaining why the availability and the price
of natural gas are so important to my industry--- and to the entire
American manufacturing economy. We consume a large amount of energy--
and especially natural gas--to power our plants and processes. But we
also use natural gas like a baker uses flour. The bakery shops in New
Orleans use flour to produce bread, especially French bread, sweet
roles, muffins, bagels, croissants and, of course, King Cakes. We use
natural gas as feed stocks to make items--plastics, paints,
pharmaceuticals, adhesives, detergents, fertilizers and a thousand
other products that everyone of us uses every day. Even aspirin can be
traced back to natural gas molecules. And, finally, we purchase a lot
of power, much of which is generated by natural gas.
In fact:
Louisiana is the third largest consumer of natural gas in
the United States.
Louisiana's industrial consumption ranks second in the
United States.
Louisiana's industrial and power natural gas consumption
is nearly as large as China's and is larger than Australia, Spain,
Brazil, New Zealand, Ireland, Portugal and South Africa.
The U.S. chemical industry consumes more energy than Mexico, more
electricity than the state of New York and more natural gas than
California to produce a wide range of critical products. Put another
way, the chemical industry consumes enough natural gas to heat 30
million homes a year--almost half of the nation's home heating needs.
The availability and price of natural gas are our most important
economic issues.
Today, the price of natural gas is hovering at close to $9.00 per
million BTU. That's equivalent to saying the price of gasoline is
hovering at close to $5.00 per gallon. The industry's natural gas costs
have increased by $10 billion in two years. That is $10 billion we did
not return to our shareholders, or invest in new facilities.
The effect of those additional costs--think of it as a huge energy
tax--has been severe. We've seen a 20 percent decline in natural gas
consumption in the chemical industry. Economists call it ``demand
destruction.'' We call it job loss.
American jobs are being out-forced by the rising cost of natural gas!
Dozens of plants around the country have closed their doors. Those
jobs have gone away and will be hard to get back. Here in Louisiana,
chemical manufacturing has lost over 3000 jobs due to high gas costs.
These jobs average nearly $60,000 a year in wages alone.
U.S. chemical industry operations lost $50 billion in business to
overseas operations since 2000 as high natural gas costs eroded
competitiveness. We went from posting trade surpluses in excess of $20
billion--the most successful export industry in the history of this
nation--to the U.S. being a net importer of chemicals. More than
100,000 American jobs have been displaced in the chemical industry. A
similar story is being played out in the forest and paper industry,
steel, glass and other energy intensive industries. Overall U.S.
manufacturing has lost 3 million jobs. Even as employment rebounds,
manufacturing jobs continue to decline driven by spiraling energy
costs.
We are hemorrhaging production and jobs because U.S. natural gas
prices are the highest in the world--ten times higher than in certain
parts of the Middle East and Russia. This cripples the competitiveness
of U.S. operations. It's a case of too much demand chasing too little
supply. Utility consumption of natural gas grew by 31 percent in a few
short years. At the same time, existing supply basins are beginning to
decline. Promising new basins in the Eastern Gulf of Mexico and on the
Atlantic and Pacific seaboards remain--by federal fiat--off-limits.
The President signed The Energy Policy Act on Monday and it is now
the law of the land. We supported the bill because it helps to reduce
the natural gas demand-supply imbalance:
It breaks new ground in the area of energy efficiency to
reduce natural gas demand.
It makes a serious effort to diversify the energy
supply--it is an incubator for new technologies, further reducing
natural gas demand.
It gives the nation's energy infrastructure a much-needed
facelift in the form of new LNG terminals and pipelines.
And, it adds to the natural gas supply by streamlining on
shore permitting, but not as much as the market needs. It will reduce
the red tape that slows up natural gas production in western states.
But let's be clear about one thing: it does nothing to change 25
years of federal policy on off shore energy development--and therefore
leaves the nation short of desperately needed new supplies of natural
gas. So while the bill makes significant progress, more is needed if we
are to restore competitive natural gas prices and staunch the erosion
of U.S. jobs.
U.S. policy continues to keep the most promising areas for gas
production off limits and that happens to be in certain off shore
waters. That policy was implemented at a time when natural gas prices
were low and supplies were thought to be high. Today, the reverse is
true and current policies must change to keep pace with reality.
