[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]





                          OFFSHORE DRILLING:
                         INDUSTRY PERSPECTIVES

=======================================================================

                           OVERSIGHT HEARING

                               before the

                     COMMITTEE ON NATURAL RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                      Wednesday, February 25, 2009

                               __________

                            Serial No. 111-4

                               __________

       Printed for the use of the Committee on Natural Resources



  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                                   or
         Committee address: http://resourcescommittee.house.gov








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                     COMMITTEE ON NATURAL RESOURCES

              NICK J. RAHALL, II, West Virginia, Chairman
          DOC HASTINGS, Washington, Ranking Republican Member

Dale E. Kildee, Michigan             Don Young, Alaska
Eni F.H. Faleomavaega, American      Elton Gallegly, California
    Samoa                            John J. Duncan, Jr., Tennessee
Neil Abercrombie, Hawaii             Jeff Flake, Arizona
Frank Pallone, Jr., New Jersey       Henry E. Brown, Jr., South 
Grace F. Napolitano, California          Carolina
Rush D. Holt, New Jersey             Cathy McMorris Rodgers, Washington
Raul M. Grijalva, Arizona            Louie Gohmert, Texas
Madeleine Z. Bordallo, Guam          Rob Bishop, Utah
Jim Costa, California                Bill Shuster, Pennsylvania
Dan Boren, Oklahoma                  Doug Lamborn, Colorado
Gregorio Sablan, Northern Marianas   Adrian Smith, Nebraska
Martin T. Heinrich, New Mexico       Robert J. Wittman, Virginia
George Miller, California            Paul C. Broun, Georgia
Edward J. Markey, Massachusetts      John Fleming, Louisiana
Peter A. DeFazio, Oregon             Mike Coffman, Colorado
Maurice D. Hinchey, New York         Jason Chaffetz, Utah
Donna M. Christensen, Virgin         Cynthia M. Lummis, Wyoming
    Islands                          Tom McClintock, California
Diana DeGette, Colorado              Bill Cassidy, Louisiana
Ron Kind, Wisconsin
Lois Capps, California
Jay Inslee, Washington
Joe Baca, California
Stephanie Herseth Sandlin, South 
    Dakota
John P. Sarbanes, Maryland
Carol Shea-Porter, New Hampshire
Niki Tsongas, Massachusetts
Frank Kratovil, Jr., Maryland
Pedro R. Pierluisi, Puerto Rico

                     James H. Zoia, Chief of Staff
                       Rick Healy, Chief Counsel
                 Todd Young, Republican Chief of Staff
                 Lisa Pittman, Republican Chief Counsel
                                 ------                                



















                                CONTENTS

                              ----------                              
                                                                   Page

Hearing held on Wednesday, February 25, 2009.....................     1

Statement of Members:
    Capps, Hon. Lois, a Representative in Congress from the State 
      of California, Prepared statement of.......................    83
    Hastings, Hon. Doc, a Representative in Congress from the 
      State of Washington........................................     3
        Prepared statement of....................................     4
    Rahall, Hon. Nick J., II, a Representative in Congress from 
      the State of West Virginia.................................     1
        Prepared statement of....................................     2

Statement of Witnesses:
    Cejka, Tim, President, ExxonMobil Exploration Company........    31
        Prepared statement of....................................    32
    Harbert, Karen A., President & CEO, Institute for 21st 
      Century Energy, U.S. Chamber of Commerce...................    40
        Prepared statement of....................................    42
    Luquette, Gary P., President, Chevron North America 
      Exploration and Production Company.........................    33
        Prepared statement of....................................    34
    McKay, Lamar, Chairman and President, BP America, Inc........    13
        Prepared statement of....................................    15
    Nichols, J. Larry, Chairman and Chief Executive Officer, 
      Devon Energy Corporation, on behalf of the American 
      Petroleum Institute........................................    22
        Prepared statement of....................................    23
    Odum, Marvin E., President, Shell Oil Company................     6
        Prepared statement of....................................     7

Additional materials supplied:
    Engler, Hon. John, President and CEO, National Association of 
      Manufacturers, Letter submitted for the record.............    84

 
   OVERSIGHT HEARING ON ``OFFSHORE DRILLING: INDUSTRY PERSPECTIVES''

                              ----------                              


                      Wednesday, February 25, 2009

                     U.S. House of Representatives

                     Committee on Natural Resources

                            Washington, D.C.

                              ----------                              

    The Committee met, pursuant to call, at 10:03 a.m. in Room 
1324, Longworth House Office Building, Hon. Nick J. Rahall, II, 
[Chairman of the Committee] presiding.
    Present: Representatives Rahall, Hastings, Napolitano, 
Holt, Costa, Boren, Heinrich, DeFazio, Hinchey, DeGette, Capps, 
Inslee, Sarbanes, Shea-Porter, Tsongas, Kratovil, Duncan, 
Brown, McMorris Rodgers, Gohmert, Bishop, Lamborn, Smith, 
Fleming, Coffman, Chaffetz and Lummis.

STATEMENT OF THE HONORABLE NICK J. RAHALL, II, A REPRESENTATIVE 
          IN CONGRESS FROM THE STATE OF WEST VIRGINIA

    The Chairman. The Committee on Natural Resources will come 
to order, please. The Committee is meeting today as part of a 
series of oversight hearings aimed at examining the nation's 
current offshore drilling policy, with the intention of 
determining where we need to go next. Two weeks ago, Ted 
Danson, Philippe Cousteau and others provided testimony to the 
Committee, predominantly in opposition to expanded drilling on 
the Outer Continental Shelf.
    Yesterday, representatives of coastal states reminded us 
that there are more than simply pro-and-con sides to this 
issue. Today, rounding out the debate, we will hear from some 
of the titans of America's oil and gas industry. As I have 
stated repeatedly, I am not opposed to new drilling. The 
transition to greater reliance on alternative sources of energy 
will not happen overnight, and fossil fuels--oil and gas, and 
coal--will continue to be major assets in America's energy 
portfolio for the foreseeable future.
    But, as was made so very clear yesterday, offshore energy 
development is a complex, multisided issue. The American people 
deserve to understand the risks and benefits that expanded 
drilling on the OCS will bring. There are clear benefits to 
offshore drilling, including jobs, tax and royalty income, and 
money that we keep right here at home instead of sending it 
overseas.
    But the amount of additional oil that we could drill 
offshore is a drop in the bucket of what we would need to 
sustain our economy and meet our energy needs. Even the 
American Petroleum Institute's most optimistic projections, a 
best-case scenario extrapolation requiring that the entire OCS 
be made available, would in 2030--in 2030--provide no more than 
five percent of our total daily energy needs, and displace only 
eight percent of our oil imports.
    These are large volumes of oil, to be sure, but they 
comprise less than half the impact of the increase in fuel 
efficiency standards that Congress passed just over a year ago. 
Last year's heated election-year rhetoric on this topic was not 
the most productive way to move forward. I believe these 
hearings are a vast improvement, and I am confident that we all 
can work together toward a responsible energy policy that meets 
America's needs, reduces our dependence on imports, and 
protects America's important ocean resources.
    I look forward to working with Members on both sides of the 
aisle to ensure a clean and productive future for America's 
oceans, and I want to thank Members on both sides of the aisle 
who have been very attentive to these hearings, and have been 
very productive in their questions and comments. I thank in 
particular the witnesses we have before us today. Some have 
come a long way and taken a tremendous amount of time out of 
their busy schedules, and our Committee deeply appreciates your 
presence.
    With that, I will now recognize our Ranking Member, Mr. 
Hastings.
    [The prepared statement of Mr. Rahall follows:]

       Statement of The Honorable Nick J. Rahall, II, Chairman, 
                     Committee on Natural Resources

    We are meeting today as part of a series of Committee oversight 
hearings aimed at examining the Nation's current offshore drilling 
policy with the intention of determining where we need to go next.
    Two weeks ago, Ted Danson, Philippe Cousteau and others provided 
testimony to the Committee predominantly in opposition to expanded 
drilling on the Outer Continental Shelf. Yesterday, representatives of 
coastal States reminded us that there are more than simply pro and con 
sides to this issue. Today, rounding out the debate, we will hear from 
some of the titans of America's oil and gas industry.
    As I have stated repeatedly, I am not opposed to new drilling. The 
transition to greater reliance on alternative sources of energy will 
not happen overnight. And fossil fuels--oil and gas, and coal--will 
continue to be major assets in America's energy portfolio for the 
foreseeable future. But, as was made so very clear yesterday, offshore 
energy development is a complex, multi-sided issue. The American people 
deserve to understand the risks and benefits that expanded drilling on 
the OCS will bring.
    There are clear benefits to offshore drilling--including jobs, tax 
and royalty income, and money that we keep here at home instead of 
sending it overseas.
    But the amount of additional oil that we could drill offshore is a 
drop in the bucket of what we need to sustain our economy and meet our 
energy needs. Even the American Petroleum Institute's most optimistic 
projections--a best-case scenario extrapolation, requiring that the 
entire OCS be made available--would, in 2030, provide no more than 5% 
of our total daily energy needs, and displace only 8% of our oil 
imports. These are large volumes of oil, to be sure, but they comprise 
less than half the impact of the increase in fuel efficiency standards 
that Congress passed just over a year ago.
    Last year's heated election-year rhetoric on this topic was not the 
most productive way to move forward. I believe these hearings are a 
vast improvement, and I am confident that we all can work together 
toward a responsible energy policy that meets America's needs, reduces 
our dependence on imports and protects important ocean resources.
    I look forward to working with Members on both sides of the aisle 
to ensure a clean and productive future for America's oceans. I thank 
the witnesses for coming today, and I now recognize our Ranking Member, 
Mr. Hastings, for his opening remarks.
                                 ______
                                 

 STATEMENT OF THE HONORABLE DOC HASTINGS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF WASHINGTON

    Mr. Hastings. Thank you, Mr. Chairman. I want to thank you 
today for calling today's hearing. As you mentioned, this is 
the third hearing focusing on how to address solutions for 
developing our OCS resources. Today, we will finally hear from 
individuals who are actively developing oil and gas resources.
    Unfortunately, due to restrictions kept in place by this 
Congress for nearly a generation, most of the development in 
the U.S. has been restricted to just a few areas. I hope that 
today we can hear from the representatives before us about what 
they believe are the resources available in the OCS, how much 
investment and job creation they foresee from expanded OCS 
development, and how best Congress could best put in place 
rules to make OCS development occur.
    One of the largest questions facing Congress is what 
resources are really available in the OCS? While a 2007 MMS 
inventory report shows that there are billions of barrels of 
oil available in the OCS, the real question is how to 
responsibly develop those resources. Estimates in the Atlantic 
Ocean, last surveyed in the 1970s, currently show 3.8 billion 
barrels of oil and 37 trillion cubic feet of natural gas.
    I have been told that if the estimates were to expand in 
the same fashion in the Atlantic that the Gulf of Mexico 
resources have expanded since the 1970s, then we could have 
more than 18 billion barrels of oil and 89 trillion cubic feet 
of gas in the Atlantic Ocean alone. These resources are a 
significant source of American energy development, and a 
tremendous opportunity to help free us from foreign and 
imported oil and natural gas.
    I hope that the witnesses today will give us some sense of 
what they know of the resources in the areas formerly under the 
Congressional moratorium. I am particularly interested in what 
areas they believe are the most productive for the development, 
and thus, their willingness to commit billions of their company 
dollars into exploration and research in finding the resources 
in the OCS.
    At a time when Congress is spending hundreds of billions to 
stimulate the economy, we have before us companies that are 
prepared to spend billions of their own dollars to bring much-
needed job creation and infrastructure to our shores. The only 
hurdle to those billions in investment has been access, which 
until recently has been blocked by the Federal Government.
    Although Congress acted last year to lift the moratorium on 
OCS development, it will require action by the Department of 
the Interior to produce a plan for that development before any 
of our resources can be produced. Sadly, the Secretary of the 
Interior decided to delay the plan for new leasing and 
exploration on the OCS. The true effect of Secretary Salazar's 
six-month delay is, in fact, a reinstatement of a ban on 
drilling.
    Make no mistake, this action has precisely the same result 
as a moratorium, so let us call it what it truly is--a 
moratorium, not a delay. Last August, the Minerals Management 
Service published a draft proposal plan based on lifting the 
Presidential moratorium. That was last August. That draft plan 
was the first step in a long process of getting to OCS 
development, a process which includes resource assessments, 
impact reviews, environmental impact statements and multiple 
options for public comments.
    All this must be in place before we can allow companies 
access to developing our resources, which will create jobs and 
make the U.S. less dependent on foreign-controlled oil. The 
need to move forward with the planning process is more 
important than ever because the development of these resources 
simply won't occur overnight.
    The process of leasing, finding and producing in the OCS, 
particularly deepwater OCS, is one of the most challenging 
technological achievements in the world. The exploration and 
development process, and permitting, has meant that it often 
can take up to 10 years to develop a lease in the OCS. Now that 
we have new areas open, I would like to know what areas could 
be produced sooner than 10 years.
    In addition, I hope for suggestions on how we could shorten 
the time it takes to bring needed energy resources on line for 
the American consumer. Last year, the House repeatedly 
considered legislation based on the premise that companies were 
taking too long in the nonproducing or expiration period of 
their leases, and should instead be punished for not producing 
faster.
    I hope that we can examine what we could do to help speed 
the process along so that, when we begin to act on OCS 
development, we can see the end of the tunnel in the production 
of these resources. In addition, I hope that my colleagues who 
have not been as familiar with the lengthy process will hear 
firsthand of the difficult procedures that must be followed 
before production can occur.
    Finally, Mr. Chairman, I know that I have said it before, 
but OCS development isn't just about energy. It is also about 
creating new American manufacturing jobs and building the 
infrastructure to harness this energy. Offshore drilling has 
the potential to create millions of high paying jobs throughout 
each development phase, from exploration and platform 
investments to production and refining.
    Studies have shown that it would have the spillover effect 
of creating thousands of jobs across the country in other 
industries associated with offshore oil and gas production. 
America is too dependent on foreign nations for energy 
supplies.
    We can, and should, determine the most responsible way to 
develop our OCS resources, and I hope that the witnesses today 
will help us determine the best course of action to accomplish 
that goal. So, Mr. Chairman, I look forward to hearing from our 
witnesses today.
    [The prepared statement of Mr. Hastings follows:]

       Statement of The Honorable Doc Hastings, Ranking Member, 
                     Committee on Natural Resources

    Mr. Chairman, I want to thank you for calling today's hearing. This 
is the third hearing focusing on how to address solutions for 
developing our OCS resources. Today we will finally hear from 
individuals who are actively developing oil and gas resources. 
Unfortunately, due to restrictions kept in place by this Congress for 
nearly a generation most of the development in the U.S. has been 
restricted to just a few small areas.
    I hope that today we can here from the representatives before us 
about what they believe are the resources available in the OCS, how 
much investment and job creation they foresee from expanded OCS 
development and how best Congress could put in place rules to make OCS 
development occur.
RESOURCES
    One of the largest questions facing Congress is what resources are 
really available in the OCS. While a 2007 MMS inventory report showed 
that there are billions of barrels of oil available in the OCS, the 
real question is how to responsibly develop those resources.
    Estimates in the Atlantic Ocean, last surveyed in the 1970's, 
currently show 3.8 billion barrels of oil and 37 Trillion Cubic feet of 
natural gas. I have been told that if the estimates were to expand in 
the same fashion that Gulf of Mexico resources have expanded since the 
1970's, then we would have more than 18 billion barrels of oil and 89 
Tcf of gas in the Atlantic Ocean alone. These resources are a 
significant source of American energy development and a tremendous 
opportunity to free us from foreign oil and imported natural gas.
    I hope that the witnesses today can give us some sense of what they 
know of the resources in the areas formerly under Congressional 
Moratoria. I am particularly interested in what areas they believe are 
the most productive for development and their willingness to commit 
billions of their companies' dollars into exploration and research in 
finding the resources in the OCS.
INVESTMENT
    At a time when Congress is spending hundreds of billions to 
stimulate the economy, we have before us companies that are prepared to 
spend billions of their own dollars to bring much needed job creation 
and infrastructure to our shores. The only hurdle to those billions in 
investments has been access, which until recently has been blocked by 
the federal government.
    Although Congress acted last year to lift the moratoria on OCS 
development, it will require action by the Department of Interior to 
produce a plan for that development before any of our resources can be 
produced. Sadly, the Secretary of the Interior decided to delay the 
plan for new leasing and exploration on the Outer Continental Shelf.
    The true effect of Secretary Salazar's six month delay is a 
reinstatement of a ban on drilling. Make no mistake; this action has 
precisely the same result as a moratorium. So let us call it what it 
truly is, a moratorium, not a delay.
    Last August, the Minerals Management service published a Draft 
Proposal Plan based on the lifting of the Presidential moratoria. That 
DRAFT plan was the first step in a long process of getting to OCS 
development, a process which includes resource assessments, impact 
reviews, environmental impact statements and multiple options for 
public comments.
    All this must be in place before we can allow companies access to 
developing our resources, which will stimulate the economy, create jobs 
and make the U.S. less dependent on foreign controlled oil.
TIMELY PRODUCTION
    The need to more forward with the planning process is more 
important than ever because the development of these resources won't 
simply occur overnight. The process of leasing, finding, and producing 
in the OCS, particularly deep water OCS, is one of the most challenging 
technological achievements in the world.
    The exploration and development--process and permitting--has meant 
that it often can take 10 years to develop a lease in the OCS. Now that 
we have new areas opened, I want to know what areas could be produced 
sooner than 10 years. In addition, I hope for suggestions on how we 
could shorten the time it takes to bring needed energy resources online 
for the American consumer.
    Last year, the House repeatedly considered legislation based on the 
premise that companies were spending too long in the non-producing, or 
exploration, period of their leases and should instead be punished for 
not producing faster. I hope that we can examine what we could do to 
help speed the process along so that when we begin to act on OCS 
development, we can see the end of the tunnel in the production of 
those resources.
    In addition, I hope that my colleagues who may not be as familiar 
with the lengthy process will hear firsthand of the difficult 
procedures that must be followed before production can occur.
JOBS--CLOSING
    Finally, Mr. Chairman I know I have said it before but OCS 
development isn't just about energy, it is also about creating new 
American manufacturing jobs and building the infrastructure to harness 
this energy. Offshore drilling has the potential to create millions of 
high-paying jobs throughout each development phase--from exploration 
and platform investments, to production and refining. Studies have 
shown it would also have spill-over effects, creating thousands of jobs 
across the country in other industries associated with offshore oil and 
gas production.
    America is too dependent on foreign nations for our energy 
supplies. We can and should determine the most responsible way to 
develop our OCS resources and I hope that the witnesses today will help 
us determine the best course of action to accomplish that goal.
    I look forward to hearing from our witnesses.
                                 ______
                                 
    The Chairman. Thank you, Mr. Hastings. Let us move on with 
our panel composed of the following individuals: Mr. Marvin E. 
Odum, the President of Shell Oil Company; Mr. Lamar McKay, the 
Chairman and President of BP America; Mr. J. Larry Nichols, the 
Chairman and CEO at Devon Energy Corporation, testifying on 
behalf of the American Petroleum Institute; Mr. Tim Cejka, the 
President of ExxonMobil Exploration Company; Mr. Gary P. 
Luquette, the President of Chevron North America Exploration 
and Production Company; and Karen A. Harbert, the President and 
CEO, Institute for 21st Century Energy, U.S. Chamber of 
Commerce.
    Lady and gentlemen, we welcome you to the Committee, and 
again, appreciate your taking the time to be with us today, and 
look forward to hearing your expertise and your testimony. We 
do have your prepared testimony. It will be made part of the 
record as if actually read. You may proceed as you wish, and in 
the order that I announced, under the five-minute rule.

            STATEMENT OF MARVIN E. ODUM, PRESIDENT, 
                       SHELL OIL COMPANY

    Mr. Odum. Thank you. Chairman Rahall, Ranking Member 
Hastings and Committee Members, thank you for the opportunity 
to be here today to talk about the critical role of the OCS in 
America's energy future. I would like to just briefly summarize 
my written testimony which has been submitted for the record. I 
commend the Committee. With all Americans concerned about jobs 
and the economy, I think this hearing is very timely.
    A comprehensive energy policy is critical to our economic 
recovery. As President Obama said last night, we must invest in 
energy to reduce our dependence on foreign oil. I am hopeful 
that Congress and the Administration will develop an energy and 
environment plan that addresses today's realities. Let me 
highlight just a few of those, as I see them.
    First, I am concerned that our country has been lulled once 
again into complacency by the drop in the price of oil. Oil is 
now trading in the $30s, down from the $140 range that we saw 
just last summer, but the energy challenge that dominated the 
headlines and gripped households has not vanished. It is simply 
hidden by the current economic slowdown.
    When the economy recovers, the energy challenge will 
return, and I believe it will return with a vengeance. I urge 
Congress needs to anticipate this and act now. Second, I am 
concerned that the debate will default to the same all-or-
nothing choices--either alternative energy and conservation, or 
fossil fuels. Such a deadlock will not lead to forward 
progress.
    The facts are clear. Growing global demand dictates that 
all sources of energy and efficiency will be needed to fuel 
economic growth. Yes, policies are needed that will lead to the 
commercialization of green energy sources, but we must be 
realistic. The transition to this future will take time, even 
under the most optimistic circumstances.
    This is not about a tradeoff. It is about a transition, and 
the reality is that fossil fuels will be a major source of 
energy for the coming decades. The economic benefits of new oil 
and gas production simply cannot be overlooked, especially in 
the difficult circumstances that we face today. Producing more 
of our own energy will create jobs and fuel economic recovery. 
It will keep investment dollars here rather than exporting 
trillions of dollars to pay for imported oil. It will increase 
energy security, and it will generate significant new revenues 
for Federal, state and local governments.
    Offshore development is a critical part of a comprehensive 
U.S. energy policy. Our nation should not return to a blanket 
moratorium. A moratorium, in my mind, is neither a strategy, 
nor a solution. Mr. Chairman, I do not support carte blanche 
offshore drilling. I agree with the need to address import 
issues, such as marine sanctuaries, ``no go'' areas, ecosystems 
and the management around those, states' rights and revenue 
sharing.
    I welcome the opportunity to work with you and Secretary 
Salazar on how these concepts can work, and how we best 
implement them. Access in the OCS is about more than just 
holding a lease sale. A case in point is Shell's experience in 
Alaska, where we are experiencing what I would call a de facto 
moratorium. I think this is important because it could be an 
indicator of what we may see as we open other areas for 
exploration and production.
    The Alaska OCS is open for leasing. The resource potential 
is enormous. Shell paid the Federal Treasury over $2 billion 
for leases and has made additional investments, of course, to 
prepare for the exploration for oil and gas. Despite several 
years of effort, we have yet to be able to drill a single 
exploratory well.
    We have learned firsthand several aspects of our regulatory 
and legal system need to be addressed as we look at opening new 
areas. The new Administration, I know, is working for better 
government. In that spirit, what I am asking for is an 
efficient, well-resourced and coordinated regulatory process 
that functions in a timely manner.
    Mr. Chairman, keeping 85 percent of our OCS off-limits 
while trillions of dollars to import our energy needs go 
offshore is not sound policy. We have the technology, we have 
the expertise, and the OCS can be explored and developed safely 
and responsibly to the great long-term benefit of this nation. 
Thank you, and I look forward to addressing your questions.
    [The prepared statement of Mr. Odum follows:]

       Statement of Marvin E. Odum, President, Shell Oil Company

    Mr. Chairman and members of the Committee,
    Thank you for the opportunity to testify before the Committee. I 
would like to thank Chairman Rahall for having this series of hearings 
to examine the OCS and the role it can play in helping America meet the 
energy challenge, and for inviting me to participate in this hearing 
regarding the energy industry's perspective on the future of the U.S. 
Outer Continental Shelf.
    These hearings are timely as a new Congress and a new 
Administration work to address the global economic recession, and our 
energy and climate challenges. I believe that all of these challenges--
the economy, energy and climate change--should be addressed 
holistically.
    Shell's testimony today about our perspectives on the U.S. OCS will 
focus on the following points:
      In order to meet the energy challenge, the U.S. needs 
access to more domestic oil and gas and the U.S. OCS offers a 
tremendous resource, much of which is untapped. The OCS is a critical 
part of the solution.
      Our experience in the Gulf of Mexico and elsewhere shows 
that we can produce oil and gas safely and efficiently, and our 
technology is helping us produce more with a smaller environmental 
footprint.
      Access to more OCS energy will help fuel the economy and 
provide additional stimulus to the economic recovery. It will mean jobs 
and benefits to the local community and revenues to the federal 
treasury. We will need more OCS oil and gas to transition to the 
renewable fuels of the future.
      In order to effectively access new areas, such as the 
Alaska OCS, we need to fix the regulatory system to make government 
work better. Federal agencies need to work together and be adequately 
funded. With this and a productive partnership between government, 
industries and other stakeholders, we can address concerns about 
adequate safeguards for communities and ecosystems.
About Shell
    Before we address these points, I would like to provide a little 
background about Shell. We are an integrated oil and gas company, 
dedicated to meeting ever-growing energy demands efficiently and 
responsibly. Shell puts safety, sustainability, the global search for 
viable new energy sources and innovative technologies at the heart of 
how we do business.
    We have a robust portfolio in North America that consists of 
offshore and onshore exploration and production, unconventional 
resource development, oil products manufacturing and distribution, 
chemicals, LNG, hydrogen and renewables, including wind and biofuels.
    In 2009, we expect to invest between $31 and $32 billion worldwide 
to develop a broad portfolio of energies.
Three Hard Truths
    At Shell, our commitment to exploring for and developing new energy 
resources stems from our recognition of Three Hard Truths:
      First, global demand for energy has been accelerating 
and, when global economies recover, will continue to accelerate as 
emerging nations grow and their citizens acquire more buying power.
      Second, given this growth, existing and developing energy 
sources will struggle to keep up with demand and oil and gas resources 
will be needed for decades to come.
      Third, increased energy use will mean increased stress on 
the environment--a factor which must be addressed.
    There has always been tension in the global energy system, but 
those strains are becoming more acute as the world grapples with these 
realities. Although the recent economic slowdown has tempered energy 
demand, this is only a temporary situation. When global economies 
revive and grow--especially those in China, India and other parts of 
the developing world--we will once again see accelerating energy 
demand. World energy demand is projected to increase by roughly 50 
percent over the next 20 years and could double by 2050. To address 
this demand, we will need hydrocarbons, alternatives/renewables and 
significant progress in efficiency.
    The United States imports more petroleum than it should and the 
cost is enormous. According to the EIA:
      More than 12 million barrels per day are imported, nearly 
60 percent of our consumption.
      Imports cost the U.S. more than $600 billion last year.
      The U.S. could produce more of our own resources, rather 
than having others produce theirs for us.
    The choice is clear. We can continue to import increasing volumes 
of oil and gas, or we can develop more of our own domestic resources. 
Producing more oil and gas in our own country is a ``no lose'' 
proposition. It provides real economic and security benefits. With 
increased domestic production, less money is exported from the US, more 
money is invested in the U.S. and federal revenues increase through 
royalties and taxes. This can be done in a way that provides 
appropriate environmental protections based on solid science and an 
understanding of ecosystems and the impact of oil and gas activities on 
them.
    As we move to meet the nation's energy needs, we recognize that 
environmental challenges, both changes in terms of climate change and 
local pollution, are increasing. We need to embrace policies that 
address not only the global energy challenge but also these 
environmental challenges. We can sum it up in five words: More Energy--
Carbon Dioxide Solutions. Shell supports a cap and trade program to 
address CO2.
    The United States needs a national climate change policy that is 
built within the context of energy demand--realistically recognizing 
the amount of energy that will be required to grow the economy. Human 
ingenuity combined with business acumen and political will has helped 
us clean up rivers, improve air quality, and make acid rain in the U.S. 
history. It is the same human ingenuity that will solve the climate 
piece of the challenges we face.
    Fundamentally, it comes down to government taking its role in 
defining a framework. We need to create a viable, efficient and 
workable market; and free enterprise will innovate and solve this 
problem. The energy industry has a key role to play, including working 
on carbon capture and storage technology solutions. Currently, this 
technology is too expensive and our country lacks a regulatory 
framework to enable this technology.
    Renewables and energy efficiency will play a greater role as well. 
Shell is investing heavily in sustainable next generation biofuels, 
including woodchips, biomass waste, and algae. We are testing new solar 
technologies and have a wind business in North America. Shell foresees 
strong future growth for alternative energy forms paced by:
      the speed of technological development,
      public and private investment capacity,
      government policies, and
      the affordability of energy supply.
    Developing effective policies to address our energy and climate 
challenges can only be possible through joint, concerted efforts 
between governments, industry, consumers and other important 
stakeholders.
Economic Benefits
    Shell believes that addressing the Energy Challenge head-on will 
result in jobs and economic benefits to the nation that can help us 
recover from the current financial crisis.
      The oil and gas industry is one of America's largest 
employers, with employees in all 50 states.
      The industry has some of the highest paying jobs in the 
US, about two times the national average.
      Domestic OCS oil and gas activities support other 
industries as well as local economies across the nation.
      The oil and gas industry makes a significant contribution 
to the Federal treasury and more access will mean more revenue.
      The more energy we produce in the US, the less we will 
need to import from other countries.
    According to the U.S. Minerals Management Service (MMS) revenues 
from the OCS leasing program are the second largest federal revenue 
source behind the U.S. Treasury Department. MMS collected and 
distributed a record $23.4 billion to state, American Indian and 
federal accounts from onshore and offshore energy production in 2008.
    Employment in the energy sector can and will have a positive impact 
in pushing economic recovery. A recent study commissioned by the 
American Petroleum Institute showed that a substantial number of new 
jobs would result from making new areas available for oil and gas 
leasing. Oil and gas activities are an excellent source of employment. 
The industry directly employs about two million people at an average 
salary of $93,000 per year and there are an additional four million 
jobs indirectly related to oil and gas activities.
    Future OCS activities would produce more federal revenues. 
According to a study recently released by ICF International, 
development of America's oil and natural gas resources that have been 
kept off-limits (both offshore and onshore) could generate more than 
$1.7 trillion in government revenue, create thousands of new jobs and 
enhance our nation's energy security.
    A growing oil and gas sector has a positive impact on many other 
sectors of the economy. A few of the many industries that would benefit 
directly and indirectly from a growing oil and gas sector include iron 
and steel, aviation, electronics, agriculture, construction, chemicals, 
plastics, marine vessels, telecommunications, manufacturing, trucking 
and transportation. Most of these industries have expressed their 
support for expanded access to the OCS.
    Our industry does not need funds from the stimulus package in order 
to create jobs and economic growth--we need access to new oil and gas 
resources.
OCS Experience: Gulf of Mexico
    While Shell is committed to addressing the many facets of the 
energy challenge, the focus of this testimony will address the topic of 
the hearing ``Industry Perspectives on the Outer Continental Shelf.'' 
Our experience in the Gulf of Mexico has shown us that:
      We can drill safely and efficiently with an ever-
decreasing environmental footprint.
      Technology enables us to find and produce oil and gas 
further from shore and at greater depths.
      It can take years to develop the technology and 
innovations that can result in a commercial project.
      The 10-Year Lease Term is key to enabling us to explore 
deeper and more challenging areas.
    We have been exploring the Gulf of Mexico safely and efficiently 
for decades. During that time we have developed a host of new 
technologies that have enabled us to find and produce oil and gas in 
ever-deeper waters, more than 8,000 feet, and at greater depths below 
the sea floor. At the same time, advances in subsea equipment and 
technology allow us to produce more oil and gas, from fields and wells 
scattered over a wider area, through sea floor pipeline tiebacks to a 
single platform. In practice, the number of producing wells one 
platform can handle is limited only by onboard processing capacity. All 
of this significantly minimizes the environmental footprint.
    For example, our Mars tension leg platform produces about 140,000 
barrels of oil and 165 million cubic feet of natural gas every day. It 
produces from 34 wells: 24 direct to the platform and another 10 remote 
wells producing through subsea equipment then feeding through single 
dedicated pipes up into Mars' processing and export systems. By itself, 
the Mars platform accounts for about 3 percent of all U.S. crude 
production and 1 percent of the nation's total daily consumption.
    The Gulf of Mexico remains a significant petroleum province and we 
expect to achieve further success through continued sound geological 
work, combined with leading-edge technology. Shell is one of the 
leading deepwater producers in the Gulf. Shell-operated total gross 
production in the Gulf averages more than 500,000 barrels of oil 
equivalent every day.
    We believe that the Gulf of Mexico, and indeed the U.S. OCS, has a 
bright future. But in order for this domestic resource base to continue 
to make its contribution to the U.S. economy, we will need more running 
room through access to new areas in the Gulf, Alaska and elsewhere.
Environmental Record
    Shell's record of preventing and minimizing oil spills in offshore 
drilling and production operations is excellent. Shell has had no 
significant offshore well blowouts in more than 30 years and no 
significant platform spills in more than 25 years--worldwide.
    That record is reflected widely across industry due to advances in 
technology, such as subsea wellheads, control valves and robotics and 
diligent operations. According to the National Academy of Sciences less 
than 1% of hydrocarbon pollution in all U.S. waters now comes from 
drilling and extraction, while natural oil seeps contribute 63%. As a 
description of how diligently this is tracked and reported, Shell 
routinely tracks and reports oil spills of less than a tablespoon.
    There has been much discussion about oil spills associated with 
strong hurricane activity in the Gulf of Mexico in recent years. As a 
result of Katrina in 2005, one of the strongest hurricanes recorded in 
history, Shell lost no oil from any Gulf of Mexico wells. We did spill 
325 barrels of crude oil from a damaged oil storage tank on one 
platform. Wind and wave action dispersed it at sea. This was the only 
spill from our offshore assets that is directly attributable to this 
storm. Our Mars platform was severely damaged, but held fast in 200+ 
mph winds and 120-foot waves.
    As a result of Hurricane Ike in 2008, it is estimated that Shell 
spilled 59.5 barrels of oil from a heavily damaged Pipeline Crossover 
Platform. This estimate was made after underwater inspection and again, 
the oil was dispersed by the elements during the hurricane. In all of 
2008 Shell had about two-thirds of a barrel (about 28 gallons) spilled 
from all of our offshore drilling and production assets combined.
    In 2007 there were 38 spills from our drilling and producing assets 
totaling only 27.24 gallons (less than 1/3 barrel). In 2006 the total 
spill volume was less than one-and-a half barrels (<63 gallons). These 
totals include all reportable spills down to drops of oil capable of 
producing mere sheen on the water.
    There has never been an oil spill caused by a well blowout from 
offshore exploration and production in state or federal waters off 
Alaska or Canada--over 110 wells have been drilled.
Diligent Development of Leases
    There has been much talk in recent months about oil companies not 
developing the leases they already have. There are some who are making 
a case that this is a justification for not offering new areas for oil 
and gas development. While the ``use it or lose it'' concept makes a 
catchy ``bumper-sticker'' slogan, the arguments that are being made to 
support it are not grounded in reality. In fact, we evaluate all of our 
leases. Prior to drilling there are a number of activities that are 
taken on our leases as part of our overall exploration program. These 
activities include, but are not limited to, geological model building, 
seismic acquisition and processing and reservoir analysis. The fact is, 
most are obtained in the exploration phase and the vast majority will 
not result in the finding of commercial quantities of oil and gas. This 
is one of the key commercial risks inherent in this business.
    Lease expirations and delay rental payments are a key component of 
the offshore leasing program. The 5- and 10-year primary terms, during 
which lessees must make additional ``delay rental payments'' in the 
event that they do not conduct operations on a lease, provide the 
lessees with the necessary time to internally ``develop'' a lease 
before actual operations take place on the lease. At the end of a 
primary term, a lessee can no longer maintain the lease by making delay 
rental payments. At that point, it must have conducted operations in 
order to maintain the lease beyond the primary term. Thus, the MMS 
already has a ``use it or lose it'' system in place. Shell is a strong 
proponent of this system.
    When we find commercial quantities, we develop them. If we 
determine that a lease is not prospective, we return it to the 
government. In fact, last December we relinquished 19 lease blocks in 
the Beaufort Sea to the Federal government when we determined that they 
were not prospective.
    Shell holds 400 federal offshore leases in the Gulf and about a 
quarter of them (96) are producing. More than 80% are in deep and 
ultra-deep water. Shell will continue to be an industry leader in the 
Deepwater Gulf of Mexico, a frontier we pioneered more than a decade 
ago. In the past five years, we have produced nearly one billion 
barrels of oil in the Gulf.
    Shell has been a leader in finding oil and gas in greater depths in 
the Gulf of Mexico. The 10-year lease term has been essential to 
allowing the development of deepwater oil and gas leases where new 
technology is needed in order to economically find and produce 
commercial quantities of hydrocarbons. A case in point is the Perdido 
Development Project, a world-class project Shell and other participants 
are undertaking in 7800 feet of water and about 200 miles south of 
Galveston, Texas.
    The project includes four discoveries on 10 leases in a 30-mile 
area. The first leases were acquired in 1996. At the time Shell 
acquired these leases, the deepest projects in the Gulf of Mexico were 
in about 3,000 feet of water. We did not have the technology to develop 
oil and gas resources in 7,800 feet of water depth, but we did have 
faith in our ability to develop new technology that would enable 
commercial development under the lease terms we were granted by the 
federal government.
    Around the turn of the decade Perdido is expected to yield 100,000 
barrels of oil per day and 200 million cubic feet of natural gas per 
day. It will be the deepest offshore oil development in the world, as 
well as the deepest drilling and production facility and the deepest 
subsea well (at Tobago in 9627 feet of water). I have attached a recent 
Popular Science magazine article entitled ``The World's Deepest Oil 
Well'' that does a good job of explaining the technical feats involved 
in bringing Perdido on line.
    Shell is involved in a number of near-field exploration projects 
where we are able to bring leases to the production phase relatively 
quickly because they are near existing development projects.
    The Deimos field, in 3,000 feet of water, 130 miles south of New 
Orleans, produces oil and gas from three wells tied back to Shell's 
Mars platform four miles away. Deimos is a prime example of existing 
infrastructure--a big platform, processing equipment and export 
pipelines--expediting the delivery of energy to market. The project 
moved from the go-ahead at final investment decision to first oil 
production in just 15 months. Stand-alone development would have taken 
at least seven years.
    The Gulf of Mexico oil and gas leasing program has been extremely 
successful for more than 50 years, aruably one of the most successful 
leasing programs in the world. This success is based on the maintenance 
of a system that provides balance, certainty and continuity to both the 
companies that purchase leases and the government and taxpayers who 
benefit from it. The current system provides stable lease terms for the 
government and oil and gas companies.
OCS Experience in Alaska: A de facto Moratorium
    In 2005, Shell was awarded leases in the Alaska OCS and we have 
acquired additional OCS acreage in subsequent federal lease sales. Our 
experience in Alaska has shown that:
      The area potentially has tremendous offshore energy 
resources that could provide a substantial benefit to the country.
      Despite being issued these leases, Shell has been unable 
to drill exploration wells due to legal challenges.
      The current regulatory system can be inefficient and 
hinder development of resources in new areas.
    According to MMS, Alaska's OCS has enormous oil and gas potential 
with an estimated 25 billion barrels of oil and 122 trillion cubic feet 
of natural gas. Development of these resources will benefit the nation 
and the state of Alaska, both economically and as a bridge to future 
fuels. Shell has made a significant investment to explore and develop 
these resources in a responsible way but has not yet been allowed to 
take the first step. Litigation against the government has resulted in 
a de facto moratorium for the Alaska OCS.
    Exploring for oil and gas offshore Alaska is not new. In the 1980s, 
Shell acquired federal leases and drilled seven exploratory wells in 
the Beaufort Sea. Although we found oil and gas, production from these 
wells was not economically viable at that time. To date there have been 
a total of 30 wells drilled in the Beaufort Sea and five wells drilled 
in the Chukchi. There have been over 110 wells drilled in the Canadian 
and U.S. Arctic waters.
    Shell returned to Alaska in 2005 and has participated in several 
Federal lease sales. We have paid the Federal Treasury nearly over $2 
billion for the right to lease the acreage. We currently have 434 
leases in the Beaufort Sea and the Chukchi Sea. We have invested 
heavily in equipment, support vessels, baseline studies, and workforce 
training in order to take the first step to explore for oil and natural 
gas. We have assembled what is arguably the most environmentally 
sensitive and thoroughly responsible exploration plan in history.
    However, as mentioned earlier, we have yet to drill a single 
exploration well. There are many lawsuits challenging Federal 
government actions in the Alaska OCS. Only one court in one lawsuit has 
issued a ruling that stops the work. In 2007, the U.S. 9th Circuit 
Court of Appeals issued an injunction against the permit MMS issued 
approving Shell's plan of exploration. This injunction effectively 
blocked our exploratory work in both the 2007 season and the 2008 
season. After nearly 16 months, in December 2008, the court ruled and 
ordered the MMS to vacate its approval of our Beaufort Sea Plan of 
Exploration pending further environmental studies.
    Let me stress that I fully support the permitting work and the 
regulatory requirements that Congress has put in place to protect the 
environment. And I am not suggesting that this process become a rubber 
stamp--quite the opposite. My objective is to have a valid process that 
leads to a timely decision. Endless delays and inefficiencies should 
not be tolerated because it is a waste of effort and money for all 
concerned, Shell and the government and the taxpayer. Congress should 
consider legislative solutions that would, for example, require legal 
challenges to federal permits to be resolved in a reasonable timeframe. 
It should ensure that federal agencies are adequately funded so that 
environmental studies and other requirements can be performed on time. 
Finally, Congress should consider establishing an a pilot office in 
Alaska to coordinate the regulatory activities of all the federal 
agencies that address energy activities in Alaska can share resources 
and work together on studies, permits and other activities regarding 
these projects.
    All of this uncertainty in Alaska is keeping an important resource 
from the American people and is keeping benefits from the citizens of 
Alaska. Let remember that a successful OCS program in Alaska will:
      Create thousands of jobs in Alaskan and outside Alaska.
      Generate billions of dollars of direct revenues to the 
Federal treasury as well as to the state and local communities.
      Extend the life of the Trans Alaska Pipeline System--a 
valuable resource to Alaska and the nation.
      Improve the economic justification for the Alaska Gas 
Pipeline project.
    We understand that we need to protect the environment and Arctic 
ecosystem. Shell is ready to move forward with an exploration program 
that does just that. We also need to remember that the potential energy 
security benefits of the Alaska OCS are great. I urge Congress to 
examine the issues raised here--the regulatory process and litigation--
that currently hinder exploration in the Alaska OCS. The same issues 
will arise if and when other OCS areas are opened. It is imperative 
that we address them now and address President Obama's goal of making 
government work.
Key Policies Going Forward
    Shell believes that there remains enormous energy potential on the 
OCS. Developing those resources can have a substantial impact on the 
U.S. economy and jobs, energy security, federal revenues and coastal 
states and communities. Properly expanding our oil and gas development 
on the OCS requires policy that:
      Recognizes the resource potential and impact on the U.S. 
economic recovery.
      Provides access to new areas on the OCS.
      Provides adequate environmental and community safeguards.
      Extends OCS revenue sharing beyond the four Gulf of 
Mexico coastal states.
    According to the U.S. Minerals Management Service, there are 466 
trillion cubic feet of natural gas and more than 96 billion barrels of 
oil yet to be discovered on the Outer Continental Shelf, including 
Alaska. To put that in perspective, that is enough natural gas to heat 
100 million homes for 60 years and enough oil to fuel 85 million cars 
for 35 years. If we are going to utilize this resource and make it work 
for the American people, we need for government to take action.
    Until last year, most offshore areas in the U.S. were restricted by 
Congressional withdrawal. Given the sustained high energy demand in the 
U.S. and globally, access to these resources under the long-respected 
government lease planning program is imperative. While I believe that 
much can be accomplished through that process, other issues like the 
need to address the regulatory system and its vulnerability to 
litigation requires more scrutiny.
    Shell would like to work with Congress and regulatory agencies to 
enable proper exploration and development in the OCS in areas 
including:
      Marine Sanctuaries and No-Go Areas
      Ecosystem Based Management
      OCS Revenue Sharing
      State's Rights Issues
    I would like to emphasize that states and communities adjacent to 
offshore development will have infrastructure needs such as roads, 
housing and schools for workers and their families, enhanced sea port 
and air terminal facilities, greater demands for basic public services 
and other expenses common to economic growth. For that reason we 
encourage Congress to extend the revenue sharing made available to four 
Gulf of Mexico states through the Gulf of Mexico Energy Security Act to 
other states and coastal communities that have oil and gas leasing off 
their coasts. Providing revenue sharing to states and local communities 
with future oil and gas production off their coasts would not take 
money out of the federal treasury. It would bring new money into the 
federal treasury and provide an incentive for states and local 
communities to support such activities.
    We encourage a healthy discussion of these issues through the 5-
Year Planning process and through informative hearings like those that 
are being held in this Committee. Ultimately, the government needs to 
decide what areas need to be made available for leasing and under what 
conditions. Those decisions need to be based on science and we need to 
act quickly and decisively so that we can begin developing these new 
energy sources that will enable us to meet the energy challenge and 
create new jobs and revenues for the American people.
    For too many years the energy and environmental debate has been 
framed as an ``either-or'' and ``us-against-them'' proposition. It is 
wrong to frame the OCS issue in this way. It is not a trade-off between 
energy and economic value versus the environment. It is counter-
productive to pose it as these false choices. We need to come together 
around the facts, reject the myths and move forward on solutions that 
will fuel the economic growth.
    [NOTE: The Popular Science magazine article entitled ``The World's 
Deepest Oil Well'' has been retained in the Committee's official 
files.]
                                 ______
                                 