Louisiana is a leader in the production of natural gas. The state
is second over all in gas production and first in federal offshore
production by a wide margin. So we recognize the concerns of some
coastal communities, because our communities have those same concerns.
We think the way to do it is to give coastal states the right to decide
if natural gas production off their coasts is in their best interest on
a state-by-state basis. If a state opts to produce it should also
qualify for coastal impact assistance, and because of the recent energy
bill Louisiana will indeed share in some of the revenue collected off
its shores. A state should, of course, also have the right not to
produce. That makes sense. What doesn't make sense is to continue a
blanket ban on 80 percent of the OCS while the unnaturally high U.S.
price of natural gas drives businesses and jobs overseas.
In closing, I'd like to thank you for holding this hearing and
thank you for your continued interest in the issue. How OCS access is
resolved will have long-term consequences for manufacturing and the
economy in America. We think we need responsible off shore energy
production as part of a balanced domestic energy policy.
______
Mr. Gibbons. Mr. Borne, I don't think that any association
could have a more dedicated and outspoken individual than you
are, for what you have just said. I think you put it very
clearly, very succinctly, and very helpfully to us to
understand the impact of high energy costs. And supply versus
demand issues are part of that here. So, thanks for your
testimony.
We turn now to Mr. Allen Walker from Gulf Productions, Inc.
Mr. Walker, welcome. The floor is yours.
STATEMENT OF ALLEN WALKER, GULF PRODUCTIONS
Mr. Walker. Thank you, Mr. Chairman. I appreciate Mr.
Jindal, Mr. Cranford and Mr. Coleman and Mr. Melancon's staff
being here. Mr. Jindal made a very good and very important
statement I feel strongly about. That is why I'm going to read
this thing here, as the panel before me and these guys have
covered the logistics of domestic drilling quite well. That it
is important, and we need to do it with Godspeed because our
nation is definitely suffering. But there are other uses of oil
platforms that do create jobs and have other pretenses for
creating thousands of jobs. I will get to some things that I'm
doing with the industry and children and high school students
that are taken very well, but I will read this first.
The Gulf of Mexico is home to 4,000 oil and gas platforms.
They produce one of the most prolific ecosystems by area on the
planet. Stanley and Wilson 2000 reported that 10,000 of 30,000
fish reside around the platforms in an area about half the size
of a football field. Live rock organisms, coral, endangered
species and protected fish and invertebrate colonize the
platform's submerged structure. Many blue water platforms
create complex coral reef ecosystems, comprised Caribbean flora
and fauna that would otherwise not exist in 1,000 square miles
of generally creatureless and silty Continental Shelf.
On behalf of the oil industry, thank you for making the
largest manmade reef system ever.
The platforms clearly produce fish rather than merely
attract fish. An abundance of evidence suggests that they are
Essential Fish Habitat, Coral Habitat and Endangered Species
Habitat. Over 50 species of federally managed fish, crustaceans
and live rock organisms settle and forage around the offshore
structures. The ecosystems they create are not designated as
protected habitat under any of the current Gulf of Mexico
Fisheries Management Plans. Over 120 of them will be removed
every year for the next 40 years. As Mr. Jindal said, that can
be drilled again and into different resources.
Post-larval and juvenile reef fish can be found in
remarkable numbers foraging in the thick mats of live rock and
coral that attach to platform legs. Thousands of herbivores,
such as Angel fish, Blue Tang, chubs and Parrotfish feed on the
algae that grow on platforms. Plankton pickers, such as Brown
Chromas, as you are looking at in the picture there, right
after the red snapper, Creol Wrasse and Creolfish are
continuously feeding on and off the platforms. The invertebrate
community living on the platform support several species of
Filefish, large schools of Spadefish and a multitude of
Sergeant Majors and Hogfish. Ultimately, the sharks, tuna,
groupers, snapper and jacks end up preying on the fish that
live and feed on the platforms. In turn, we get job sources
such as charter fishing.
Photographic evidence demonstrates that 12 species of egg-
laying fish are utilizing platforms to raise their offspring.
More remarkably, platforms are being utilized as surrogate
nesting grounds for several species of drifting and larvae.