    The Chairman. Thank you, Mr. Odum. Mr. McKay?

  STATEMENT OF LAMAR McKAY, CHAIRMAN AND PRESIDENT, BP AMERICA

    Mr. McKay. Chairman Rahall, Ranking Member Hastings, 
Members of the Committee, good morning. My name is Lamar McKay, 
and I represent more than 33,000 people working for BP in the 
United States. BP is the country's leading producer of oil and 
natural gas, and the largest investor in U.S. energy 
development. Our more than 13,000 service stations, most of 
them locally owned and operated, are a familiar part of the 
American landscape.
    We are here today to support an important part of America's 
energy plan: opening the Outer Continental Shelf, opening that 
shelf for evaluation and exploration. This strategic policy 
decision will allow the industry to invest tens of billions of 
dollars to create jobs for the American people, to diversify 
and expand the nation's energy supply, to generate new revenues 
for Federal and state governments, and do it while preserving 
the natural environment that we all enjoy.
    We also understand the desire for greater efforts toward 
efficiency and energy conservation, for higher mileage 
automobiles, and the need to develop low-carbon fuel for 
transportation. BP supports these efforts. We were the first 
energy company to recognize the need to tackle climate change, 
and we are active in the effort to meet the world's growing 
demand for sustainable, environmentally responsible energy.
    In alternatives, we are investing $8 billion over 10 years 
in solar, wind and biofuels development. At the same time, we 
must face certain realities. When the current economic downturn 
ends, the nation's energy demands will increase once more. Even 
with major investments in efficiency and new energy sources, 
the Energy Department projects the U.S. will rely on fossil 
fuels for its primary energy needs for decades to come.
    Where will those fuels come from? As domestic U.S. energy 
production has lagged in recent years, oil imports have risen. 
We now depend on imported oil for about 65 percent of America's 
needs. Almost alone among the producing nations of the world, 
the U.S. has heretofore decided not to fully develop its 
domestic hydrocarbon endowment. A commitment by Congress to 
such development is one of the surest ways of diversifying, 
securing and enhancing the nation's energy supply.
    Some of the most potentially promising areas for 
exploration lie off our shores in the OCS. Estimates of the 
amount of oil and natural gas recoverable from closed areas 
vary. The Interior Department estimates that there may be as 
many as 30 billion barrels of oil-equivalent recoverable 
reserves utilizing today's technology. There might be more. 
There might be less. We can't know unless we evaluate and 
explore.
    Conducting low-density seismic surveys and evaluations of 
the entire OCS is an indispensable first step to identifying 
areas that might be suitable for eventual production. This will 
allow more focused, higher-density seismic surveys to be 
carried out in the most promising areas. We also support 
revenue sharing with coastal states. Such arrangements have 
been put in place recently in Louisiana, Texas, Mississippi and 
Alabama.
    Opening up new areas would also benefit the Nation as a 
whole. Royalties from onshore and offshore energy production to 
Federal and state governments, as well as American Indian 
tribes, totaled $23.4 billion in 2008. Given similar oil 
prices, those numbers would likely increase significantly if 
the OCS were opened for further development. It would also 
create a substantial number of good-paying American jobs.
    We know that 21,000 jobs in Louisiana, with a payroll of 
$1.2 billion, depend directly on OCS oil and gas production 
offshore that state's Gulf Coast. Many more jobs, of course, 
are indirectly tied to such activity. BP supports an all-of-
the-above energy strategy with investments across the board in 
fossil fuels, as well as low-carbon alternatives, but limiting 
or taxing one form of energy production while subsidizing 
another is unlikely to result in a net gain for the nation's 
energy supply.
    BP is serious about bringing new sources of oil and gas to 
the U.S. market. We are also serious about building a 
sustainable, profitable, renewable energy business, one capable 
of delivering the clean, affordable energy consumers want. My 
company is ready to work to address the energy and 
environmental needs of this nation through a bipartisan and 
comprehensive energy policy. Thank you.
    [The prepared statement of Mr. McKay follows:]

            Statement of Lamar McKay, Chairman & President, 
                               BP America

    My name is Lamar McKay and I am the Chairman and President of BP 
America.
    BP appreciates the opportunity to appear before this panel and 
present our views on exploring for potential new sources of oil and 
natural gas in areas of the federal Outer Continental Shelf (OCS). The 
needs of our country require that we explore for new domestic sources 
of energy that are secure and reliable in good times and in tough 
times.
    I represent the 33,000 employees at BP working in the United 
States. We are not only the largest oil and gas producer in the United 
States, but also the company that invests in the most diverse energy 
portfolio in the industry. Since 2004, we have invested more than $34 
billion in the U.S. to increase existing energy sources, extend energy 
supplies and develop new low-carbon technologies.
    BP's investments stretch from the Gulf of Mexico to the North Slope 
of Alaska and from the East Coast to the Midwest and the West Coast. 
Our over 13,000 service stations--most of them locally owned and 
operated--are a familiar part of the American landscape.
    The company's major spending programs also touch every major 
segment of the energy industry, from exploration and production of oil 
and natural gas through refining and distribution of fuel products, as 
well as renewables.
    By heavily investing in a diverse range of energy sources--from 
traditional oil and natural gas production to renewable energy 
including biofuels, solar, wind and hydrogen power--BP is helping meet 
America's energy needs today while moving towards a more secure energy 
future.
    In 2008, BP's U.S. production of liquid hydrocarbons was 538,000 
bpd, about 10 percent of U.S. domestic production and the largest of 
any single producer. Our gas production was over 2 Bcfd.
    BP's solar business has been in operation for over 30 years and 
last year had sales of 162 MW globally. This represents an increase of 
29% over 2007 and expectations are there will be significant growth 
through 2009.
    We are major investors in wind generation and have amassed a land 
portfolio capable of potentially supporting up to 20,000 megawatts (MW) 
of wind generation, one of the largest positions in the country. As of 
year-end 2008, BP and its partners had 1,000 MW of wind generation on-
line and expect to have an installed capacity of approximately 2,000 MW 
of wind power by the end of 2010.
    We are one of the largest blenders and marketers of biofuels in the 
nation. Last year, BP blended over 1 billion gallons of ethanol with 
gasoline. We are underwriting cutting-edge research--investing more 
than $500 million over the next 10 years--in the search for a new 
generation of biofuels. We believe these will contain more energy, have 
less impact on the environment, and will not reduce the supply or 
increase the cost of food.
    Overall, we support an energy policy that promotes the development 
of both traditional and non-traditional sources of energy, as well as 
conservation and efficiency. At the same time, our approach has been 
shaped by some stark realities about America's energy outlook.
Stark Realities
    The relatively low oil and gasoline prices American consumers are 
now enjoying masks the fact that our country faces tremendous energy 
challenges. Years of contradictory public policies, poor market 
dynamics and company decisions have combined to limit access to 
resources, discourage development and constrain new investment. No 
company or industry on its own is large enough or powerful enough to 
change the conditions that brought us here. But energy companies, 
policymakers and consumers together have roles to play in creating a 
new energy future for our country.
    This relationship must be shaped by the recognition that the U.S. 
economy needs both to better conserve energy and to produce more energy 
of every type to meet future growth. We need to invest in conventional 
oil and gas. We also need to invest in renewables to begin the 
transition to a lower-carbon future. However, we must all understand 
that this future is many years away and that these new energy sources 
will not make a large contribution to total U.S. energy supply for many 
years.
    This view is reflected in a 2007 study issued by The National 
Petroleum Council--Facing the Hard Truths About Energy. I have 
integrated its observations and conclusions below and added emphasis as 
necessary:
        There is no single, easy solution to the global challenges 
        ahead. Given the massive scale of the global energy system and 
        the long lead-times necessary to make material changes, actions 
        must be initiated now and sustained over the long term. Over 
        the next 25 years, the U.S. and the world face hard truths 
        about the global energy future:
      Coal, oil, and natural gas will remain indispensable to 
meeting total projected energy demand growth.
      The world is not running out of energy resources, but 
there are accumulating risks to continuing expansion of oil and natural 
gas production from the conventional sources relied upon historically. 
These risks create significant challenges to meeting projected total 
energy demand.
      To mitigate these risks, expansion of all economic energy 
sources will be required, including coal, nuclear, biomass, other 
renewables, and unconventional oil and natural gas. Each of these 
sources faces significant challenges including safety, environmental, 
political, or economic hurdles, and imposes infrastructure requirements 
for development and delivery.
    The benign energy environment we are now experiencing may not last. 
Growth in the demand for energy will resume when our economy starts 
growing again. The U.S. Energy Information Administration (EIA) 
projects that energy demand will increase 11 percent by 2030. If 
anticipated U.S. needs are combined with those of the rest of the 
world, at growth rates of three percent, EIA projects that a 35 percent 
expansion in global oil production will be needed. That equates to an 
additional 30 million barrels of oil every day.
    Finding that oil will be neither simple nor cheap. The era of 
``easy oil'' may be over. New supplies are harder to find, more 
difficult and more expensive to extract, and are often located in 
politically unstable parts of the world. Wherever they come from, 
bringing new supplies to fuel our homes, businesses and transportation 
needs will require the investment of hundreds of billions of dollars.
    Let me take the opportunity to put to rest a major energy myth, 
namely that there is no more energy to be found here in the US.
    In fact, the United States is a sleeping giant when it comes to 
energy.
      We have a 100-year supply of coal. There is little doubt 
that, with ``clean coal'' and carbon capture technology, we could be 
using a lot more coal in the coming decades to heat our homes and 
recharge our electric cars.
      We have huge deposits of oil shale in many of our Western 
states.
      We have the potential to generate much more safe, clean, 
reliable electricity via nuclear energy than we are doing today.
    But until technologies such as clean coal, carbon capture and 
renewable sources can come on line in a major way, far and away the 
greatest potential source of new domestic energy supply is the oil and 
natural gas that lies off our shores.
    Here in the US, we have deliberately constrained our own supply by 
limiting access to promising areas for leasing, exploration and 
development. American domestic oil production has fallen by around 4 
million barrels per day since 1985. At the same time, demand has risen 
by roughly similar amounts, so the gap must be filled by imports.
    And when world demand rises--as it did recently, particularly in 
China and India--it makes those imports more expensive. That accounts 
in part for the dramatic rise in oil prices we experienced last summer.
    A more secure and reliable source of energy closer to home is also 
essential to our country's long-term economic and energy well-being. As 
we have seen repeatedly since the first oil shock in 1973, wildly 
spiking and plunging oil prices kill jobs. Energy drives economic 
growth but few businesses--as we are seeing now--are willing to make 
investments in an atmosphere of great uncertainty.
    The slowing of investment--the number of operating U.S. oil rigs 
has fallen to 1399, the lowest number since July 2005--presents a real 
risk to our economy. Prices could rise once again when the recovery 
occurs because investment may not be sufficient to offset the natural 
decline in the resource base. The challenge for all of us is to not 
allow this cyclical decline to create a structural loss in capacity. We 
must continue to invest in new technology and infrastructure 
development at the bottom of the cycle to provide continued access to 
supplies.
    Areas of the OCS that have historically been off-limits to 
exploration can and should play a substantial role in closing this 
supply gap as well as securing our economic future. It is not the 
entire answer to the energy challenge we face, by any means, but the 
U.S. can't fashion an answer to its energy challenge without it.
    A Department of the Interior study estimates the amount of oil to 
be found in areas that have been off-limits to exploration at 17.8 
billion barrels. That's equal to 30 years of U.S. imports from Saudi 
Arabia. The same study put natural gas reserves at 76 trillion cubic 
feet, or enough to meet America's requirements for over 10 years.
    These are DOI estimates. There could be more. There could also be 
less. We can't know unless we are given the opportunity to lease and 
explore.
    The journey from access to production is a long one. A tremendous 
amount of preparation as well as infrastructure, both onshore and 
offshore, is required for successful development.
    That's why we support a thoughtful and deliberate approach to this 
issue. As a first step, we propose the acquisition of new regional 2D 
seismic data in the OCS in order to identify the most prospective 
regions. From there, closely spaced 2D or 3D seismic data can be 
acquired to identify the best prospects in each area. Such surveys are 
costly and complex to plan and implement, but vastly increase the 
information content. This ``virtual drilling'' protects the environment 
by providing greater accuracy in mapping deposits and reduces the need 
for drilling exploratory wells.BP In the Gulf of Mexico
    The track record of BP and the industry generally in the Western 
and Central Gulf of Mexico (GOM) demonstrates that when areas are 
opened, they can be leased, explored and developed to the highest 
environmental and operational standards in the world.
    Our investments in the Gulf of Mexico are a remarkable American 
success story. Since 1985, oil production from the deepwater Gulf has 
increased 15-fold, from 58,000 to 870,000 barrels per day, or more than 
one in six barrels of oil produced in the US. It's also more than all 
the oil the U.S. imported on an average day from Angola, Indonesia, 
Kuwait, Libya, and Russia combined in 2007. 1
---------------------------------------------------------------------------
    \1\ EIA, ``US Imports By Country of Origin,'' Annual Thousand 
Barrels per Day.
---------------------------------------------------------------------------
    We operate in water depths that exceed 1 1/2 miles--more than six 
Empire State Buildings stacked one on top of another--and well depths 
as great as 30,000 ft--the normal cruising altitude of a commercial 
passenger jet.
    Further, we have had to cope with operating temperatures and 
pressures greater than any we have ever experienced. For example, a 
typical military fighter jet is capable of operating in an 8 G 
environment, while oil and gas drilling tools regularly experience 
forces in excess of 200 Gs. Despite these challenges, industry 
responded to government encouragement to invest, explore and develop 
the deepwater resource base.
    The dramatic rise in deep-water production in the GOM also 
demonstrates an elemental truth about our business: the more we know, 
the more we can produce. As knowledge and technology advances, deposits 
once thought to be beyond reach or uneconomical to extract eventually 
become viable.
Diligent Development of Leases
    I'd like to address an issue that has received a great deal of 
attention by some in Washington. The notion that the industry does not 
diligently develop the oil and gas leases it currently holds. For BP, 
this misperception is troubling as the leases we hold represent the 
future potential for oil and gas production--that is our business.
    Companies spend millions to acquire leases with very little 
knowledge of their resource potential. I wish it were not so, but every 
lease does not contain oil and natural gas in commercial quantities. 
But, in order to determine that, we undertake extensive geologic 
evaluations that extend over many years. It is through this process 
that we develop the understanding, confidence and technology to drill 
and develop a resource. The chart on page 18 graphically displays this 
lease maturation process overlaid by a typical development timeline.
    The dollars we invest in this process are similar to venture 
capital for our company. We have an obligation to not only our 
shareholders but also to the U.S. to spend them wisely.
    I am sure you would agree that all agricultural lands are not 
created equal--that is the expectation you can get the same yield of 
corn in the Arizona desert as you can in the heartland of the Midwest. 
So it goes with oil and gas leases. As the U.S. Department of Interior 
points out, a lease does not guarantee the discovery of oil and gas. 
Well success rates for onshore leases are about 10% for new areas. 
While success rates on deepwater offshore leases are about 20%.
    The industry has had great success in the 15% of the OCS that is 
currently available for development. Since 1995, more than 750 new 
exploration wells have been drilled, yielding over 100 announced 
discoveries, much of which used technologies only dreamed of as little 
as two decades ago. As a result of these efforts, 7 of the top 20 U.S. 
oil fields are in the deep water of the Federal OCS. Since 1995, 
natural gas and oil produced from the deepwater have expanded by 620 
and 535 percent, respectively.
    By evaluating the potential of the remaining 85% and undertaking 
responsible development, we believe this success can be replicated.
The Role of Technology
    The energy industry isn't usually classified as a high-tech 
business, but it truly is. This technology has been instrumental in 
protecting the environment. Today's offshore oil drilling technology 
bears about as much resemblance to what was available in the 1960s as a 
rotary dial telephone does to an iPhone.
    I have already mentioned improved seismic imaging, which allows us 
to locate and map deep oil and gas deposits with vastly greater 
accuracy and less environmental disturbance per barrel of oil produced. 
But there is much more.
    For example:
      With directional and extended reach drilling, we can 
connect multiple wells to a single platform located miles offshore, 
thus reducing or even eliminating the visual ``footprint'' of permanent 
energy operations;
      All offshore wells have downhole flow control valves that 
shut down the well automatically if damage to the surface valves is 
detected;
      Blowout preventer (BOP) technology has improved 
tremendously since early offshore drilling in the 1960's, and includes 
redundant systems and controls.
      New and improved well control techniques maintain 
constant control of the fluids in the well. Sensors continually monitor 
the subsurface and sea bed conditions for sudden changes in well 
pressure.
      We run emergency drills regularly, and all of our 
platforms have contingency plans that identify procedures, response 
equipment and key personnel needed for coping with oil outside 
containment. Also, since Congress passed the Oil Pollution Act of 1990, 
vastly greater resources are now in place to cope with ``worst case'' 
discharges.
    The amount of oil introduced into the marine environment by oil and 
gas operations has fallen dramatically since the early 1970s. In fact, 
between 1991 and 1999, 35 times more oil was introduced into North 
American waters by recreational boaters than by offshore oil 
operations. 2
---------------------------------------------------------------------------
    \2\ Oil in the Sea III, Committee on Oil in the Sea: Inputs, Fates, 
and Effects, National Research Council; Table 2-2 Average, Annual 
Releases (1990-1999) of Petroleum by Source (in thousands of tonne).
---------------------------------------------------------------------------
    A study by the National Academy of Sciences found that, worldwide, 
the amount of oil introduced into the marine environment had fallen by 
80 percent. Offshore oil production accounted for just four percent of 
that total, even as such production increased 204 percent in the same 
period.
    Looking specifically at the OCS, around 1.4 million barrels of oil 
per day are pumped from the OCS. According to MMS data, since 1980, 
less than .001 percent, or one one-thousandth of one percent, has 
escaped containment.
    Loss of oil from tankers has also become far less likely than in 
earlier decades, thanks to the advent of double-hulls and other safety 
measures. Nevertheless, between 1971 and 2000, more oil was released 
into U.S. waters as a result of tanker operations (45 percent) than 
from OCS drilling (two percent). In the absence of increased domestic 
production, the U.S. will have little choice but to increase the amount 
of oil it receives from other sources via tankers.
    For those who continue to question the safety of offshore energy 
operations, I can only point to our record in the GOM. Hurricanes 
Katrina, Rita, Ike and Gustav caused serious damage to oil rigs and 
pipelines throughout the area and shut many of them down for a time. 
But our personnel and safety systems were up to the challenge. There 
were no instances of significant oil leakage or spills.
    Our technology will only improve as we go forward. At the same 
time, it makes strategic sense to diversify our offshore production 
activities away from areas subject to regular severe weather events 
such as the GOM. When domestic supply comes from a variety of areas, 
geographically speaking, those vulnerabilities can be minimized or 
reduced significantly.
The Role of Policy
    As we look to the future, the U.S. investment climate remains 
challenging. Government policy can both be a vital enabler of new 
development or an unfortunate impediment to much needed investment. 
Over the last several years, numerous efforts have unnecessarily 
burdened viable and critical infrastructure projects; promising 
development areas remain out of reach; existing manufacturing 
operations have been challenged in their efforts to upgrade and expand; 
and new taxes have been proposed that will discourage future energy 
resource development. Furthermore, these stumbling blocks exist across 
the energy profile, and are not just confined to oil and gas 
activities.
Support for Renewables
    Emblematic of these gaps are policy discussions concerning how to 
support and fund the development of new energy resources like wind, 
solar and biofuels. Not surprisingly, policymakers and consumers 
generally support efforts that promote the development of renewable 
energy. As reflected in our investment portfolio, BP concurs with this 
sentiment. However, there is significant divergence of opinion 
regarding the question of how to fund the necessary financial 
incentives.
    BP supports transitional incentives for wind, solar, and biofuels. 
They are an important part of why the U.S. has been so successful in 
developing its renewable energy sector, but we cannot support taxes 
that discourage efforts to bring on other much needed energy sources 
(oil and gas production). This is not a recipe for increasing America's 
total energy production.
Biofuels
    Similar policy concerns exist in the area of biofuels. EISA of 2007 
created significant opportunities to develop and grow the contribution 
of biofuels to the transportation fuels market. BP believes that 
biofuels may be able to attain penetration rates of 20% or more by 2030 
thus playing a significant role in meeting future transportation needs. 
However, the legislation has created challenges that could in the end 
create market distortions, supply disruptions and higher consumer 
prices if not adequately addressed.
    The implementation timetable of the RFS program is very aggressive, 
creating a risk to delivery of fuel in sufficient quantities to the 
markets where it is needed. Congress, while mandating biofuels 
blending, did not adequately assess whether the market was prepared to 
accommodate the huge storage, transportation and delivery 
infrastructure requirements necessary to get the product to the 
consumer. In addition, given the recent economic downturn and reduction 
in gasoline demand, mandated blending levels are expected to outstrip 
the ability of the market to absorb the volumes as early as 2010, 
potentially threatening the integrity of the program.
    BP supports accelerating research to test, evaluate and approve the 
use of higher biofuel blends. Further, we support efforts to transition 
incentives away from first generation biofuels to support the research, 
development and deployment of advanced non-food feedstocks, conversion 
technologies and fuel molecules. Similarly, policymakers should explore 
how trade policy can be improved to stimulate greater worldwide 
biofuels production and supply options for the US.
Climate policy
    Our nation faces difficult choices as we take steps to foster 
economic growth, ensure our nation's energy security and protect the 
environment. Chief among these environmental concerns is that of global 
climate change.
    BP has long advocated for the creation of a single, mandatory U.S. 
greenhouse gas emissions registry and a market-based price for carbon. 
Market-based programs deliver the greatest and fastest reductions at 
the least cost. Just as important, they create a level playing field, 
meaning that everyone must be part of the solution and first movers 
aren't placed at competitive disadvantage.
    The fact that Congress has not yet addressed national climate 
policy has not deterred some from trying to impose requirements as if a 
national policy existed.
    During the last Congress, legislation was adopted to discourage 
development of Canadian oil sands--the single largest oil resource base 
outside of Saudi Arabia. Additionally, a bill was introduced to prevent 
the U.S. from utilizing its world leading resource position in coal for 
power generation. Similarly, efforts continue to either allow or 
encourage state or local jurisdictions to try and impose CO2 
reduction targets on individual projects in order to make them 
uncompetitive and further discourage resource development.
    Why do I mention these examples? They clearly represent efforts to 
limit energy development opportunities that would enhance U.S. energy 
security, economic development and environmental protection. And, in 
the absence of a national climate policy, these approaches will 
proliferate and likely result in a piecemeal regulatory approach that 
will stifle investment of all kinds.
    We believe Congress needs to adopt a national climate policy that 
establishes a price for carbon. This policy mechanism will allow 
companies to make better investment decisions and consumers more 
informed behavioral choices. To do otherwise stifles the very 
technology breakthroughs and developments Congress supports.
Energy Security
    Over the years, U.S. policy has, in effect, encouraged oil and gas 
providers to look beyond the U.S. border to meet growing U.S. energy 
demands, yet policymakers often question our reliance on foreign oil 
imports. Policymakers have also implored OPEC to produce and develop 
its own oil resources in order to reduce crude oil prices in the US.
    The U.S. should strive to more fully develop its own resource 
base--to make a greater contribution to world oil supply--otherwise we 
will increasingly rely on imported energy to meet the needs of our 
growing economy.
    The U.S. experience in the deepwater Gulf of Mexico is instructive 
in evaluating the role of policy. The development of the deepwater GOM 
was no accident or coincidence. Positive federal policies, including 
the Deepwater Royalty Relief Act of 1995, were instrumental in bringing 
the deepwater GOM online. Since its passage, GOM deepwater production 
has increased 15-fold to nearly 900,000 barrels/day.
Federal and State Governments Will Benefit
    Increasing access to the OCS represents a potential highlight on 
the energy horizon--enabling job creation, generating much needed 
revenues for local, state and federal governments, improving the 
nation's energy security, reducing the transfer of wealth and expanding 
the manufacturing sector.
    Our industry directly employs 1.8 million Americans, with at least 
another four million indirect jobs supporting the industry. And these 
are good-paying jobs. Oil and natural gas exploration and production 
wages in 2006 were more than double the national average. 3 
These employees are covered by comprehensive health care for which the 
industry pays billions. America lost nearly 600,000 jobs last month 
alone. We can and need to keep America's energy industry working to 
deliver energy security for all of us.
---------------------------------------------------------------------------
    \3\ Numbers drawn from Energizing America: Facts for Addressing 
Energy Policy, p. 30; API, 1/18/09.
---------------------------------------------------------------------------
    Royalties paid to the federal government by our industry are among 
its largest single sources of revenue. In FY 2008, the Interior 
Department disbursed to the federal government, state treasuries and 
American Indian tribes a record $23.4 billion from both onshore and 
offshore energy production, including over $10 billion in bonus bids 
alone to acquire leases. These revenues, of course, benefit all 
Americans.
    On the state level, BP believes that a revenue sharing program, 
similar to that which is now in place under the Gulf of Mexico Energy 
Security Act of 2006 for Louisiana and other Gulf Coast energy 
producing states, is fundamental to the success of a long term OCS 
leasing and development program.
    Last November, the MMS announced it was disbursing $2.59 billion to 
35 states as their share of federal revenues collected from energy 
production within their borders, including oil and gas drilling off 
their shores. Alabama received $15.8 million; Texas $21.6 million; 
Louisiana $49.5 million, and California $103.4 million.
    Virginia, by contrast, received just $227,154.44; Florida and South 
Carolina did far less well than that, receiving just $6,298 and $277.50 
respectively. North Carolina received nothing. At a time when states 
are facing record budget shortfalls, these are revenues that could be 
augmented significantly under an expanded OCS access program. 
4
---------------------------------------------------------------------------
    \4\ ``Interior's Minerals Management Service Disburses Record $23.4 
Billion in FY 2008,'' press release, DOI, 11/20/08.
---------------------------------------------------------------------------
    We believe that coastal economies at the local, state and regional 
level will see significant, positive benefits from increased OCS 
access. While it is impossible to know with precision, we can examine 
the experience of other states. In Louisiana, for instance, 21,000 jobs 
with an estimated payroll of $1.2 billion depend directly on oil and 
gas production on the OCS. 5
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    \5\ Louisiana Mid-Continent Oil and Gas Association website.
---------------------------------------------------------------------------
    An appropriately structured revenue sharing program designed to 
benefit coastal communities should provide funds to help mitigate any 
real or perceived impacts from development. With proper planning, these 
communities, working with industry and government, can learn and 
benefit from past experiences and best practices from other 
jurisdictions.
    According to an ICF International study, developing America's 
domestic oil and natural gas resources in areas where leasing has been 
prohibited could generate a total of more than $1.7 trillion in 
government revenue, create over 160,000 new jobs and significantly 
boost domestic petroleum production.
    The ICF study also suggests that opening offshore and onshore areas 
would lift U.S. crude oil production by as much as two million barrels 
per day in 2030, offsetting nearly a fifth of the nation's imports. 
Natural gas production could increase by 5.34 billion cubic feet per 
day, or the equivalent of 61 percent of the expected natural gas 
imports in 2030.
Time Frames and the Need for Informed Choices
    It has been said that allowing increased oil and gas exploration 
off America's shores isn't worth it, since it will take years before 
any newly discovered energy starts reaching American consumers. The 
same can be said for new wind projects as well, however. The reality is 
that energy projects of scale require significant lead-time to plan, 
permit, litigate, procure and construct.
    One of the things you learn quickly in the energy business is that 
nothing happens quickly. Ours is an industry that has no choice but to 
take the long view. Oil used to heat Americans' homes and power their 
automobiles today is available as the result of decisions taken by 
policymakers and business leaders years or even decades ago. The sooner 
we start, the sooner the American people will start seeing the 
benefits.
    The United States has one of the world's most restrictive policies 
when it comes to accessing resources on its Outer Continental Shelf. In 
an increasingly globalized world economy, this serves only to increase 
dependence of the US--and increasingly places our energy future in the 
hands of others. In recent years, we have witnessed American officials 
requesting oil producing nations to boost output for our benefit.
    There are no silver bullets or magic formulas when it comes to 
energy. Our nation requires a comprehensive ``all-of-the-above'' 
approach to energy.
    We must be realistic. Exploration alone will not solve our energy 
dilemma. Likewise, conservation and efficiency efforts without 
increased production are a recipe for ongoing scarcity and economic 
decline.
    Until we can bring new, renewable energy sources online in a big 
way in the decades to come, safe, environmentally-conscious oil and gas 
production off our shores holds the best prospect for providing our 
nation's economy with the growing and secure energy supply it needs.
    BP stands ready to work with Congress to develop the policy 
measures necessary to make this happen.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 
    The Chairman. Mr. Nichols?

  STATEMENT OF J. LARRY NICHOLS, CHAIRMAN AND CHIEF EXECUTIVE 
OFFICER, DEVON ENERGY CORPORATION, TESTIFYING ON BEHALF OF THE 
                  AMERICAN PETROLEUM INSTITUTE

    Mr. Nichols. Thank you, Mr. Chairman. I am Larry Nichols, 
Chairman and CEO of Devon Energy Corporation, and also Chairman 
of the American Petroleum Institute. Devon is the largest U.S. 
independent natural gas and oil producer in the United States. 
That means our sole focus is on exploration and production, and 
not downstream activities.
    The API is, of course, the largest trade association 
representing our industry--with over 400 companies in all 
aspects of the U.S. natural gas and oil industry, including 
exploration and production, but also refining, marketing, 
transportation, as well as the service companies that support 
our industry.
    This core sample that I am holding here today is an example 
of why I am excited about the offshore, and the potential that 
the offshore has for the economic foundation for our industry, 
even as we move forward on alternate energy sources, and as we 
move forward on improved energy efficiency. This core, this 
rock, is from a discovery well that was drilled some three-and-
a-half miles deep, about 18,000 feet, offshore New Jersey in 
1979, 30 years ago.
    That well was drilled before the embargoes were put in 
place, the moratorium were put in place. It is a dramatic 
reminder of the time that we have already lost in exploring for 
energy resources that were put under the moratorium. It is also 
a reminder that drilling, even in those days, was done safely.
    Developing the untapped natural resources off our coast can 
help put our nation on the road to economic recovery, provide 
jobs, higher income, economic growth, greater governmental 
revenues and global competitiveness. As my predecessors have 
said here, when our nation recovers from this crisis, which it 
will, we need to be prepared to meet its increased demand for 
energy. That is where the offshore continental shelf can play a 
big role.
    The Energy Information Administration estimates that 
natural gas and oil will continue to meet more than half of our 
energy our country needs in 2030. Such a demand will be there 
even with a new climate policy, and in the case of clean-
burning natural gas, our cleanest burning fuel, that demand can 
even be higher. Much of that energy demand can be found 
offshore. The size of those offshore resources may, in fact, be 
much larger than even the most robust estimates that we may 
have today.
    That is because the more we explore, the more we know. One 
thing is clear. It is a fallacy to claim that most of our 
offshore resources have already been discovered and already 
been leased. Obviously, the best data we have is in areas that 
we have already explored and drilled. What we do not know is 
what is really out there in the previous moratoria area, and we 
cannot know that until we have an active and ongoing 
exploration program, but we can make estimates.
    The United States Department of the Interior has estimated 
that the Atlantic and Pacific offshore continental coasts 
contain 55 trillion cubic feet of gas and 14.3 billion barrels 
of oil. The eastern Gulf of Mexico, they estimate, contains 
21.5 trillion cubic feet of gas and 3.7 billion barrels of oil. 
That is a lot of resources for this country.
    In fact, our experience in the western half of the Gulf of 
Mexico, the one area offshore where we have been allowed to 
drill, illustrates how these estimates can be extremely low. If 
you look at the original estimates that were made for the Gulf 
of Mexico in the western half, we have already produced three-
times those estimates, and the wells we have that are now 
producing have another five-times, so we are now sitting today 
at eight times the original estimate for the western part of 
the Gulf of Mexico.
    In fact, in the eastern part of the Gulf of Mexico where 
the moratoria is in place, there are trillions of cubic feet of 
gas that have already been discovered. Those wells were not 
allowed to be completed, despite the fact that there is a 
pipeline that goes right by some of those fields--pipelines 
that could carry that gas to Florida very, very quickly, and 
gas that would probably expand in capacity as additional fields 
along that pipeline were developed.
    But let me come back to this core sample. Advanced 
technology has revolutionized the exploration process for 
natural gas and oil in this country. Today we have tools that 
we did not have 10, and 20 and 30 years ago. One only needs to 
look at the Barnett Shale, which today is the largest gas field 
in the United States. Ten years ago, we did not have the 
technology to do it.
    We hope the moratorium will remain lifted. We hope we will 
allow an expeditious process for the Minerals Management 
Service. The ICF, a recent engineering study--and this was a 
report done by the API--has shown that our natural gas 
resources will produce 160,000 new jobs and $1.7 trillion in 
governmental revenue. That is a lot of jobs and a lot of 
revenue that this nation desperately needs.
    We look forward to working with this Committee to try and 
produce a rational policy that will allow the development of 
those resources. Thank you.
    [The prepared statement of Mr. Nichols follows:]

             Statement of J. Larry Nichols, API Chairman, 
             on behalf of the American Petroleum Institute