Broadcast spawners or pelagic spawners cast fertilized eggs to
the current after mating. The offspring can drift for days,
weeks, or even months in a larvae state. Coral reefs, and in
some cases, sandy habitats trigger a sensory mechanism in the
infant fish that tells the fish to transform into a coral-
stimulate metamorphosis. After transformation, the post-larval
fish must begin feeding or perish. The surface area of the
sponges and other attached invertebrates is teaming with the
essential food items for juvenile and post-larval fish,
plankton, copepods, amphipods, and not to mention us.
Oil and gas platforms represent the only reef habitat over
much of the Louisiana Continental Shelf. During the summer
months, much of the ocean floor in the region is covered with
an anoxic layer of decomposing algae resulting from excess
nitrogen draining from agricultural fields along the
Mississippi watershed. Petroleum structures are incredibly
important to fish in the area, in that they are the only hard
substrate that rises through the anoxic layer to provide reef
habitat, food, spawning areas, nesting areas and mating
grounds.
I charter fish, amongst a few things. A lot of people don't
affiliate oil rigs with tourism. What I have learned over the
past few years is that a lot of people come here based on us
having oilfields. That goes to say with, for example, the
charter industry. I have fished out here for 37 great years
with my father. I have a great strand of memories that head up
La. 1. I'm based now out of Venice, Louisiana, as a charter
captain. We have an enormous amount of people and an enormous
amount of industry growing down there right now, due to the
fact that these oil platforms are in place. And with that,
comes renting cabins and motels, and feeding in our
restaurants, and ultimately, fishing some of the best grounds
in the world. My statement would be they are the best grounds
in the world.
It also has traveled out to the movie industry. I'm right
now in my second pilot with the Discovery Channel, and MTV for
the third time. Through Rife International, we are doing a
movie about a monster that lives underneath an oil rig with
Matthew McConaughey. It is bringing money. It's the oil
platforms that are bringing in money that people don't
recognize.
Not to mention the educational aspect of these platforms
goes way beyond just the field out there, it goes into the
classrooms now. I have been lucky enough to go to Central
Lafourche on behalf of the sponsorship of Chouest with Mr. Ben
St. Pierre, and having the first identification class in the
nation. You ought to see these kids, young men and women. They
are so excited about this, which in turn, creates jobs for
themselves. They might want to be a scuba instructor, they
might want to keep the charter industry going, they might want
be a biologist, scientist. It is endless. You ought to see how
happy they are.
But, also, we have another industry that revolves around
the platforms, and of course, all you guys know, that is
commercial fishing. And the more platforms you put out there, I
think the better off the Gulf will be; mainly because it is--
that's all you need to see right there. That is one of the
largest migrations of tarpon ever filmed. Before that, I had a
scientist tell me that it did not exist. I have been very lucky
to work with scientists and doctors such as Dr. Jose Castro;
Dr. Love out of California; Dr. San Marco; environmental
scientist, Steve Kolian. I have been educated to believe that--
by other folks in other states--to think that these are just
some big giant monsters sitting out there destroying the
ecosystem. It is quite different. Without them, we would not
have an ecosystem.
I was watching a program last night with Dr. William
Hogarth. I'm sure all you guys are aware of him. He was at a
fundraising situation where he wanted to have people eat more
American seafood. The main reason he was there speaking on
behalf of this was because 75 percent of our seafood is
imported, when we have the means right here off this coast to
completely knock that number way, way down. In return, we would
create jobs.
As President Bush is pursuing mariculture and aquaculture
programs, we are taking a great step forward because this is
big, big money. This is jobs for everybody that wants to be in
this industry. And it was quite a shame to hear him say that we
actually import 75 percent of our seafood.
It is pretty much the same thing with the oil industry. Why
should we be importing this much oil when they have all this
technology right here sitting here in this room that can pursue
natural gas and use the other rigs that are out there, expired,
to go for the crude that is still sitting down there?
So, my response, cutting down those oil rigs is not a good
thing because they are creating many, many jobs that people are
really not seeing.
I would like to just say thank you for having me here, and
we need to really look into this drilling further and further
because we have a gold mine underneath every single one of
these platforms, whether it is environmental or for our
economy. Thank you.
[The prepared statement of Mr. Walker follows:]
Statement of Allen Walker, Gulf Productions, Inc.