    I am J. Larry Nichols, Chairman and Chief Executive Officer of 
Devon Energy Corporation and Chairman of the American Petroleum 
Institute.
    Devon Energy is the largest U.S. ``independent'' or natural gas and 
oil exploration-and-production company. That means that our sole focus 
is on finding and producing these energy sources--not refining and 
marketing. Most recently, our search for hydrocarbons has extended to 
the deepest offshore waters.
    API represents nearly 400 companies involved in all aspects of the 
U.S. natural gas and oil industry, including exploration and 
production, refining, marketing and transportation, as well as the 
service companies that support the industry. We welcome this 
opportunity to present the industry's views on the role of offshore 
natural gas and oil development in meeting the nation's economic and 
energy needs.
    In addition to API, this statement is supported by the American 
Exploration & Production Council, Independent Petroleum Association of 
America, International Association of Drilling Contractors, National 
Ocean Industries Association, Petroleum Equipment Suppliers 
Association, and the U.S. Oil & Gas Association.
I. Introduction
    Developing the untapped resources of natural gas and oil off our 
coasts can help put our nation on the road to economic recovery, 
providing jobs, higher incomes, economic growth, greater government 
revenues and global competitiveness. The economic downturn has 
significantly reduced energy demand in recent months, and some 
companies have reduced drilling accordingly. However, when our nation 
recovers from this crisis, we need to be prepared to meet its increased 
demand for energy.
    The Outer Continental Shelf (OCS) has a central role to play in 
meeting our economic and energy needs. The OCS contains vast, untapped 
resources of natural gas and oil that can keep our economy strong and 
provide jobs, higher incomes, economic growth, and global 
competitiveness. The U.S. natural gas and oil industry's advanced 
technology has enabled it to find and develop natural gas and oil in 
remote, previously inaccessible offshore areas in an efficient and 
environmentally safe way.
    Our approach to offshore natural gas and oil development--and to 
all domestic energy development--must be based on the economic and 
energy realities facing our nation. Every respected energy study on 
future demand comes to the same conclusion about the next several 
decades: we need all the energy we can produce in an environmentally 
responsible manner. U.S. energy policy needs to encourage development 
of all domestic energy sources: natural gas, oil, and alternatives like 
solar, wind and geothermal. We cannot afford to focus on just one 
energy source, to the exclusions of others. Nor can we depend upon 
sources that are neither fully developed nor ready to compete in the 
energy marketplace.
    The Energy Information Administration (EIA) estimates that total 
U.S. energy consumption will grow by 11 percent between 2007 and 2030. 
Although the share of non-fossil fuels is growing rapidly, natural gas 
and oil will continue to play leading roles through 2030. EIA estimates 
that natural gas and oil will continue to meet over half of U.S. energy 
consumption in 2030. Such demand will be there even with any new 
climate policy--and in the case of clean-burning natural gas, demand 
may even be much greater than projected. Natural gas is a major 
component in efforts to address climate change. Demand for natural gas 
in recent years has been driven by its clean-burning nature, making it 
an ideal means of reducing greenhouse gas emissions. It is one of the 
few lower-emission power generation sources available.
    EIA also estimates that just 6 percent of the nation's energy needs 
were supplied by renewables--including ethanol, hydropower, and 
biomass--in 2007, with their share expected to grow rapidly. Despite 
their rapid growth and because they are starting from such a small 
base, EIA estimates that renewables will supply only about 10 percent 
of the nation's energy needs by 2030.
    Much of the domestic energy we need can be found offshore. All 
areas of the Outer Continental Shelf (OCS) should be available for 
leasing and development of natural gas and oil resources. We are 
delighted that moratoria have been lifted from most of our coasts and 
hope there will be similar action in the Eastern Gulf of Mexico.
    In those areas now technically open, we urge expeditious--not 
further delayed--consideration of the Minerals Management Service's 
(MMS) Five-Year Leasing Program so that opportunities can be 
anticipated by companies like ours. That will encourage private 
investment in the geosciences that companies and the MMS needs in order 
to better estimate the extent of our offshore resources in previous 
moratoria areas.
    Our nation is at a historic turning point for our country and its 
energy needs. We have a rare opportunity to significantly change our 
direction on energy and adopt policies that will help put America on 
the road to economic recovery. Record high gasoline prices in 2008 
focused public attention on energy in a way not seen since the 1970s. 
Energy was a major issue during the presidential campaign. Public 
attitudes have changed dramatically. Polls have repeatedly shown strong 
support for increased domestic energy development.
    For example, in a poll this month, 61 percent of Americans said 
they supported greater access to offshore oil and natural gas 
resources; only 26 percent of those polled were against greater access. 
Exit polls in last November's election showed that two-thirds of voters 
supported offshore drilling in areas where it was banned.
II. General Offshore Issues
Offshore Potential
    Offshore natural gas and oil resources are potentially vast. The 
size of offshore resources may, in fact, be much larger than even the 
most robust estimates we have today. That's because the more we 
explore, the more we know.
    One thing is clear: It is a fallacy to claim that most of our 
offshore resources are in areas already leased. While the only good 
data we have on discovered and estimated resources is, obviously, in 
areas in which robust exploration has been allowed, we do not know what 
is in the previous moratoria areas until we have active and ongoing 
exploration programs there so that we and the Minerals Management 
Service (MMS) can learn from the results.
    However, according to the MMS, the previous moratoria areas in the 
Atlantic and Pacific OCS contain an estimated undiscovered technically 
recoverable 55.3 trillion cubic feet of natural gas and 14.3 billion 
barrels of oil. In addition, most of the Eastern Gulf of Mexico remains 
off-limits, preventing development of an estimated undiscovered 
technically recoverable 21.5 trillion cubic feet of natural gas and 3.7 
billion barrels of oil. According to MMS, there are multiple known 
fields with discovered natural gas and oil resources in the Eastern 
Gulf. For example, the Destin Dome, a discovery located 25 miles from 
shore off Pensacola, Florida, could produce anywhere from 110 billion 
to 165 billion cubic feet of natural gas a year for the next 20 years, 
according to exploration plans filed with the agency.
    Our experience in the one area on the lower 48 offshore where we 
have been allowed to drill consistently illustrates how these estimates 
could be extremely low. In the Gulf of Mexico, we have now produced 
three times the early resource estimates--and the estimates now are 
that we have five times more. (See attached graph, The More We Explore, 
The More We Know.)
    In another example, we don't have to rely on estimates to show how 
much natural gas we are foregoing because of policy rather than 
geology. In the Eastern Gulf of Mexico, there are trillions of cubic 
feet of discovered gas now locked away by drilling bans still in 
effect. This gas is along a pipeline that could be carrying more supply 
for Florida consumers immediately if production had been allowed. Even 
more important is the fact that additional drilling could see even more 
supply within a very few years. (See attached map, Jurassic Norphlet 
Trend Eastern Gulf of Mexico.)
    Federal lands, including offshore areas, hold enough undiscovered 
recoverable natural gas to heat 60 million households for 160 years. 
They also hold enough undiscovered recoverable oil to produce gasoline 
for 65 million cars for 60 years.
    Moreover, a recent ICF International study commissioned by API 
shows that developing the offshore areas that had been subject to 
Congressional moratoria, as well as the resources in Alaska's Arctic 
National Wildlife Refuge and a small portion of currently unavailable 
federal lands in the Rockies, could increase U.S. crude oil production 
by as much as 2 million barrels per day in 2030, offsetting nearly a 
fifth of the nation's oil imports. Natural gas production could 
increase by 5.34 billion cubic feet per day, or the equivalent of 61 
percent of the expected natural gas imports in 2030.
    Congress should not re-impose the moratoria or place other 
obstacles to the development of offshore resources. It should also open 
the off-limits areas of the Eastern Gulf.
Economic Benefits of Offshore Development
    The ICF International study underscores how offshore natural gas 
and oil development benefits the economy. The study found that 
development of natural gas and oil resources that have been kept off-
limits by Congress for decades, both offshore and onshore, could create 
more than 160,000 new jobs in 2030. Those new jobs would be in addition 
to the approximately 6 million jobs the U.S. natural gas and oil 
industry already supports--1.8 million people directly employed by the 
industry and more than 4 million jobs indirectly tied to the industry. 
Many of these jobs are the ``green jobs'' our society desires. 
Moreover, the average salary of exploration and production jobs is more 
than twice the national average.
    Increased natural gas and oil development not only creates more 
jobs and provides more energy, it also generates significant government 
revenues. In fact, in November 2008, the Department of the Interior 
reported that it accrued a record $23.4 billion from 2008 energy 
production--double the previous year's revenue.
    The ICF study found that development of offshore and onshore areas 
that had been kept off-limits to development for decades could generate 
more than $1.7 trillion in government revenues that would help support 
vital programs and reduce pressure on American taxpayers. Moreover, 
these revenues could help fund government energy research and 
development of alternative energy sources. In addition, these revenues 
are particularly needed by states and communities facing budget 
shortfalls. These governments are being forced to lay off teachers, 
reduce police protection, limit repair of roads and bridges, and cut 
back on other important programs.
    The ICF study also estimated that development of all U.S. natural 
gas and oil resources on federal lands could produce more than $4 
trillion in revenues over the life of the resources.
Industry Technology
    Advanced technology has revolutionized the exploration and 
development process for natural gas and oil, increasing the safety and 
efficiency of offshore operations and helping shape the offshore 
industry's outstanding offshore environmental record. There is a very 
good chance we will advance our knowledge of offshore areas and make 
new discoveries if we are allowed to employ highly sophisticated and 
leading-edge advances such as 3D and 4D seismic technology and subsea 
production systems. Today's tools did not exist 30 years ago when the 
industry was drilling wells in the Atlantic and Pacific.
    3D seismic survey technology improves the industry's ability to 
locate potential natural gas and oil resources with greater accuracy. 
Seismic surveys send high-energy sound waves into the ground and 
reflect information on underground rock layers back to the surface. 
Since sound travels at different speeds as it passes through various 
types of rocks, computers can use the seismic data to create a 3-D map 
of what lies below the surface. This is especially helpful as engineers 
plan the most efficient way to produce resources from a reservoir. More 
precision in locating these resources facilitates field development and 
the location of drilling sites and production facilities. These steps 
can help to reduce a project's environmental footprint.
    Geophysicists and engineers also use 4-D seismic technology, which 
adds the dimension of time to the survey process. By combining several 
3-D seismic surveys taken as the field is producing over time and 
arranging them in a sequence, they can create images that show where 
gas or oil deposits may remain. By using 4-D models, engineers and 
geologists can gauge how many wells a reservoir might need and where to 
place them. The ``virtual drilling'' can help protect the environment 
by reducing the number of wells for exploration and production while 
maximizing the ultimate recovery of natural gas and oil from the field.
    The search for resources deep below the ocean has spurred 
additional technological innovation, including the ability to produce 
and transport these resources using equipment installed on the ocean 
floor and, thus, not visible from shore. Subsea production systems 
include a series of gathering lines that connect the production from 
multiple wells into a single processing hub, allowing the production 
from the wells to be transported to a platform, where the natural gas, 
oil and produced water are separated for transport to shore through 
pipelines.
    The equipment on the seafloor is maintained using robots, known as 
Remote Operating Vehicles (ROVs), which are tethered to a vessel. ROVs 
serve as eyes underwater for these operations, and are designed to 
connect to the subsea equipment. These systems are being deployed at 
depths of nearly 10,000 feet of water in the Gulf of Mexico, where 
deepwater development plays a significant role in current and future 
energy production.
    Just as we had no clue only a decade or so ago that the Barnett 
Shale in Texas would become the most prolific onshore natural gas play 
in the nation, we don't know what we don't know about much of the 
offshore that has been under moratoria until we begin applying our new 
technology.
    What we can say with certainty is that we can ``see'' better 
beneath the seabed, design better wells, and more efficiently and 
safely produce oil and natural gas than ever before if given the 
chance.
Offshore Environmental Record
    The U.S. natural gas and oil industry has an outstanding offshore 
environmental record. According to the Minerals Management Service, 
offshore leases produce about 1.4 million barrels of oil per day. MMS 
calculates that since 1980 less than 0.001 percent of the oil produced 
in federal waters offshore has been spilled.
    The environmental and safety performance of offshore production 
facilities was severely tested when Hurricanes Katrina and Rita roared 
through the heart of the Gulf of Mexico in 2005. Some 3,000 offshore 
platforms were in the direct path of the hurricanes. Some experienced 
five to six hours of sustained winds of 170 miles per hour with gusts 
of 200 miles per hour. Production was shut-in and some platforms 
destroyed. However, platforms were evacuated and production restarted 
without any loss of life. No significant spills were reported from 
production activities, according to the Minerals Management Service and 
Coast Guard, and not even a small spill reached shore.
    Advanced technology allows our companies to explore safely while 
protecting our oceans. Specialized equipment, such as blowout 
preventers and subsurface safety valves, safeguard ocean waters. 
Moreover, industry standards are designed to ensure that both the 
design of the platform and the equipment protect the ocean waters. 
These design standards were strengthened again following Hurricanes 
Katrina and Rita.
    The industry's offshore operations are among the most heavily 
regulated endeavors in the United States. Companies operating in 
federal offshore waters must obtain 17 major permits and must follow 90 
sets of federal regulations. Federal agencies, including MMS and the 
Coast Guard, perform numerous drills and inspections throughout the 
year to test company responses to appropriate situations. Between 2000 
and 2007, the number of spill drills and exercises has increased from 
669 to 1,584.
Other Countries Are Developing Their Domestic Resources
    Other countries are working pro-actively to develop their domestic 
natural gas and oil resources. Instead of placing areas off-limits to 
natural gas and oil development, these countries are moving ahead with 
development and some are offering incentives to encourage projects. 
Recent examples include:
      Argentina: Oil companies plan to spend $300 million in 
oil and natural gas exploration in 2009 under the terms of two 
incentives programs which offer tax discounts and higher prices on 
sales of new output of natural gas and oil.
      Indonesia: The state oil firm Pertamina plans to invest 
19 trillion rupiah ($1.74 billion) in 2009, against 17 trillion rupiah 
in 2008. Indonesia has been offering new exploration rights and 
financial incentives for oil fields in a bid to step a steady decline 
in production.
      Ireland: The government has sought to develop Ireland's 
energy sector by attracting oil exploration companies with financial 
incentives and a recent series of offshore licensing rounds.
      Pakistan: The Pakistan Economic Coordination Council 
approved a 2009 petroleum policy envisaging incentives for natural gas 
and oil exploration. The bidding process for new gas fields has been 
revised; the entire bidding process would now be completed in two to 
three months.
      United Kingdom: The government proposed tax changes and 
incentives to help boost the recovery of the UK's remaining natural gas 
and oil reserves and slow the decline in output. The proposals include 
a value allowance to encourage marginal field development and changes 
to reduce or eliminate taxes on the change of use of North Sea 
infrastructure.
III. API Views on Specific Offshore Issues
Five-Year Plan
    We were very disappointed by Secretary of the Interior Salazar's 
decision to delay the OCS Five-Year plan process, which was designed to 
address the critical energy concerns facing our nation. The draft plan 
already received more than 152,000 comments--a record number--from 
states, environmental groups, industry, labor groups and members of the 
public--with 87,000 or 57 percent of those comments supporting expanded 
and expeditious development. The Secretary's decision overlooks the 
fact that more than two-thirds of the American people in polls have 
supported tapping our vast domestic resources for the benefit of the 
nation.
    Secretary Salazar's announcement means that development of U.S. 
offshore resources could be stalled, depriving the nation of tens of 
thousands of new jobs, billions of dollars in revenues to federal, 
state and local governments, and greater energy security. We share 
Secretary Salazar's view that the nation needs a comprehensive energy 
policy that includes developing alternative energy sources. However, we 
should also be moving as quickly as possible to develop more of our 
offshore natural gas and oil resources to benefit all Americans.
    Orderly development of offshore natural gas and oil resources under 
a predictable Five-Year Leasing Program, as mandated by Congress in the 
Outer Continental Shelf Lands Act, provides an effective, efficient 
mechanism for balancing the national interest objectives of identifying 
and developing OCS oil and natural gas resources in a timely manner, 
while protecting valuable coastal and marine natural resources.
    Reliable, predictable and orderly continuation of an area-wide 
leasing and development schedule for the OCS, which equitably shares 
benefits of development and minimal environmental risks among the 
various OCS regions, is necessary to ensure the continued investment 
needed to meet the nation's natural gas and oil needs. It is also 
important to avoid such misguided actions as underfunding the offices 
that prepare environmental studies, management plans and drilling 
plans.
State Involvement
    API believes that all federal OCS acreage should be available for 
leasing. States currently participate through the OCS Lands Act, the 
Five-Year Plan process, the Coastal Zone Management Act, and the 
National Environmental Policy Act (NEPA) process in decisions involving 
leasing and natural gas and oil development. These laws provide states 
with a real hand in decision-making, particularly through the Coastal 
Zone Management Act, which allows a state to block offshore activities 
that are inconsistent with its coastal zone management plan. That block 
can be removed only by the federal government through an arduous 
appeals process, which can be followed by litigation if the state 
disagrees with the federal government's decision.
Revenue-sharing
    API recognizes the legitimate stake that states have, both onshore 
and offshore, in receiving direct compensation from the federal 
minerals program. We support federal revenue-sharing with states that 
support leasing, exploration and development activities off their 
coasts and within their borders provided that current royalties, bonus 
bids and rentals are not affected; current regulatory schemes don't 
change; additional regulatory burdens are not placed on industry; and 
opportunities for development are not affected. We support efforts to 
improve the federal OCS revenue-sharing program provided it is 
established only for coastal states that allow development off their 
coast and encourages states to open offshore lands for development.
Buffer Zones
    All areas of the OCS should be available without buffer zones, 
since these areas can be developed in an environmentally safe manner 
with a minimal impact on coastal communities. Placing arbitrary limits 
on offshore leasing close to the coastline would significantly limit 
offshore energy development. In the Gulf of Mexico, where offshore 
production is the most developed in the U.S., important finds have been 
made both near-shore and far-shore. In the Pacific, most undiscovered 
technically recoverable resources are thought to be close to shore. 
About 92 percent of the natural gas resources and 91 percent of the oil 
resources are within 50 miles. In the Atlantic, we don't know for sure. 
We've done some exploration, but a lot more needs to be done for us to 
determine where the richest pockets of natural gas and oil are located.
    Advances in drilling and production technology have allowed the 
industry to develop fields close to existing infrastructure without the 
installation of additional platforms. Off the coast of California, this 
has allowed the industry to use a single platform to access supplies 
from four miles away, resulting in additional production of 10,000 
barrels a day.
``Idle Leases''
    While natural gas and oil companies are seeking to find and produce 
natural gas and oil in new offshore areas, they are also making the 
maximum effort to develop the leases they already have. If a lease is 
not producing, critics who don't understand the exploration and 
production process say it is ``idle'' when, much more often than not, 
it is being actively explored and developed.
    The purchase of a lease is always a gamble. Exploration is an 
essential part of the energy business. There is nothing ``idle'' about 
it. When a natural gas and oil company purchases a lease, it believes 
the lease may yield enough natural gas and oil to benefit consumers and 
become economically viable to develop. But until a company actually 
completes the exploration process, it does not know whether or not the 
millions of dollars spent on the lease were actually worth it.
    Typically, exploration of a lease involves extensive analyses of 
geological and geophysical data, environmental studies that can be 
equally detailed, and a variety of government permits before drilling 
can occur. If drilling leads to the discovery of natural gas or oil in 
sufficient quantities to justify development, additional geological 
study often is required for planning field development. Additional 
engineering and design work, environmental studies and detailed permits 
likewise will be needed before complex production facilities can be 
installed and operations begun.
    If the company finds there is no natural gas or oil underneath a 
lease, the company hands the lease back to the government, incurs the 
loss of invested money and moves on to more promising leases. Those who 
call for so-called ``use-it-or-lose-it'' requirements fail to recognize 
that such requirements are already in effect, with leases that are no 
longer being explored returned to the government.
Use of Litigation and Bureaucratic Action to Block Offshore Development
    Legal challenges and bureaucratic delays are common with both 
offshore and onshore federal projects, and the consequences are often 
multi-year delays in the production and delivery of significant natural 
gas and oil resources to U.S. consumers. Even where a project has not 
been delayed or canceled, companies must carefully consider whether to 
risk further investment if litigation has been initiated, but not yet 
decided, in opposition to their project. Leases within projects that 
have been obstructed or canceled due to litigation or bureaucratic 
delays are often wrongly characterized as ``nonproducing'' by opponents 
of offshore development.
    Examples of litigation that has delayed offshore development 
include the following:
      The Ninth Circuit Court of Appeals recently ordered a 
second halt to Shell's exploration of the Beaufort Sea off the northern 
coast of Alaska, due to environmental groups' claims that the Minerals 
Management Service did not properly account for environmental impacts 
on the lease sales under the National Environmental Policy Act (NEPA). 
Even if Shell ultimately finds reserves capable of production, the 
litigation will have delayed that oil coming to market by two years. 
Shell's expenses to date are understood to be well over $100 million--
with no return on investment and no increased supply to consumers. This 
is despite the fact that the government prepared a detailed 1,500 page 
environmental impact statement on leases in the area.
      The Ninth Circuit Court of Appeals also used the Coastal 
Zone Management Act to stop development of oil leases when it allowed 
California's Coastal Commission to review and veto lease renewals for 
35 offshore leases. Offshore development under those leases has been 
halted since 2001.
      The Destin Dome, located off Pensacola, Florida, was 
believed to be one of the largest natural gas fields in the U.S., with 
2.6 trillion cubic feet of natural gas, according to the Department of 
Energy. After drilling exploratory wells, Chevron submitted a 
development plan to the state and the Interior Department for review in 
1996. Two years later, Florida objected to the application and Chevron 
appealed to the Department of Commerce, which delayed making a decision 
through the terms of two Presidents and multiple Secretaries of 
Commerce. After waiting years for a Commerce decision, Chevron sued the 
federal government in 2000, 14 years after Chevron and its partners 
paid for the rights to explore the Destin blocks. They were 
subsequently reimbursed the money they paid for the bonus bids and 
lease rentals. Meanwhile, U.S. consumers have been denied that natural 
gas to heat and cool their homes.
Royalties
    Natural gas and oil produced on government lands generates 
substantial revenues to the government in the form of royalties. 
Revenues from such development go to both the federal government and to 
states to help pay for vital programs. These royalties are one of the 
largest sources of income to the federal government; since 1953, the 
federal government has collected more than $200 billion in bonus bids, 
royalties and rentals. In Fiscal Year 2008, the government collected 
and distributed $23.4 billion from onshore and offshore energy 
production. This includes the more than $10 billion paid by companies 
in bonus bids to lease tracts for offshore energy production on the 
Outer Continental Shelf in the Gulf of Mexico and Alaska as well as 
onshore leases.
    Recently, the Fifth Circuit Court of Appeals issued a decision 
finding for Anadarko Petroleum in a case regarding royalty collection. 
The Fifth Circuit panel unanimously affirmed that Congress, when it 
passed the Deepwater Royalty Relief Act, provided royalty relief, based 
only on a volume limitation, not price. That Act was passed at a time 
of historically low crude oil prices as a means to increase production 
and sustain jobs in a struggling industry. It was enormously 
successful, helping to boost deepwater Gulf of Mexico production by 50 
percent in less than a decade.
IV. Conclusion
    What the nation needs is a policy that increases, not decreases, 
domestic energy production. Offshore development is a vital component 
of U.S. energy development. Barriers to offshore oil and natural gas 
production contribute to volatile energy prices, slower economic 
growth, lost American jobs and a weakened U.S. position in global 
markets. We need to find and develop our offshore oil and natural gas 
resources in an orderly, efficient, and environmentally sound way. By 
so doing, we can put America on the road to economic recovery and help 
ensure our nation's energy security for decades to come.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 
    The Chairman. Thank you, Mr. Nichols. Mr. Cejka?
    I am sorry if I mispronounced your name in the first go-
round.
    Mr. Cejka. It is Cejka, but I hear almost anything, sir.
    The Chairman. Cejka. I am sorry again.

              STATEMENT OF TIM CEJKA, PRESIDENT, 
                 EXXONMOBIL EXPLORATION COMPANY

    Mr. Cejka. Mr. Chairman, Ranking Member Hastings and 
Members of the Committee, I wanted to thank you for the 
opportunity to discuss, I think, this very important topic. My 
name is Tim Cejka, and I am President of ExxonMobil Exploration 
Company, which has the responsibility for global exploration. 
The U.S. represents a major element of our global portfolio.
    This morning I would like to discuss how increasing access 
to U.S. energy supplies will strengthen the U.S. energy 
security, create jobs for Americans, stimulate the U.S. 
economy, and increase revenues to the Federal and state 
governments. I would like to describe how the energy industry 
can help achieve each of these objectives in an environmentally 
responsible way.
    The need for more oil and natural gas available to 
Americans is clear. The United States' continued economic 
growth and prosperity depends on access to clean, reliable and 
affordable supplies of energy. There is no single answer to our 
energy needs. We must pursue an integrated set of solutions 
that will help us accelerate gains in energy efficiency, curb 
greenhouse gas emissions, and develop new supplies of energy 
from all sources, including oil and natural gas found in our 
own backyard.
    Thankfully, the United States is endowed with significant 
energy resources. Unleashing their value for the benefit of all 
Americans represents an important opportunity for growth, not 
only for these challenging times, but also on the long-term 
health of our economy. It is important to note that the current 
estimates for oil and gas potential in the OCS areas that have 
been off-limits were made using data from now outdated 
technology.
    We have resource underestimations that have resulted in the 
past. Where industry has been able to collect data utilizing 
advanced technology, resource estimates have grown. In 1987, 
for example, the U.S. Government estimated there were nine 
billion barrels in the Gulf of Mexico. By 2006, advanced 
technologies caused the resource estimate for that area alone 
to grow to 45 billion barrels. But meeting America's basic 
energy needs is only one of many reasons the United States 
should develop our domestic oil and natural gas resources.
    Doing so will also strengthen our energy security. By 
diversifying our nation's energy portfolio with more energy 
from more domestic locations, Americans will be less vulnerable 
to supply interruptions from any one region or country in the 
world. Developing more of our domestic energy resources will 
help stimulate our economy.
    According to one recent study, the decision to lift the 
bans in the offshore oil and gas production alone would lead to 
investments that generate more than 76,000 new jobs in our 
industry, which now accounts for six million employed 
Americans. Increased domestic energy production will help ease 
pressure on Federal and state budgets, too. Annual receipts 
from mineral leases are already a major source of Federal and 
state revenues.
    Opening additional domestic offshore areas to production 
opens the door to more than $1.3 trillion in additional 
royalties, bonus bids, rental fees and other tax revenues for 
the Federal and state governments. Federal oil and natural gas 
leasing has generated in excess of $200 billion since 1953 
through bonus bids, royalty and lease rental payments. That 
does not include the tax revenues.
    In developing our domestic resources, the energy industry 
is also committed to doing it in an environmentally responsible 
manner. It has been more than 30 years since the first offshore 
moratorium was imposed. In those intervening decades, our 
industry has made tremendous leaps forward in technology, in 
operational excellence and in environmental performance.
    For example, extended-reach directional drilling now 
enables us to develop areas up to six miles from a single 
location, minimizing the environmental footprint. Advances in 
subsea production ensure facilities remain safe and largely 
hidden from view. Technology currently in place in the Gulf of 
Mexico has already proven able to prevent spills, even during 
the worst hurricanes we have seen in a long time.
    We can apply these technologies, and more, to new areas 
open to the development and preserve the safety, the 
biodiversity and the beauty of the American coastlines. We look 
forward to working with Congress, the Department of the 
Interior and state governments to find a safe, secure, 
environmentally responsible way to use America's resources to 
produce energy for American needs right here at home, and in 
doing so create jobs, strengthen our security and grow our 
economy. Thank you.
    [The prepared statement of Mr. Cejka follows:]

   Statement of Tim Cejka, President, ExxonMobil Exploration Company

    Mr. Chairman...Ranking Member Hastings...Members of the Committee.
    This morning, I would like to discuss how increased access to U.S. 
energy supplies will strengthen U.S. energy security--create jobs for 
more Americans--stimulate the U.S. economy--and increase revenues to 
federal and state governments.
    And I would like to describe how the energy industry can help 
achieve each of these objectives in an environmentally responsible way.
    The need for making more oil and natural gas available to Americans 
is clear. The United States' continued economic growth and prosperity 
depend on access to reliable and affordable supplies of energy.
    There is no single answer to our energy needs. We must pursue an 
integrated set of solutions that will help us accelerate gains in 
energy efficiency...curb greenhouse-gas emissions...and develop new 
supplies of energy from all sources, including oil and natural gas 
found in our nation's own backyard.
    Thankfully, the United States is endowed with significant energy 
resources. Unleashing their value for the benefit of all Americans 
represents an important opportunity for growth, not only for these 
challenging times, but also to underpin the longer term health of our 
economy.
    It is important to note that the current estimates for the oil and 
gas potential in the OCS areas that have been off limits were made 
using data from now-outdated technology, and we have seen historic 
resource underestimates result from this. Where industry has been able 
to collect data utilizing advanced technology, the resource estimates 
have grown. In 1987, for example, the U.S. Government estimated that 
there were 9 billion barrels of oil in the Gulf of Mexico. By 2006, 
advanced technologies caused the resource estimate for that area to 
grow to 45 billion barrels.
    But meeting Americans' basic energy needs is only one of many 
reasons the United States should develop our domestic oil and natural 
gas resources.
    Doing so will also strengthen U.S. energy security. By diversifying 
our nation's energy portfolio with more energy from more domestic 
locations, Americans will be less vulnerable to supply interruptions 
from any one region or country of the world.
    Developing more of our domestic energy resources will help 
stimulate our economy. According to one recent study, the decision to 
lift bans on offshore oil and gas production alone could lead to 
investments that generate more than 76,000 new jobs in our industry, 
which now accounts for nearly 6 million employed Americans.
    Increased domestic energy production will help ease pressure on 
federal and state budgets, too. Annual receipts from mineral leases are 
already a major source of federal and state revenues. Opening 
additional domestic offshore areas to production opens the door to more 
than $1.3 trillion in additional royalties, bonus bids, rental fees, 
and other tax revenues for our federal and state governments. Federal 
oil and natural gas leasing has generated in excess of $200 billion 
since 1953 through bonus bids, royalties and lease rental payments 
alone, not including any tax revenues.
    In developing our domestic resources, the energy industry is also 
committed to doing so in an environmentally responsible manner.
    It has been more than 30 years since the first offshore moratorium 
was imposed. In those intervening decades, our industry has made 
tremendous leaps forward in technology--operational excellence--and 
environmental performance.
    For example, extended-reach directional drilling now enables us to 
develop areas up to six miles from a single location, minimizing the 
environmental footprint. Advances in subsea production ensure 
facilities remain safe and largely hidden from view. And technology 
currently in place in the Gulf of Mexico has already proven able to 
prevent spills even during hurricanes.
    We can apply these technologies and more to new areas opened to 
development and preserve the safety, biodiversity, and beauty of 
America's coastlines.
    We look forward to working with the Congress, the Department of the 
Interior, and state governments to find safe, secure, and 
environmentally responsible ways to use America's resources to produce 
the energy America needs right here at home--and in so doing, create 
jobs, strengthen our security and grow our economy.
    Thank you.
                                 ______
                                 
    The Chairman. Thank you. Mr. Luquette?

STATEMENT OF GARY P. LUQUETTE, PRESIDENT, CHEVRON NORTH AMERICA 
               EXPLORATION AND PRODUCTION COMPANY

    Mr. Luquette. Good morning. Mr. Chairman, Ranking Member 
Hastings and Members of the Committee, my name is Gary 
Luquette, I am the President of Chevron North America 
Exploration and Production Company. I have the honor today of 
representing over 28,000 Chevron employees who live and work in 
the U.S. before your Committee.
    Our nation is confronting serious economic challenges. I 
appreciate the opportunity today to share with you how the oil 
and gas industry, and Chevron, can assist our nation in the 
economic recovery process. There are two overarching ways the 
industry can help--by enhancing America's energy security, and 
by creating more jobs and more revenue for Federal, state and 
local governments.
    To the urgent goal of addressing both energy and economy, I 
will speak briefly about two things--why the development of the 
Outer Continental Shelf, including the former moratoria areas, 
is essential, and how we can do it in a responsible and 
sustainable way.
    First, OCS development is essential because America needs 
the energy. While energy demand is down today due to the 
economic slowdown, we know that energy demand will grow longer-
term.
    Today's decision should help us prepare for, not 
jeopardize, tomorrow's economic growth. To prepare for 
tomorrow's economic growth and meet our nation's increasing 
long-term energy demand, we must recognize we are not in an 
either/or situation. We need more conservation, we need more 
alternatives and renewables, and we need more conventional oil 
and natural gas. We need more of all forms of energy.
    Every major study of America's energy future agrees that, 
even with the most aggressive development of alternatives and 
renewables, oil and gas will continue to make up a dominant 
share of the energy mix for decades to come. Given the 
projected increase in energy demand, we need to access our 
secure and reliable U.S. resources, including the OCS. The good 
news is, the potential in the OCS is significant.
    By 2025, OCS production could add one million barrels of 
oil a day to our energy portfolio, and based on our experience 
in the Gulf of Mexico with the introduction of new technology, 
that amount should drastically increase. Every barrel produced 
in the U.S. increases our energy security and reduces our 
dependence on less reliable sources. Of course, this also helps 
the U.S. economy by keeping U.S. dollars and jobs here at home.
    To sum up why developing the OCS is essential, America 
needs the energy, America needs the jobs and America needs the 
economic boost that development will provide. My second point 
is how, how can we develop the OCS in a responsible and 
sustainable way? We in the oil and gas industry appreciate this 
fact, that our ability to continue to operate depends on doing 
exactly this.
    I will focus on three of the seven policy recommendations 
contained in my written testimony today. First, we should 
sustain the 2008 decision to open up the majority of the OCS. 
Again, developing these resources will boost our economy, 
improve our energy security and reduce our vulnerability to 
imports from abroad.
    Second, we should guide future leasing by using the 
comprehensive and time-tested Minerals Management Service five-
year plan leasing process. As an early part of the process, the 
MMS should support and encourage the gathering of new, state-
of-the-art geophysical data so we, as a nation, can understand 
the true extent of the OCS resource potential. Then, and only 
then, can we make an informed leasing and development decision.
    Third, we should incentivize states to support OCS 
production by allowing all coastal states where there is new 
production to have an increased share in royalties and 
revenues. To conclude, I am proud of my 30 years of service to 
this industry. I can assure you that Chevron, and all of our 
employees, will continue to apply our best efforts to provide 
energy that is vital to America.
    Reliable and affordable energy is a pillar of Americans' 
economic stability and strength. Developing America's own oil 
and gas resources can supply even more of the jobs and energy 
we need and boost the American economy. But, ladies and 
gentlemen, to strengthen America's energy pillar and help 
stimulate our economic recovery, it is vital that we act now. 
Thank you.
    [The prepared statement of Mr. Luquette follows:]

               Statement of Gary P. Luquette, President, 
        Chevron North America Exploration and Production Company

    Chairman Rahall, Ranking Member Hastings, Members of the Committee. 
My name is Gary Luquette and I am President of Chevron North America 
Exploration and Production Company. I am here to represent the more 
than 62,000 Chevron employees, of whom 27,000 work here in the United 
States, and the more than 1.5 million stockholders who put their trust 
in our company each day. Chevron's broad portfolio of energy businesses 
include oil and natural gas production, refining and marketing of 
petroleum products, geothermal, and energy efficiency services. We are 
actively pursuing next-generation biofuels and other alternatives with 
a number of important strategic partnerships.
    I lead the Chevron North America Exploration and Production 
Company, made up of over 5,000 employees working to deliver energy 
supplies from both onshore and offshore resources. We produce about 5 
percent of United States oil and gas, and extend the limits of 
technology everyday, in areas such as the outer continental shelf of 
the Gulf of Mexico, to lengthen the life of existing assets and to 
deliver future supplies. While our company has a heritage going back 
130 years, we are constantly reinventing how we explore for and produce 
energy.
    Chevron invests in America. Last year we spent $13.3 billion with 
our suppliers and other business partners in the United States 
purchasing goods and services from more than 11,000 large and small 
businesses throughout the country.
    Chevron also strives to be a strong corporate citizen in the 
communities where we live and work. We invested in about 2,000 
charitable organizations across 43 states and the District of Columbia. 
In 2008, our United States charitable contributions totaled over $75 
million.
    I want to thank the Committee for holding this important hearing 
today. We believe development of a long term, strategic and 
comprehensive energy policy is a critical national priority. This 
hearing provides an opportunity to demonstrate the vital importance of 
America's oil and gas industry today and for decades to come. It offers 
the chance to underscore how our industry works to address America's 
greatest energy vulnerability, imports of foreign oil; the commitment 
of the U.S. energy industry to develop U.S. oil and gas resources; and 
the policies that need to be maintained or implemented to enable us to 
develop these vital resources in a prudent and orderly manner. Finally, 
today's hearing highlights the critical role that the industry plays in 
addressing the current economic challenge faced by this country--
through creating good, high paying jobs; increasing revenues to 
federal, state and local treasuries; and reducing our trade deficit and 
capital outflows by producing more energy here at home.
    Energy is the foundation of America's economic growth and global 
competitiveness and energy policy must ensure that American consumers 
and businesses have access to the reliable, affordable supplies of 
energy that underpin our economy, even as we use that energy more 
wisely.
    Our country's role as a major consumer of energy is well 
understood, but fewer people understand the United States' strength as 
a producer of energy: the United States is the world's leading producer 
of refined petroleum products, electricity, nuclear power, wind power 
and ethanol; the second largest producer of coal, natural gas; and the 
third largest producer of oil.
    Billions of people around the globe are working every day to 
increase their standard of living. This will cause an inevitable 
increase in global energy demand, and competition for energy resources 
will intensify. Accounting for production declines in existing oil and 
gas fields, by 2015 the world will need to replace as much as 45 
million barrels it produces each day with new production. 1 
By strengthening our own domestic production capability, the United 
States can reduce future demand for imports, improve economic and 
energy security, and be in a stronger position to lead global efforts 
to meet these challenges. Our country's leadership is essential.
    Any comprehensive energy policy must also include emphasis on 
efficiency and conservation, which are the most immediate and cost-
effective sources of ``new'' energy with no greenhouse gas emissions. 
As important as resource development is, the energy challenges we face 
cannot be met by addressing only the supply side. It is a focus for our 
company and we applaud the efforts of Congress to enact efficiency 
measures in recent legislation.
    Stabilizing and strengthening our economy is a top priority and 
energy will play a central role in that process.
    Affordable, reliable energy is the backbone of a strong and 
competitive economy. America's domestic oil and natural gas industry 
plays an integral role in the nation's economy. In addition to 
providing critical energy supplies to fuel our economy, the industry 
directly employs 1.8 million workers and an additional 4 million are 
employed in energy related jobs. Oil and natural gas operations provide 
billions of dollars of tax and royalty revenues to Federal, state and 
local governments--$152 billion between 2001 and 2006. 2 In 
Fiscal Year 2008 royalties, rents and bonuses alone paid to the 
Minerals Management Service (MMS) totaled $23.8 billion. The industry 
also contributes hundreds of billions of dollars to the country's Gross 
Domestic Product (GDP). For example, in 2006 the upstream domestic oil 
and natural gas industry contributed around $160 billion in GDP, more 
than the individual contributions of major industries such as 
agriculture, auto manufacturing, or computer and electronic product 
manufacturing. 3
    According to a recent study, development in the former moratoria 
areas of the Outer Continental Shelf, and other restricted areas in the 
Arctic National Wildlife Refuge and the Rockies would create 160,000 
new jobs by 2030 and up to $1.7 trillion in bonus revenues and 
royalties over the coming decades. 4 Every incremental 
barrel of oil developed at home avoids the purchase of a barrel of 
imported oil, creates jobs, and provides incremental revenue to the 
government.
    Even with the most aggressive development of renewables and 
alternatives, every major study of our energy future underscores the 
critical importance of oil and gas in meeting America's energy needs 
for decades to come.
    While much attention has been paid in the public dialogue to 
replacing petroleum with alternatives like biofuels, even under the 
most aggressive scenarios for the introduction of biofuels and 
renewables, these energy sources will meet only a fraction of U.S. 
demand. The United States Energy Information Agency projects that even 
after the implementation of major efficiency initiatives, United 
States' liquids demand will increase approximately 5 percent from 2007 
levels through 2030. 5
    Chevron has maintained for many years that it will take a new 
energy equation to address the United States' energy needs for the next 
several decades. We believe that we need conservation on a large scale, 
expansion of traditional energy sources such as oil and gas, and rapid 
development of alternatives and renewables. We live in an ``And'' world 
where we will need all energy sources to satisfy the growing global 
energy demand in a sustainable way.
    Despite our strength as an energy producer, domestic oil production 
has fallen approximately 40 percent since 1985, while domestic oil 
consumption has grown more than 30 percent. The result has been a 
significant increase in our dependence on foreign oil. Today America 
has the ability to reduce its dependence and improve energy security 
through the prudent and sustainable development of oil and gas 
resources which until now have been off-limits. This can be 
accomplished through the time-tested existing Federal leasing and 
licensing programs.
    Focusing on the subject of this hearing, the National Petroleum 
Council has estimated that 1 million barrels per day of oil and 3.8 
billion cubic feet per day of gas can be brought on line over time from 
offshore areas previously and currently under moratoria. The total 
estimate may be increased over time as our understanding of the areas 
improves and as new technology enhances our ability to tap these 
resources. This is what has happened in the Gulf of Mexico. Between 
1975 and 2006 the Department of the Interior published 8 comprehensive 
assessments of the undiscovered resource potential of the OCS. For the 
Gulf of Mexico, the estimates of undiscovered recoverable oil resources 
increased seven-fold during this time period and undiscovered 
recoverable natural gas estimates increased by more than four and a 
half times. 6
    The undeveloped OCS includes promising known prospects. For 
example, in the late 1980's, Chevron made a significant discovery of 
natural gas in the Eastern Gulf of Mexico called Destin Dome, 
approximately 25 miles off the coast of Florida. At the time, it was 
estimated that Destin Dome held enough natural gas to supply one 
million American households for 30 years.
    Chevron and its partners, however, could not get permits to develop 
the field because of opposition in Florida and a maze of regulatory and 
administrative barriers at the federal level. After a long, expensive 
and frustrating effort to move forward, we relinquished the leases as 
part of a settlement reached with the government in 2002. This was not 
a good outcome for the government, industry, the workers involved in 
development and production of this gas, or consumers. We currently 
import little natural gas and can maintain domestic production for 
years to come, but only if promising resources like Destin Dome are 
made available and our comprehensive energy policy ensures that they 
can be brought to commercial production.
    Developing domestic energy is an urgent challenge, but one that can 
be addressed through the joint efforts of this Committee, the Obama 
Administration and companies like Chevron.
    Bringing these important resources on line will require a long term 
focus and stable policies to attract the enormous investments and drive 
the constant innovation and evolution of technology needed to 
responsibly develop the OCS. We need to start now. Chevron believes 
that swift action to initiate evaluation and development of offshore 
resources is important, and that the joint efforts of Congress, the 
Obama Administration, the states and companies like Chevron can address 
this crucial element of our energy strategy in a way that balances the 
need for energy with the many other considerations.
    Already one of the largest producers in the Gulf of Mexico, Chevron 
is focused on developing new offshore energy supplies to help meet 
America's needs. These efforts are complex, costly, time consuming and 
often require the development of new technology. Our experiences 
provide important insights relevant to new offshore areas.
    First, one of the most important factors determining the time and 
cost it will take to bring new offshore resources into production is 
proximity to infrastructure. The timeline for a frontier prospect that 
is far from existing support facilities and infrastructure can easily 
stretch to a decade or more from lease acquisition to first oil. 
Projects closer to infrastructure will generally offer shorter 
timelines. Second, technology today has improved our ability to locate 
and safely develop offshore resources.
    The following are four examples of the effort and time needed to 
bring new OCS production to the market. These are Blind Faith, Tahiti, 
Buckskin, and Flatrock projects, all in the Gulf of Mexico. While the 
challenges are very real, we are grateful that we have the people, the 
technology and the financial resources to overcome these challenges and 
develop the affordable, reliable energy supplies that are so vital to 
America's competitiveness.
    We started production at our new Blind Faith facility in 2008, 
seven years after the initial successful exploratory well was drilled. 
Total development time following lease acquisition was around a decade 
and, given the complexities involved in this project, this was a very 
aggressive schedule. The Blind Faith facility is located in 6,500 feet 
of water, and supports wells that are drilled more than five miles 
below the ocean floor. The wells themselves use remote subsea 
completion technology, allowing a single facility to produce a much 
larger area. The depth, high pressures and temperatures encountered in 
Blind Faith's reservoirs presented technical challenges. Developing the 
technology to solve these challenges has been a significant 
accomplishment and will enable us to bring an estimated 65,000 barrels 
per day of oil and 55 million cubic feet of natural gas to market each 
day.
    Another project, Tahiti, further illustrates the challenges our 
industry manages in terms of timing, scale and cost. We acquired the 
Tahiti leases in the 1990s. In 2002, following years to complete 
evaluation and permitting, we used leading-edge technology to drill in 
4,000 feet of water and found an estimated 400 million to 500 million 
barrels of recoverable resource. It has taken seven years to build the 
infrastructure required to produce the oil and gas from more than 100 
miles offshore and five miles deep. When Tahiti comes online this year, 
we will have invested $4.7 billion--and dedicated personnel and 
resources for over a decade to manage exploration, permitting, 
engineering and development--before realizing $1 of return on our 
investment. Once in production, Tahiti is expected to add 125,000 
barrels of oil and 70 million cubic feet of gas per day to the U.S. 
domestic supply, and is expected to produce for decades to come.
    Just this month we announced another significant milestone--a new 
deepwater oil discovery in the Gulf of Mexico at the Buckskin prospect, 
located in 6,000 feet of water depth approximately 180 miles southwest 
of New Orleans and 44 miles west of Chevron's 2004 Jack discovery. The 
Buckskin discovery is confirmation that our efforts to explore this 
geologic formation called the Lower Tertiary trend will help provide 
new U.S. oil and natural gas supplies. Buckskin, like Tahiti and Blind 
Faith, will take time to develop but we are optimistic that it will 
further bolster the nation's domestic energy supplies.
    Not all of our activity is focused in the deep water of the Gulf. 
We are also working hard to maximize resource recovery from more mature 
areas. Last year, working with our partners, we announced 
commercialization of a new deep gas discovery known as Flatrock, 
located in just 12 feet of water deep below existing shallow 
reservoirs. Applying modern 3-D seismic data and state-of the-art 
analysis, we identified deep gas reservoirs close to our production 
facilities in the Tiger Shoal area offshore Louisiana. While the deeper 
resources required drilling wells to depths of 18,000 feet and 
application of new technology to safely manage the higher temperatures 
and pressures, due to the proximity to existing infrastructure, we were 
able to bring three producing wells into service within a year of 
discovery and are continuing to work on additional development in the 
area.
    As we consider our approach to the undeveloped OCS, it is clear 
from these examples that proximity to infrastructure should be one of 
the factors governing selection of priority areas. The undeveloped OCS 
is unlikely to yield prospects with the timeline of a Flatrock, but 
those we can identify that are closest to infrastructure represent the 
resources we can most quickly develop and that will serve as the 
foundation for more extensive exploration and development.
    Finally, these four examples represent projects that were simply 
not feasible a couple of decades ago. They are possible today thanks to 
remarkable innovations in technology, equipment and processes. This 
ability to innovate and apply sophisticated new technologies holds 
promise for continued success, maximizing the potential of U.S. 
resources.
    Chevron recognizes the importance of operating in an 
environmentally responsible manner and in a way that accommodates other 
uses of federal lands and waters.
    Just as our ability to identify and develop resources has evolved, 
so too have the equipment and procedures we use to safeguard the 
environment. The oil and gas industry has proven, especially in the 
last 25 years, that it has the technical capability and safety 
procedures in place to minimize the risk of adverse impact on the 
natural environment. Successfully drilling deep wells in water depths 
exceeding 5,000 feet is one example of industry's ability to operate 
without adverse environmental impact. Even more impressive is the 
record of the offshore industry during hurricanes in 2005 and 2008. 
These storms adversely impacted hundreds of surface facilities, yet 
industry technology such as subsurface safety valves and safety 
procedures to shut in and evacuate production facilities in advance of 
the storms protected our workforce and the environment by preventing 
major oil spills from the impacted wells.
    We also have developed ways to reduce the visible footprint of our 
projects and produce offshore assets with fewer permanent surface 
facilities. Directional drilling and the ability to install subsea 
completion and gathering systems greatly extend our reach from surface 
facilities, or eliminate the need for them altogether.
    America's efforts to reduce foreign oil dependence must include the 
continued prudent and responsible development of federal resources, 
including development of resources in areas of the OCS recently under 
moratoria, through the MMS mineral development programs that have been 
in place for many years.
    Expiration of moratoria has created the potential opportunity to 
apply advanced exploration and production know-how in unexplored parts 
of the OCS, but it is important to note that removal of a moratorium 
does not create immediate or uncontrolled access to these offshore 
areas. MMS resource development programs, in place for over 25 years, 
provide the Secretary of the Interior with the tools, authority and 
flexibility to manage a balanced program of energy development. The 
leasing process is methodical, balances mineral development with other 
considerations, provides robust environmental safeguards and includes 
multiple opportunities for stakeholder input.
    We believe the question before this Committee and Administration is 
how best to implement and sustain a thoughtful development strategy in 
former moratoria areas.
    The areas involved are vast. Both industry and government resources 
must be deployed in a prioritized manner to maximize the effectiveness 
of this strategy. The procedures to do this are in place. A carefully 
planned and phased approach to developing former moratoria areas is the 
critical next step, utilizing the MMS 5 year leasing program process 
that has proven a successful approach to offshore development. We offer 
several recommendations for consideration:
1.  Lift the statutory moratorium on the Eastern Gulf of Mexico
    The eastern Gulf of Mexico remains under a moratorium imposed under 
the Gulf of Mexico Energy Security Act of 2006. The most important 
action Congress can take to enhance our energy security is to lift this 
moratorium. The GOMESA restriction impacts areas with the best known 
prospects that are relatively close to existing infrastructure, 
including Destin Dome.
2.  Reject calls for new moratoria and similar restrictions on OCS 
        development.
    Removal of the Presidential and Congressional moratoria in 2008 was 
a positive first step toward responsible OCS development, but 
additional steps are needed. Without understanding the process, many 
consider ``available for leasing'' to be synonymous with ``already 
leased''. Nothing could be further from reality. The MMS is charged 
with determining which areas within a given Planning Area will be 
offered for lease. It does so, balancing resource potential, commercial 
interest, environmental and other considerations, including the views 
of the states, using a methodical process. There are at least six 
public input steps as well as specific reviews with the states and 
Congress between the initiation of planning and an actual lease sale. 
Once a lease is issued there is additional planning, review and 
approval required before an exploratory well can be drilled. It can 
easily take five years from OCS program planning inception to that 
first well. As we approach the very real need for energy and the 
economic benefits that accompany domestic production, we urge Congress 
to reject proposals that arbitrarily remove areas from this careful 
process by reinstating moratoria in whole or in part.
    We also urge rejection of policies proposed as compromise but that 
carry the same effect as a moratorium. For example, arbitrary buffer 
zones, restricting access within a set distance to shore, risks 
functioning as an outright moratorium. A 50 mile buffer zone, which has 
been proposed, would remove from consideration the best known prospects 
in the undeveloped OCS and, according to MMS data, severely reduce the 
potential resource available. It would also tend to push all 
development farther from existing infrastructure. MMS can fulfill its 
role most effectively when it is free to evaluate and identify those 
resources that can be developed most effectively, efficiently and 
safely.
3.  Pursue development of new OCS resources with a thoughtful, 
        prioritized approach.
    Chevron supports a phased approach to developing former moratoria 
areas, moving quickly to include highest priority areas in the MMS 5-
Year Leasing Program currently under development for 2010-2015. There 
are 26 Planning Areas in the OCS. Due to practical constraints, it is 
unrealistic for either MMS or the industry to immediately focus on all 
of the former moratoria areas while simultaneously continuing 
development in existing accessible planning areas. A strategic approach 
to phasing in evaluation and leasing, starting with the most 
prospective areas and those closest to existing infrastructure, makes 
the most economic sense and will help bring on new domestic oil and 
natural gas as soon as possible. Through the stakeholder input process, 
MMS will be able to identify those Planning Areas with the highest 
level of interest which in turn may contain the greatest potential for 
commercial discovery of new domestic offshore resources.
4.  Facilitate the acquisition of more modern resource assessment data 
        (including seismic) to better inform development choices in 
        previously unexplored areas.
    Decades of oil and gas access restrictions to most of the OCS have 
precluded not only drilling, but also any pre-leasing activity 
including collection of seismic data. MMS estimates, based on limited 
amounts of older data such as wells, cores and seismic surveys, 
indicate substantial resource potential exists, but the scarcity of 
comprehensive modern information using improved evaluation technology 
makes these estimates highly speculative. More extensive and better 
data is needed to update estimates of total resource potential, guide 
government efforts to implement an effective leasing program, and to 
improve our ability to identify and focus on the most promising 
prospects first. Congress can facilitate the gathering of this data by 
providing adequate MMS budgets to allow them to do this work and to 
establish a mechanism where companies can contribute to pre-leasing 
data collection.
5.  Preserve the existing MMS planning and leasing framework.
    MMS OCS mineral development programs in place for over 25 years 
provide the Secretary of the Interior with the tools, authority and 
flexibility to manage a balanced program of energy development. The 
leasing process is methodical, balances mineral development with other 
priorities, provides strong environmental safeguards and includes 
multiple opportunities for stakeholder input.
6.  Avoid arbitrary and unnecessary due diligence provisions.
    Simply stated, both the existing regulatory process and basic 
economics ensure that leases are developed in a diligent manner. Leases 
are acquired at significant expense through a competitive bidding 
process and are subject to annual rental fees. If drilling or 
production is not commenced within the primary term, the lease is 
automatically relinquished to the government along with all of the bid 
bonus and rental fees paid. Beyond this due diligence obligation built 
in to the lease structure, the regulations and lease terms contain 
numerous additional requirements specifying leaseholder obligations. 
For example, exploration and development plans specify the number and 
timing of wells to be drilled.
    There is no guarantee that commercial quantities oil and gas exist 
on any given lease, and under the existing program leaseholders bear 
all of the commercial risk for exploration and development of these 
properties. For leases returned to the government, leaseholders are out 
of pocket not only for bonuses and rentals but also for all the 
resources invested in planning, evaluation, and exploratory drilling. 
If a lease does terminate, it is not uncommon for the MMS to re-offer 
the expired acreage at the next Lease Sale and for someone else to 
lease it starting the whole process over again.
    Chevron currently holds over 2000 Federal leases, around 70% of 
which are producing oil or natural gas, and are classified as 
``developed'' in reports to the government. More than 85% of Chevron's 
federal onshore leases are producing oil and gas. Most of Chevron's 
undeveloped federal leases are located offshore in water depths between 
4,000 and 10,000 feet where there is no existing infrastructure to 
produce hydrocarbons. These represent complex, high cost and long cycle 
time developments, and although government regulations require us to 
report them as ``undeveloped,'' this does not mean they are inactive. 
Our Tahiti project in the Gulf is an excellent example. It is still 
listed today as ``undeveloped'' even though billions of dollars have 
been spent, facilities have been constructed and the startup date is 
very close.
    Chevron's consistent practice is to conduct a thorough evaluation, 
followed by exploratory drilling, appraisal drilling, and finally 
installation of production facilities, where viable, of every lease we 
hold. Many leases do not have recoverable resources--we relinquish 
leases for those properties once we determine that commercial 
quantities of oil and gas are not available.
7.  Give states an incentive to support exploration and production by 
        enhanced revenue sharing.
    While offshore oil and gas operations boost local economies, the 
host states also bear some of the burden of administering the program. 
For example, permitting and regulating shoreside support facilities 
often are the jurisdiction of state and local agencies. Provisions for 
enhanced revenue sharing already exist for states adjacent to existing 
Gulf of Mexico production, and should be extended to all coastal 
states.
    It will take time and stable, sustained policies to bring new 
resources to the marketplace.
    Chevron supports a stable and consistent policy and regulatory 
environment with respect to access and leasing. Energy investments are 
long-term, and expensive. The Tahiti project has spanned 5 congresses 
and its producing life could span 15 more. An unstable regulatory 
environment greatly increases the risk profile of these projects and 
discourages investment in domestic energy. We urge Congress and the 
Administration to maintain a path for the responsible development of 
new OCS resources and avoid changes to policy and arbitrary 
restrictions that will hinder that development.
    New domestic oil and natural gas resources, as with all other 
energy choices, are not a quick fix to our energy challenges. Nor are 
they the only source we should pursue. We need all energy sources as 
well as efficiency measures to meet demand in the coming decades. 
Thoughtful development of oil and gas resources as a part of a broad 
energy policy will enhance energy security, create high quality jobs, 
increase government revenues and reduce U.S. capital outflows to 
foreign producers.
    At Chevron, we want to work with you to realize that potential.
    Thank you.
ENDNOTES
1 NPC Study--2008 update, http://www.npc.org/Hard_Truths-
        update_2008.pdf
2 MMS, EIA-28 Financial Reporting System
3 U.S. GDP--2006 (U.S. Bureau of Economic Analysis)
4 Strengthening Our Economy: The Untapped U.S. Oil and Gas 
        Resources. ICF International December, 2008
5 EIA Annual Energy Outlook, Early Release (December 2008).
6 U.S. Minerals Management Service, 2006, ``Report to 
        Congress: Comprehensive Inventory of U.S. Oil and Natural Gas 
        Resources--Energy Policy Act of 2005 Section 357,'' February, 
        2006.
                                 ______
                                 