The Gulf of Mexico is home to 4,000 oil and gas platforms. They
produce one of the most prolific ecosystems, by area, on the planet.
Stanley and Wilson (2000) reported that 10,000-30,000 fish reside
around the platform in an area about half the size of a football field.
Live rock organisms, coral, endangered species, and protected fish and
invertebrates colonize the platforms submerged structure. Many blue-
water platforms create complex coral reef ecosystems, comprised of
Caribbean flora and fauna that would otherwise not exist on thousands
of square miles of generally featureless and silty continental shelf.
The platforms clearly produce fish rather than merely attract fish.
An abundance of evidence suggests that they are Essential Fish Habitat
(EFH), Coral Habitat, and Endanger Species Habitat (ESH). Over 50
species of federally managed fish, crustaceans, and Live rock organisms
settle and forage around the offshore structures. The ecosystems they
create are not designated as protected habitat? Under any of our
current Gulf of Mexico Fisheries Management Plans. Over 120 of them
will be removed every year for the next 40 years.
Post-larval and juvenile reef fish can be found in remarkable
numbers foraging in the thick mats of live rock and coral that attach
to the platform legs. Thousands of herbivores such as Angle fish, Blue
Tang, Chubs, and Parrotfish feed on the algae that grow on the
platforms. Plankton pickers such as Brown Chromas, Creol Wrasse, and
Creolfish are continuously feeding on and off the platforms. The
invertebrate community living on the platforms supports several species
of Filefish, large schools of Spadefish, and a multitude of Sergeant
Majors and Hogfish. Ultimately, the sharks, tuna, grouper, snapper, and
jacks end up preying on the fish that live and feed on the platforms.
Photographic evidence demonstrates that >12 species of egg laying
fish are utilizing platforms to raise their offspring. More remarkably,
platforms are being utilized as surrogate nesting grounds for several
species (>13) of drifting larvae. Broadcast spawners or pelagic
spawners cast fertilize eggs to the current after mating. The offspring
can drift for days, weeks, or even months in the larvae state. Coral
reefs, and in some cases, sandy habitat trigger a sensory mechanism in
the infant fish, that tells the fish to transform into a post-larvae
state. Once currents guide the larvae to the platform, the presence
sponges, hydroids, mollusks, and coral stimulate metamorphosis. After
transformation, the post-larval fish must begin feeding or parish. The
surface area of the sponges and other attached invertebrates is teaming
with the essential food items for juvenal and post-larval fish, i.e.
plankton, copepods, and amphipods.
Oil and gas platforms represent the only reef habitat over much of
the Louisiana continental shelf. During the summer months, much of the
ocean floor in the region is covered with an anoxic layer of
decomposing algae resulting from excess nitrogen draining from
agricultural fields along the Mississippi watershed. Petroleum
structures are incredibly important to fish in the area in that they
are only hard substrate that rises through the anoxic layer to provide
reef habitat, food, spawning areas, nesting areas, and mating grounds.
Obligatory reef fish spend their entire lives on the platforms in
search of food, reproducing and competing for territory.
______
Mr. Gibbons. Mr. Walker, I want to thank you. It is clear
that you are that part of this whole industry that oftentimes
is not recognized, but your voice out there to tell the
benefits in terms of indirect benefits of what this industry
brings to the people of this country and, in fact, the people
of the world, is critically important.
What you have brought to our Committee is very, very
valuable--your testimony--and showing us these slides and
presentations today of the value as well.
In fact, I'm going to go back and tell my young kids that I
was out on the Petronius and looking at the damage to the
substructure, the missing parts of that oil rig. I'm going to
tell them now it was not a hurricane, but it was a monster
living under the rig. I will prove it to them when the movie
comes out showing the monster. They will see it.
Ladies and gentlemen, we have just about five minutes left,
and of course, we have taken, again, a little extra time in
allowing each and every one of you to present your statement
and your testimony to the Committee.
Every one of you, both panels, have been incredibly
articulate and incredibly forceful in the presentation of your
testimony about why we should be paying greater attention to
this industry, to the coast, and to the people of Louisiana.
I just want to turn over here to Mr. Jindal for his closing
remarks after mine, but I want to thank all of our witnesses
today, and I want to thank the Boy Scouts who came today, and I
want to thank Mr. Jindal and Mr. Melancon and his staff for
hosting this Committee. I want to thank Ted Falgout for
providing the facilities and hosting us here at Port Fourchon.
I want to thank the hard-working men and women, many of whom
are sitting in this room, many of whom are out on the rigs
today providing the energy to this country.
We are a blessed country to have such hard-working people,
and truly, every day of our lives, we should say thanks to all
of you for what you do.
So, with that, I want to, once again, say that we will
submit written testimony, or written questions--you have
submitted written testimony--we will submit written questions
to you, and we would appreciate you responding to those
questions as well within ten business days, as we have said.
And most importantly, for this Committee, we have learned a
great deal, but we also have learned that there is a great deal
of brain power out here to solve the problems. We will continue
to turn to you to ask the questions on how to fix the problems,
how to move forward.
As one of you said, it is as important to the advancement
of space, the advancement of deepwater drilling, to get--that
has made this country great. That is a part of you. And I, most
importantly, want to say that I'm going to look forward to my
next trip to the bayou of Louisiana. Thank you.
Mr. Jindal?
Mr. Jindal. Thank you, Mr. Chairman. Thank you again for
taking so much time out of your busy calendar to come down and
spend some time with us. I will briefly comment on this panel
and give my closing remarks.
I want to say that, Dan, thank you for your comments. One
of the things I hope everybody pays attention to is on page 6
of the slides, give you a chance to look at that in some
detail. Dan points out the different prices paid for natural
gas around the world. And he points out that in many countries
that we compete with, they are paying less than one dollar;
whereas our price is well over nine dollars.
One of the statistics I have often heard, and Dan, you can
correct me if this is wrong, that there are 120 facilities
being built worldwide right now, significant chemical
facilities being built worldwide. Exactly one of those is being
built in America. That is troubling to me. As we worry about
our growing trade deficit, as we worry about economic security
and as we worry about jobs being exported overseas, we have
paper mills in this state that are in danger of not being able
to compete because of the cost of natural gas. We have
petrochemical facilities, we have vinyl manufacturers dependent
on those raw materials.
Indeed, I was touring a paper mill that is making some
critical decisions in the next several weeks up in northeast
Louisiana, and their information is that their newest equipment
is older than the oldest equipment on facilities located
outside of this state.
In part, I think what we are saying is, companies aren't
shutting down their facilities overnight, but they won't have
the incentives to make the investments to improve their
technology and expand their capacity. So we are laying the
foundation today for jobs over the next several decades in the
same way that the '60s Louisiana saw the investment of billions
of dollars that has now resulted in these tens of thousands of
good-paying jobs for our children today. I'm worried that if we
don't build that same foundation today, our children won't have
those jobs in just a very short period of time.
So I thank you for your testimony. I hope everybody pays
attention to this chart. You know, we were talking yesterday,
80 percent of Wal-Mart's suppliers are now in China. Not
overseas, but one in one country: China. If we don't do
something about this cost of natural gas, that number is only
going to get worse, not only for Wal-Mart, but for all of our
manufacturing jobs.
Allen, and I want to thank you for your testimony as well.
One of the things that we saw yesterday as we traveled these
platforms, we saw again and again, we saw the porpoises
ourselves, we saw the fish ourselves, we heard from the people
out there. It is not just the abandoned rigs, but we saw an
active production, we saw rigs that are in active production.
The boats are coming to fish around those rigs that you see
fishermen that know this area, know that that's where you can
go to get good fish.
And you are right, if you're responsible, this can be a
win/win. We can absolutely help our environment, and at the
same time we can absolutely help our energy industry.
Cliff, Hank and Greg, I want to thank you for your
testimony. One of the things that I think Hank and Cliff, in
particular, but all three of you have shown, is the changing
technology of the oil and gas industry. We were on platforms
yesterday that in just a few decades have become increasingly
sophisticated. These are the oil production facilities, these
are the service providers that our fathers may remember.
Especially Hank and Cliff. I know you have companies that
your fathers helped to create, you now run them, you have
children, and in some cases, even other relatives living in
this state. I think by your lives, your demonstration of the
multigenerational impact of the energy industry, and not only
your contributions, but your commitment to improving your
community, I think that shows the oil and gas industry is a
very positive economic force. I want to thank you for your
testimony.