    The Chairman. Thank you. Ms. Harbert?

 STATEMENT OF KAREN A. HARBERT, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, INSTITUTE FOR 21ST CENTURY ENERGY, U.S. CHAMBER OF 
                            COMMERCE

    Ms. Harbert. Thank you, Chairman Rahall, and Ranking Member 
Hastings and Members of the Committee. I am Karen Harbert, 
President and CEO of the Institute for 21st Century Energy, an 
affiliate of the U.S. Chamber of Commerce. As many of you know, 
the Chamber is the world's largest business federation, 
representing more than three million businesses and 
organizations of every size, sector and region of our country.
    Offshore drilling, like many other issues in the energy 
policy arena, too often winds up pitting people against one 
another and dividing them into simplistic camps labeled either 
``pro-environment'' or ``pro-oil.'' The reality is that our 
country and our economy is ill-served by narrow approaches that 
only look to benefit a single side of this debate.
    Our nation's energy, environmental and economic future are 
all intertwined with one another, and we need comprehensive 
policies that will address all three. Many of those testifying 
at your previous hearing stressed the importance of continued 
development of renewable resources, such as solar and wind, and 
to this I would say we could not agree more.
    There is no question that renewable resources of energy 
need to play a greater role in our energy mix, and that is why 
the Institute made a number of recommendations designed to 
encourage the development and deployment of renewable energy 
technologies as part of our comprehensive transition plan we 
submitted to you in this Congress and to the Administration.
    But those who would say we can attain energy security 
without oil or natural gas are as incorrect as those who would 
say that we can drill our way out of our current energy 
challenges. The only way we can effectively meet our energy 
demands is with an approach that includes a myriad of 
resources, including oil, gas and renewables. Just as we can't 
ignore the promise of renewable energy, we also cannot ignore 
the reality of our continued need for oil and natural gas.
    Therefore, the Institute has recommended permanently ending 
the remaining moratoria on exploration and production of oil 
and natural gas on the Outer Continental Shelf and on Federal 
lands onshore, and to expeditiously make leases available for 
exploration and development. The energy policies that Congress 
has passed over the last several years concede that oil is 
going to play a critical role for years to come.
    The Energy Independence and Security Act of 2007 set a 
renewable fuel standard that assumed 20 percent of our 
transportation needs could be met by renewable fuels. This 
recognized that oil will still make a majority contribution to 
our fuel supply in the year 2022.
    While the Institute has issued several recommendations to 
transform our transportation sector, such as extending tax 
credits for plug-in hybrids, including second generation 
biofuels, like cellulosic ethanol and the blenders' tax credit, 
we also recognize that the U.S. will continue to be dependent 
on oil for years to come, and that oil is going to come from 
somewhere.
    According to the International Energy Agency, between 2007 
and 2030, 64 million barrels per day of gross capacity--that is 
about six times the capacity of Saudi Arabia today--will be 
needed to be brought on line to meet the growth in oil demand 
and offset the inevitable decline from production from existing 
fields. Unless the U.S. acts to develop its own resources, the 
IEA further estimates that this growth in capacity will be 
predominantly filled by the OPEC countries in the Middle East.
    The IEA also estimates that, globally, over $6 trillion in 
new oil and gas investments will be needed by 2030. Our own 
economy could use a portion of that jolt that those investments 
would provide. A recent ICF study showed that if energy 
development were permitted in the previously off-limit areas of 
the OCS, Alaska and a portion of the Rockies, we would see 
160,000 new jobs and a new royalty revenue stream for the 
American economy.
    A conservative estimate is that the OCS contains 86 billion 
barrels of oil and 420 trillion cubic feet of natural gas. We 
have the technology today, and more will be developed in the 
future to better map these regions, better access these 
supplies, and do it all in an environmentally responsible 
manner. Consider that in 1981 when the OCS moratorium was first 
implemented, typewriters were on every desk, people were 
listening to music on record albums, and the easiest way to get 
directions was to buy a map at the gas station.
    Today we have computers, the Internet, MP3 players and GPS 
devices. Technology has the power to change and improve the way 
we live, and the power to change the way we use, consume and 
produce energy. The fear mongering that some engage in when it 
comes to expanding domestic production is neither factually 
accurate, nor productive to a meaningful dialogue.
    Beyond permanently ending the OCS moratorium as a means of 
providing legal and regulatory certainty on the issue, there 
are important steps this Congress and the Administration must 
take. First, Congress should make sure that states are 
compensated for any new exploration or production off their 
shores, and we recommend bringing all coastal states in line 
with the Gulf of Mexico states at a higher level of 37-and-a-
half percent as was approved in 2006 by this Congress.
    Second, Congress should reject the so-called ``Use It or 
Lose It'' that already exists in law today. Finally, the 
Administration and Congress should not allow bureaucratic 
processes to slow down our path to energy security. We are 
closely watching the Department of the Interior's process and 
Secretary Salazar's proposal to further delay the five-year 
leasing program that has been put out already for extensive 
public comment.
    Our nation faces extraordinary challenges. We currently 
import 60 percent of our oil. If we had made hard decisions in 
previous Congresses and previous Administrations, we would not 
face that energy reality today. This Congress has a chance to 
change our nation's future, and we look forward to helping you 
do that to maintain America's competitiveness, drive our 
economic recovery, create American jobs, and preserve our 
environment. Thank you.
    [The prepared statement of Ms. Harbert follows:]

           Statement of Karen A. Harbert, President and CEO, 
      Institute for 21st Century Energy, U.S. Chamber of Commerce

    Thank you, Chairman Rahall, Ranking Member Hastings, and members of 
the House Committee on Natural Resources. I am Karen Harbert, President 
and CEO of the Institute for 21st Century Energy (Institute), an 
affiliate of the U.S. Chamber of Commerce. The U.S. Chamber of Commerce 
is the world's largest business federation, representing more than 
three million businesses and organizations of every size, sector and 
region.
Overview
    I appreciate the Committee holding a series of hearings on the 
issue of offshore drilling, and in particular your effort to seek 
perspectives from a broad array of individuals and groups. The mission 
of Institute is to unify policymakers, regulators, business leaders, 
and the American public behind common sense energy strategy to help 
keep America secure, prosperous, and clean. In that regard we hope to 
be of service to this Committee, this Congress as a whole, and the 
Administration.
    Offshore drilling--like many other issues in the energy policy 
arena--too often winds up pitting people against one another and 
dividing them into simplistic camps labeled either ``pro-environment'' 
or ``pro-oil''. The reality is that our country is ill-served by narrow 
approaches that only look to benefit a single side of this debate. Our 
nation's energy, environmental and economic future are all intertwined 
with one another, and we need comprehensive policies that will address 
all three.
    The goal of my testimony today is to provide some balance to this 
issue, and to put offshore drilling into its proper context relative to 
our nation's needs and its current policies.
The U.S. Needs a Comprehensive Approach to Energy
    Earlier this month, the committee heard from representatives of 
environmental and commercial groups, and yesterday you heard from 
representatives from states. Many of those testifying at both hearings 
stressed the importance of continued development of renewable energy 
sources such as solar and wind, and to this I would say that we 
couldn't agree more. There is no question that renewable sources of 
energy need to play a greater role in our energy mix.
    But those who would say that we can attain energy security without 
oil are as incorrect as those who would say that we can drill our way 
out of our current energy challenges. The only way we can effectively 
meet our energy demands is with an approach that includes a myriad of 
sources--including oil, gas and renewables.
    But beyond new sources of energy, America needs a new approach to 
energy. We need an energy strategy that takes into account the many 
challenges that need to be addressed in both the short- and long-term. 
What guides the Institute is our desire to see policymakers embrace a 
comprehensive, consensus-driven approach to energy policy.
    To that end, last summer the Institute unveiled 13 pillars upon 
which any comprehensive energy reform effort should be built. Among 
them were, increasing research and development of clean energy 
technologies, and expanding domestic oil and gas exploration and 
production. These pillars are:
     1.  Aggressively Promote Energy Efficiency;
     2.  Reduce the Environmental Impact of Energy Consumption and 
Production;
     3.  Invest in Climate Science to Guide Energy, Economic, and 
Environmental Policy;
     4.  Significantly Increase Research, Development, and 
Demonstration of Advanced Clean Energy Technologies;
     5.  Immediately Expand Domestic Oil and Gas Exploration and 
Production;
     6.  Commit to and Expand Nuclear Energy Use;
     7.  Commit to the Use of Clean Coal;
     8.  Increase Renewable Sources of Electricity;
     9.  Transform our Transportation Sector;
    10.  Modernize and Protect U.S. Energy Infrastructure;
    11.  Address Critical Shortages of Qualified Energy Professionals;
    12.  Reduce Overly Burdensome Regulations and Opportunities for 
Frivolous Litigation; and
    13.  Demonstrate Global Leadership on Energy Security and Climate 
Change.
    As a follow-up, the Institute unveiled a Blueprint for Securing 
America's Energy Future that built on these pillars and provided 
specific recommendations for how Congress and the Administration should 
craft a comprehensive energy plan. In November, we presented to the 
incoming Administration and Congress a detailed implementation plan 
that included timelines for each recommendation and identified who in 
our government has the responsibility for taking action.
    Congress and the new Administration have made research and 
development funding of clean energy technologies a priority, as 
evidenced in the major commitment made in the stimulus package that was 
recently signed into law.
    It is our belief that investing in research and development of new 
technologies will ultimately pay major dividends. But it is important 
to remember that government should not be in the business of picking 
technology winners and losers and that research and development--while 
critically important--takes time. It is also critical to find the 
appropriate roles for government and the private sector. The role of 
the private sector in our future energy security is paramount and we 
should not seek to crowd out their participation, capital, innovations 
or expertise.
    Just as we can't ignore the promise of renewable energy sources, we 
also can't ignore the reality of our continued need for oil. When it 
comes to energy, our nation can't afford an either/or approach--because 
the bottom line is that we need all types of conventional, 
unconventional and renewable energy--through diversification comes 
improved energy security.
    Therefore, in addition to our expanding the role for renewable and 
clean energy,, investing in clean coal technologies and expanding 
nuclear power, we also recommend permanently ending the remaining 
moratoria on exploration and production of oil and natural gas in the 
Outer Continental Shelf and on federal lands onshore. For 30 years, 85 
percent of America's oil and natural gas resources have been placed 
off-limits to exploration and production and this clearly has not 
benefitted the American economy or the average American consumer. The 
restrictions we have placed on the production of our own domestic oil 
and natural gas resources are a significant self-inflicted wound to our 
security and prosperity.
Oil Will Continue to Play an Important Role in Meeting our Energy 
        Demands
    The Committee is well aware of the challenges we face when it comes 
to energy. Between now and 2030, global demand for energy could 
increase by more than 50 percent, and by as much as 20 percent here in 
the United States. If we fail to develop the supplies needed to meet 
this demand, there will be catastrophic consequences for our global 
competitiveness, our economy and our quality of life.
    The fact is that oil will remain the backbone of our national and 
global economy for the foreseeable future. Despite the valuable 
progress being made in the development of new energy sources and 
technologies, there is still no viable substitute for oil.
    The aggressive energy policies that Congress has passed over the 
last several years concede that oil is going to play a critical role 
for years to come. The Energy Independence and Security Act of 2007 
(EISA) amended the Renewable Fuel Standard to require the use of 36 
billion gallons of renewable fuel annually by 2022. This was projected 
to be roughly 20 percent of U.S. transportation needs. So even under 
this innovation-driven policy, we are assuming that 80 percent of our 
transportation needs will still be met by oil in the year 2022. While 
the Institute has issued several recommendations to transform our 
transportation sector, such as extending tax credits for plug in 
hybrids and including second generation biofuels like cellulosic 
ethanol in the blenders' tax credit, we nevertheless realize that the 
United States will continue to be dependent on oil for years to come.
Domestic Sources of Oil and Gas are Critical for our Economy and 
        National Security
    According to the International Energy Agency (IEA), between 2007 
and 2030, 64 million barrels per day of gross capacity--which is the 
equivalent of six times the current capacity of Saudi Arabia--will need 
to be installed in order to meet the growth in oil demand and offset 
the inevitable decline in production from existing fields.
    Unless the U.S. acts to develop its own resources, the IEA further 
projects that this growth in capacity will be predominantly filled by 
OPEC countries in the Middle East. We already see that other nations 
are moving quickly to secure and stabilize their future oil supplies. 
Last week, China entered into an oil-for-loans agreement with Russia. 
These types of agreements are a reminder that as long as there is a 
demand for oil, capital will continue to flow into the countries that 
can supply it.
    Between 2007 and 2030, the IEA also that estimates globally, $6.3 
trillion in new investments will need to be made in oil and gas. Thus, 
if the United States fails to explore and develop its own oil 
resources, we are potentially turning away trillions of dollars in 
capital investments. This is an opportunity that we could ill afford to 
lose during an economic boom, let alone during the trying economic 
circumstances we are currently facing.
    The United States already imports roughly 60 percent of our oil 
from foreign nations, which is nearly double the amount we imported in 
the 1970s. And in 2008, the United States sent between $400 and $700 
billion overseas for imported oil.
    It is in America's best interest from an economic and national 
security perspective to have a stable supply of energy, including oil 
and gas, and thus we can no longer afford to ignore the billions of 
barrels that lie off our shores. It is estimated that America's Outer 
Continental Shelf (OCS) contains 86 billion barrels of oil and 420 
trillion cubic feet of natural gas. That estimate is conservative since 
previous surveys were conducted decades ago. The technologies available 
today and in the future will allow us to better map these regions, 
better access their supplies of oil and natural gas, and do it all in 
an environmentally responsible manner.
    Consider that in 1981, when the OCS moratorium was first 
implemented, typewriters were on every desk, people were still 
listening to music on record albums, and the easiest way to get 
directions was to buy a map at the gas station. Today, we rely on 
personal computers and the Internet, mp3 players, and GPS devices. Just 
as technology has the power to change and improve the way we live, it 
also has the power to change and improve the way we get our energy. The 
mongering fear that some engage in when it comes to expanding domestic 
production is neither factually accurate nor productive to a meaningful 
dialogue on our energy future.
Policymakers Must Take Action to Address our Energy Challenges
    It is time to embrace the reality that our energy challenges will 
require a long term, comprehensive approach that outlasts political 
cycles or economic ups and downs.
    In addition to permanently ending the OCS moratorium as a means of 
providing legal and regulatory certainty on the issue, there are still 
other important steps that Congress and the Administration must take--
and other steps they must avoid--to ensure that our nation is able to 
realize the full benefits of these important resources.
    It is important to remember that the energy business is capital 
intensive. A new offshore production platform typically costs in excess 
of $500 million to construct and hundreds of millions of dollars per 
year to operate. Before companies will make these types of investments, 
they need to be certain that they will be allowed to finish what they 
start.
    I mentioned before that the United States sent a minimum of $400 
billion overseas for imported oil in 2008. If even a fraction of that 
money could be kept and invested here in the United States, it could 
make a huge impact. A recent ICF International study showed that if 
energy development were permitted in the previously off-limits areas of 
the Outer Continental Shelf (OCS), Arctic National Wildlife Refuge 
(ANWR) and a small portion of the Rockies it would lead to the creation 
of 160,000 new jobs. In addition there are significant royalty revenues 
associated with these opportunities.
    Second, Congress should make sure that states are well compensated 
for any exploration or production taking place off their shores. Under 
current law, the federal government shares 27 percent or less of 
revenues from oil and natural gas production within the first three 
nautical miles of federal waters off of the state boundary and zero 
beyond that. We recommend bringing all coastal states in line with Gulf 
of Mexico states, which were granted a higher percentage share of 37.5 
percent of the revenue for new leases off its coast under the Gulf of 
Mexico Energy Security Act in 2006.
    Third, Congress should reject additional so-called ``Use It or Lose 
It'' leasing provisions. Such provisions would be duplicative, 
unnecessary and ultimately set back the exploration and development of 
the OCS. ``Use It or Lose It'' is already the law of the land. 
Companies purchasing a lease already have a time period that they must 
act within, and having invested billions of dollars on a lease, they 
are already heavily incentivized to see it produce sooner rather than 
later. Exploring and developing a lease takes time, and adding 
additional, punitive ``Use It or Lose It'' provisions would make it 
less likely that companies would want to invest in these areas.
    Fourth and finally, the Administration and Congress should not 
allow bureaucratic processes to slow down our path to energy security. 
The Institute is carefully following the Interior Department's recent 
action to extend the public comment period by six months and delay 
until this fall the review of proposed leasing plans for future oil and 
gas exploration and production on the OCS. We naturally agree with 
Secretary Salazar's recent statement that America requires a 
comprehensive energy plan, but such a plan must include a pathway for 
greater supplies of proven energy sources like oil.
    Our nation faces some extraordinary energy challenges in the years 
ahead, but these challenges are also an opportunity. If we embrace a 
comprehensive approach and enact smart policies, we can lay the 
groundwork for energy security, environmental protection and economic 
prosperity.
    Thank you.
                                 ______
                                 