In conclusion, again, Mr. Chairman, I want to thank you for
spending your time here. The themes that we think are so
important for this Committee to take away to enter in our
record is the critical role Louisiana is willing to play in
producing our nation's energy. We are proud to play that role.
With record prices of oil and gas, it is important that we
become less dependent on foreign sources of energy.
Second, it is important that our country work with us to
help us restore our coast. We are not asking for Federal
dollars, we are simply asking to be allowed to keep a portion
of the dollars generated for the Federal government to help
restore our coast. It's $5 billion--this year, it will be $8
billion a year the Federal government will be making off of our
coast.
We have heard before that the MMS is the second largest
revenue generator next to the IRS for the Federal government. I
think we would rather generate that revenues by producing
energy than having the increased tax rates. But the only way to
produce that energy is if we restore the coast, if we build the
bridges, if we allow Louisiana to keep a portion of those
revenues.
I want to thank this Committee for their support for those
provisions, not only this past energy bill, but its ongoing
support for the more robust provisions. I want to thank also
the various people that helped to demonstrate to our Committee
that oysters are not endangered here. We have a thriving
seafood industry. We need to protect it. But just because there
are things happening in Maryland, it shouldn't devastate or
negatively impact Louisiana's thriving seafood industry.
Finally, the fact that we can coexist, we can support our
environment while we support the energy industry, and how
important Port Fourchon is when it comes to homeland security.
This isn't just dollars and cents, it isn't just about economic
development, it isn't just about recreational fishing. It is
about all of those things. But it's also about homeland
security. It's about making sure that we have a growing
economy, and that we are not held hostage by foreign countries.
So, I want to thank the members of both of our panels, but
I especially want to thank the Chairman and the Committee staff
that have traveled on their own time to come down here and see
firsthand what so many of us in Louisiana have grown up with
and what we know instinctively. Thank you, Mr. Chairman.
Mr. Gibbons. Again, we want to thank all of our witnesses
today, and if there is no further business to come before the
Committee, we will excuse the panel and this Hearing is now
adjourned.
[Whereupon, the Subcommittee was adjourned.]
[A statement submitted for the record by Ken Wells,
President, Offshore Marine Service Association, follows:]
Statement of Ken Wells, President,
Offshore Marine Service Association, Harahan, Louisiana
My name is Ken Wells and I am the President of the Offshore Marine
Service Association, also known as OMSA. OMSA is the national trade
association representing the owners and operators of vessels that work
in America as well as the world's offshore oil and gas industry. Our
members work in support of that industry by providing transportation
for supplies and personnel, by providing vessels involved in
construction and repair work, and a range of other oil and gas-related
services. Our 250 members own or operate most of the 1200 vessels that
work in the offshore energy sector. These vessels include supply boats,
crewboats, utility boats, liftboats and conventional tugs and barges.
First, thank you for taking the time to visit Port Fourchon. It is
the center of our industry and the jumping off point for much of our
vessel activity. Unless someone has witnessed the port in action, as
you have during your stay here, it is hard to adequately convey what a
vibrant hive of activity and what an economic engine this region has
become.
With that as a starting point, I would like to stress a few points
about the vessels that work here and what they mean to our country.
The workboat fleet is the lifeline to America's offshore oil and gas
industry.
According to the U.S. Minerals Management Service, there are some
four thousand active platforms in U.S. waters. It is worth pointing out
that every pipe, every wrench, every computer, all of the fuel, all of
the drinking water and all of the groceries were carried to those
facilities by vessels. The facilities were towed into place by our
vessels and when they have completed their useful life, our vessels
will help dismantle them. Large numbers of the workers who go to and
from those facilities ride on our crewboats. A wide range of our
vessels, from liftboats operating in just a few feet of water to huge
well stimulation vessels operating deep in the Gulf of Mexico, are
engaged in maintaining offshore facilities and in maximizing the oil
and gas production. When a hurricane blows into the Gulf, our vessels
carry the last workers ashore, sometimes in the very teeth of the
storm.
In short, the vessels working in support of the oil and gas
industry are the lifeline to America's offshore energy supply. A strong
and thriving domestic industry is critical to the long-term success of
that sector and to the nation's ability to draw on those resources.
The U.S.-flag vessels servicing the offshore energy sector are
important to the local economies of the coastal states.
The domestic workboat industry is very much a homegrown industry.
It was developed on the Gulf Coast after World War II in response to
the newly created offshore oil and gas industry. It grew as the need
for its services grew. In the process, it has always maintained its
local flavor and has been a significant part of the local economy.
Our workforce is a national one. Work schedules give vessel crews
the option of living anywhere in the country and returning to the coast
for their three- or four-week hitches on the vessels. But this area has
and will continue to produce the greatest number of skilled mariners
who crew our vessels. They live here and pay their taxes here.
Most of the vessels are built nearby, creating jobs and a large web
of construction and repair-related companies throughout the coastal
states. According to one study, roughly half of the sales for
commercial shipyards take place on the Gulf Coast, with offshore
support vessel-related work accounting for a large percentage of that
revenue.
Significantly, offshore vessels account for a disproportionately
high percentage of the tax base that local counties and parishes
receive from the offshore oil and gas industry. U.S.-flag vessels in
the offshore sector pay property taxes locally. For example, according
to the tax assessor in Lafourche Parish, where Port Fourchon in
located, watercraft taxes represent nearly one third of the entire tax
base. It must be stressed that these taxes are only collected from
U.S.-flag vessels. On those occasions when a foreign-flag vessel is
allowed to work in U.S. waters, the local governments do not receive
anything in property tax payments.
Our industry affects the region is ways that go beyond simple tax
dollars. The companies that are members of OMSA and many of the
crewmembers who work on their vessels have deep local roots that
stretch back to the founding of the industry. They are not just a
funding source for the community. They represent the community and they
have the long-term interests of the community at heart. It is much
harder to pull up stakes and take your operation somewhere else when
you shop in the local stores, send your kids to the local schools and
serve on the boards of the local churches.
The workboat fleet is one of the last truly American pieces of the
offshore energy sector.
By law, vessels transporting merchandise or passengers or towing
anything between points in America must be U.S. owned, crewed and
built. These laws are commonly known as the Jones Act, the Passenger
Vessel Act and the Towing statute. Together, the requirements that they
place on vessels are important to the health of the industry and also
to the health of America's energy policy.
Over the past few years, we have seen the Jones Act increasingly
under attack by foreign vessel operators who use loopholes in the law
to establish a corporate presence in the domestic trade. This has taken
the form of complex lease finance agreements, narrow interpretations of
the law and, most recently, mortgage arrangements in which foreign
vessel owners bankroll U.S. companies. We have needed Congress' help in
closing one loophole after another. I would like to stress that
Congress' continued support for the Jones Act is critical.
The energy sector has become one of the most thoroughly
internationalized industries in the world. It is now possible to go
from the initial planning to the final production for an offshore
prospect and have the entire process controlled by foreign companies,
except for one segment--the vessels which support that project. They
represent the only part of the U.S. offshore industry that must, by
law, be under the control of Americans.
Much has been said of the dependence this country has on foreign
sources of energy and on foreign companies that control the sources of
energy. It is now more important than ever that we protect the
connection that this country has to its own energy resources.
U.S.-flag vessels are critical to the security of the offshore fleet.
Security has emerged as one of the most important reasons that
America needs to protect its domestic fleet and to maintain laws, like
the Jones Act, which ensure that these vessels remain under U.S.
control. There is little question that the U.S. government wants to
protect its offshore energy sources from terrorism, but there is also
little doubt that the government does not have the resources to provide
that security on its own. The U.S.-flag fleet of vessels working
offshore fills in the security gap. Much of the fleet is covered under
Coast Guard-mandated security plans and most of the vessel crewmembers
from OMSA-member companies have gone through industry security
training. Our members work in close partnership with authorities to be
the security eyes and ears for the offshore sector. With hundreds of
vessels working in the offshore fleet and thousands of crewmembers
keeping watch everyday, these vessels represent the true line of
defense in our effort to protect the nation's offshore energy
resources.
In closing, the U.S.-flag support vessels are and will remain a
critical lifeline to America's offshore energy supply. It is more
important than ever that the country recognize the role that this fleet
plays in our economy, our self-sufficiency and our security.
Thank you.