    The Chairman. Thank you very much, all of you, for your 
very enlightening testimony, and well-prepared, and most 
importantly, staying within the five-minute time limit. You 
know, I agree, Mr. Odum, you started out by saying that it is 
very important that we not be lulled into a false sense of 
energy security now that prices at the pump are down. We know 
they will go up, yes, as the economy improves. I think that was 
alluded to by several of the testimonies here this morning.
    Last year, during the election campaign when we saw the 
over $4 per gallon gas prices, we were subjected to a bumper 
sticker campaign--drill here, drill now, pay less, blah, blah, 
blah. All of that, of course, was an attempt to get the 
American people to believe that if the moratoria were lifted, 
then high gasoline prices would immediately drop.
    Today, the moratoria has been lifted, gasoline prices have 
dropped, although I don't believe, and that would be one of my 
questions to the panel, that the lift in the moratoria has 
caused the current drop in gas prices compared to where they 
were last summer. So, that would be one question.
    The second question would be the stake--this would go to 
the entire panel--that new leasing and drilling in previously 
closed areas of the OCS will significantly alter gas prices at 
the pump in the near future.
    Mr. Odum. If I could start, Mr. Chairman?
    The Chairman. Yes.
    Mr. Odum. I think to the first point, specifically to your 
question do I think gas prices have come down as a result of 
lifting the moratorium, I don't think there is that direct 
relationship. I think the world, and of course, the country, is 
actually watching to see what do we do next to build some 
confidence. That actually means we will develop some of these 
areas.
    The Chairman. Yes, sir? I am sorry. Mr. McKay?
    Mr. McKay. I would just say that I believe the drop in gas 
prices are due primarily to a drop in demand on gasoline and 
the shape of the world economy. As far as new leasing and 
drilling, I think a million barrels a day is a significant 
number, if that is the potential of the offshore that is 
currently off-limits. That would not be immediate. It would 
take 10 to 20 years, probably, to develop. However, it would 
send a signal to the world that we are opening up our areas for 
exploration and development, and overall would be advantageous, 
I think.
    The Chairman. OK. Mr. Nichols?
    Mr. Nichols. I am sure we are all going to say the same 
thing on your first question. The drop in prices is because of 
the drop in demand, which is because of the recession around 
the world, and that is pretty clear.
    The Chairman. All right. I assume the remaining three will 
say the same thing, so let me move on to my second question. 
Which areas of the OCS are your companies most interested in 
developing in priority order? In other words, if you could buy 
a lease tomorrow in an area that was previously off-limits, 
where would it be located?
    Mr. Nichols. The area of the offshore that we have the most 
knowledge about is the Gulf of Mexico, because we already have 
leases and facilities that go right up to that imaginary line 
that goes down the middle of the Gulf of Mexico, dividing the 
eastern part from the western part. That is the part of the 
United States that we have the most knowledge and, indeed, the 
infrastructure, as I said in my testimony, with pipelines going 
right through that area offshore, so that area would probably 
be the most.
    I am sure that different companies would have different 
views on the Pacific Coast, Atlantic Coast, Alaska, and that 
would be because we really don't have enough knowledge or 
information at this stage to really make an informed decision.
    Mr. Cejka. May I follow up?
    The Chairman. Yes.
    Mr. Cejka. Following up on Mr. Nichols' comment, on all the 
offshore areas it has been over 30 years. I started 33 years 
ago, and the first project I worked on was offshore California. 
I remember vividly the technology we had. There were no 
computers. We used paper seismic records and pencils to make 
our interpretations. The advances in seismic are unbelievable 
in those 30-plus years. The first thing I would say is let the 
industry gather seismic data on the coastlines.
    The industry will find places it has interest. Mr. 
Chairman, to your question of where, it is a horserace. We see 
things differently because we have different technologies and 
different people. Sometimes our company is right, and sometimes 
Chevron and BP are right; but that is what makes it good to 
have competition in the industry because we do eventually find 
the right spot. It is hard to predict until we gather this new 
seismic data, which will help all of us determine where the 
better areas are.
    Mr. Odum. Mr. Chairman, if I could just add one piece which 
I think is a little bit different to that answer--specifically, 
offshore Alaska where there have been wells drilled in the 
past--we know there is oil and gas out there. It is an area 
open to leasing, but it is currently being inhibited. I think 
just for the Committee to think about--what could be done to 
that area which is open, what could be done to help move that 
forward--would be an important question.
    The Chairman. Any further comments on that? Thank you. Mr. 
Hastings?
    Mr. Hastings. Thank you, Mr. Chairman. I want to ask a 
question of all the panelists except Ms. Harbert because she is 
not in the business, but I am wondering if you could tell me, 
and if you don't know, you know, the broad range here, submit 
that for the record, and that is this: Do you know how much 
that your company paid to Federal and state governments in 
2008? I am talking about taxes, royalty, bonus bids.
    Mr. Cejka? I knew some Cejkas in my hometown, so if I call 
you Mr. Cejka, is that OK?
    Mr. Cejka. Yes. That is absolutely fine.
    Mr. Hastings. OK. Fine. If you could do that, and if you 
don't have it in front of you, please submit it for the record. 
We will start with Mr. Odum.
    Mr. Odum. If I could just characterize that in the very 
recent past, maybe 18 months to two years----
    Mr. Hastings. That is fine.
    Mr. Odum.--about $600 million in the Gulf of Mexico and 
over $2 billion in Alaska.
    Mr. Hastings. Mr. McKay?
    Mr. McKay. In 2008, counting bonuses, rental payments, 
royalties and income taxes, $5.3 billion.
    Mr. Hastings. Mr. Nichols?
    Mr. Nichols. I don't have that number, but would be glad to 
submit it.
    Mr. Hastings. OK. Mr. Cejka?
    Mr. Cejka. In 2008 and 2007, we contributed about $16 
billion to the U.S. economy in terms of taxes, royalty.
    Mr. Hastings. In taxes and royalty. Mr. Luquette?
    Mr. Luquette. I don't have those figures handy but can 
provide those.
    Mr. Hastings. OK. Fine. I appreciate that. Mr. McKay, I 
would like to ask you a question. We hear a lot about 
technology in the offshore industry, and typewriters when we 
last explored some areas. I thought that was good. Could you 
elaborate a little bit on the technological advances that have 
occurred in the industry that has made your work more 
environmentally friendly?
    Mr. McKay. Yes. I think building on from where my colleague 
from Exxon was, seismic technology has moved massively forward 
in the last 30 years. We can image and see things, and 
therefore target things that weren't even possible as little as 
10 years ago. The footprint that we must impact, in terms of 
number of wells drilled, leads that are developed down into 
prospects, and some are culled, as they are not potential, that 
has increased our ability to drill in the right place 
drastically.
    The other thing I would say, in drilling technology we can 
now do extended-reach drilling. You heard an example of up to 
six miles. There are examples, we are trying to go out eight 
miles. We can also design the wells based on the seismic 
interpretations to be safer, more robust and designed better 
for the situations that they are going into. The third area is 
around monitoring and control. The systems, the pressure 
sensors, temperature sensors, flow sensors are miles better 
than they were in the past.
    We can see things and understand things in real time now 
downhole in the well and at the surface, and control things 
much better than we could in the past. The last area, I would 
say, which is a big, big benefit, is the usage of subsea 
completions where we can drill wells, produce those wells 
purely from subsea installations, tie those back to central 
processing facilities 15, 20, 30 miles away and therefore the 
visual impact is very low.
    And so when you combine all those systems, you have a 
safer, more environmentally sensitive methodology of 
development today than we had 30 years ago, or actually even 10 
years ago.
    Mr. Hastings. Thank you. And last, well, maybe not last, 
for Mr. Cejka. I just can't resist, I guess. You have been in 
the business, you said, for 33 years. Are you aware of any 
other industrial country that limits the energy resources like 
the United States?
    Mr. Cejka. There are none. To my knowledge, there are none.
    Mr. Hastings. All right. As far as stimulus, because that 
issue was talked about a great deal, is your company receiving 
any bailout money?
    Mr. Cejka. Absolutely not.
    Mr. Hastings. All right. Any of the other companies 
receiving bailout money?
    Mr. Odum. No.
    Mr. Hastings. OK. Good. One last question real quickly. Mr. 
Nichols, do you believe that the Federal government should 
subsidize your member companies by directly contracting for new 
seismic surveys of former moratoria areas before additional 
leasing can take place?
    Mr. Nichols. No, I do not.
    Mr. Hastings. OK. Great. Thank you. I will yield back my 
time because I know that we have votes going.
    The Chairman. Yes. Let me go to Mr. Sarbanes and advise the 
panel, with your indulgence, and if you can return, we will 
have to take about a 30 minute break after this questioner and 
come back after that time for more questions. Is that agreeable 
with the panel? OK. Thank you. Mr. Sarbanes?
    Mr. Sarbanes. Thank you, Mr. Chairman. I am curious. Before 
the last year or two, when you must have fully expected that 
the moratorium would have remained in place, I assume that 
looking out from a couple years back, that would have been your 
operating assumption as you were making plans and strategies 
about going forward. Is that fair enough? OK.
    So, what were the plans to make what you all characterize 
as a transition from where we are now to a new portfolio of 
energy resources that is more diversified? If the moratorium 
had stayed in place, what was the strategy? Anybody could take 
this question.
    Mr. Odum. Well, I can tell you that we are talking about an 
expanded portfolio, expanded opportunities for the U.S. when we 
talk about opening new areas. One of our primary businesses is 
oil and gas, but also working in the renewable areas of wind. 
We have a significant wind business in North America, and also 
very significant investments into second-generation biofuels.
    Mr. Sarbanes. See, I think, I mean, my impression is my 
belief. I am willing to have my belief system overturned, but 
my belief right now is that the transition you are talking 
about can be achieved if the moratorium were back in place, 
provided that the exceptions to it, the places where you had 
the opportunity to pursue leases and so forth, were part of 
that reality.
    To me, that is the presumption that needs to be rebutted 
here because 85 percent is off-limits, right, if you go back to 
the moratorium? Fifteen percent, it seems to me, based on what 
I know and hear, should be sufficient to accomplish this 
transition we are talking about, particularly, as you indicate, 
if the estimates of what you would find were low in most 
instances when you then get out and do the research.
    I am having trouble understanding why, with the moratorium 
being back in place, it doesn't give us enough to make this 
transition to the new reality that we want to see.
    Mr. Nichols. If I might, one of the things you might focus 
on is where an oil and gas company allocates those dollars. We 
can allocate those dollars to the United States, or to Canada, 
or to other parts of the world. The more the United States 
restricts where we can drill as companies, the more those 
dollars have to find places internationally.
    So, when the President of the United States talks about 
increasing the United States lessening our dependence on 
foreign oil, that says if you open up more areas in the United 
States where we can explore for oil, we can do that. Some of 
those dollars will get transferred from places offshore out of 
the United States to places onshore.
    Mr. Sarbanes. But I am hearing something--from Mr. Odum I 
heard something a little bit different. Twice you have alluded 
indirectly to the idea that the problem is not necessarily that 
you don't have access to sites where there could be oil--under 
those exceptions where the leases you had while the moratorium 
was in place. The problem is that the process for completing 
that exploration and getting it into an operation mode is 
cumbersome and needs to be streamlined, or reregulated, or 
whatever it is.
    Mr. Odum. I appreciate the opportunity to clarify because 
what I am saying is actually exactly what Mr. Nichols is 
saying. It is an option for this country to develop the 
additional resources that are out there for the benefit of 
security, jobs, all the things that have been mentioned before, 
so I won't repeat that.
    Regarding my specific comments on how we can make the 
system more effective in terms of accessing areas, it was a 
particular flag around Alaska where we have had some challenges 
getting things done efficiently and effectively. I think it 
just speaks to the fact that when we open new areas for 
exploration and production. we need to be sure that we 
adequately fund and resource the pieces of government that are 
involved in getting that done. So, that was my main point.
    Mr. Sarbanes. Well, I would like to test the proposition 
that if we do the things you are recommending with respect to 
the areas that would be available, even with a moratorium in 
place, that you could get to the kind of energy production 
that, again, would allow us to make this transition.
    I am probably running out of time here--`I am at yellow, 
but I wanted to pursue something else, which is I think, Mr. 
McKay, you talked about the $8 billion over 10 years that BP is 
putting into pursuing alterative energy sources, renewable 
energy sources, and so forth.
    I just want to put that in context for people listening 
because $8 billion is a lot of money. However, it is not a lot 
of money compared to, for example, the profits that BP made in 
a two-year period, which was $57 billion, so I am not impressed 
with that as representing an aggressive transition to a new and 
more diversified energy portfolio.
    One of the things I am concerned about, Mr. Odum, is the 
false sense of security that you are worried about because the 
price has gone down. I am worried about the false sense of 
security that can result if we suddenly think that we have all 
of this OCS available to do drilling and we fall back into the 
frame of mind that we don't have to have the discipline to 
pursue these alternative sources of energy.
    I think there is a discipline dimension to this as well, 
and I think I have probably used my time up. Thank you, Mr. 
Chairman. Thank you all.
    The Chairman. OK. The Committee will stand in recess for a 
half hour.
    [Whereupon, a short recess was taken.]
    The Chairman. The Committee on Natural Resources will 
resume its sitting. We will recognize the gentleman from 
Oregon, Mr. DeFazio, for questions.
    Mr. DeFazio. Thank you, Mr. Chairman. I am sorry. I was 
detained in Homeland Security with the Secretary so I missed 
some of the questions, and if the panel would cut me a little 
slack here, I may ask some questions that are repetitive. As 
you know, there was consideration of legislation here last year 
in the Congress when gas was retailing for over $4 a gallon and 
consumers were outraged.
    The Republicans said, ``Drill here, drill now,'' like that 
would provide immediate relief. There were others of us who 
felt that orderly and prompt development of some of the 
existing leases perhaps might provide relief sooner, but we 
didn't believe it would provide relief immediately either. I 
guess my really simple question is, would ``drill here, drill 
now'' last summer, if implemented as proposed, have made any 
difference in the retail price of gasoline during last summer? 
Yes or no? Seems like a pretty easy question. Anyone?
    Mr. Nichols. Well, as we discussed earlier in this hearing, 
you know, Economics 101 obviously says the more supply you 
bring to any commodity, that that has a downward pressure on 
price.
    Mr. DeFazio. Right, but, of course, just the potential 
leases for potential future supply of unknown volume, that 
probably wouldn't provide a lot to a current market, would it?
    Mr. Nichols. That had no impact.
    Mr. DeFazio. Right.
    Mr. Nichols. We all said that earlier.
    Mr. DeFazio. Right. OK. That is good. So then, if we are 
going to supply, I guess, I have a news report from Reuters, 
July 3, and it points to about the time gas prices were peaking 
over about $4--$4.30 in my district--that we were exporting a 
record 1.6 million barrels of refined petroleum products at 
that point in time, up 33 percent from the same period in 2007.
    I assume your answer is going to be, ``Well, we are in a 
global supply chain, and we will send the oil wherever it gets 
the highest value for the refined product,'' so I would like 
first a little discussion of why we were exporting a record 
amount of refined product at a time when Americans were being 
squeezed dramatically at the pump.
    And then, I guess the follow-on question to that would be I 
often hear that the reason for jumps is, ``This refinery had a 
fire, this one shut down for cleaning, this one here had a 
hurricane,'' and the price jumps up. Do we have enough refinery 
capacity? So, two-part question. Why were we exporting a record 
amount at a time when Americans were paying record prices, or 
were they paying record prices because we were exporting a 
record amount?
    Mr. Cejka. I will address the first question, if I may, 
sir.
    Mr. DeFazio. Sure.
    Mr. Cejka. The products that were being refined were, when 
you go through a refinery run, and I speak as an upstreamer so 
I don't speak with total engineering knowledge, but you develop 
a lot of products under one run--gasoline is just one of them--
but there are other byproducts that come out of that, from 
sophisticated lubricants down to very base sort of what is 
called ``coke,'' which is sort of a leftover product.
    Mr. DeFazio. Sure, but if I just could, and, you know I 
don't always believe the news, but they do say in the first 
paragraph, ``Shipping record amounts of gasoline and diesel 
fuel to other countries.'' They weren't saying other splits. 
They were saying gasoline and diesel in record amounts. But go 
ahead.
    Mr. Cejka. Well, I don't believe we were shipping record 
amounts of gasoline. From what I know, it was on the product 
side.
    Mr. DeFazio. OK. Well, I guess, can anybody else address 
that? I mean, we will have to check it out because perhaps 
Reuters was wrong and you guys should have, you know, tried to 
get them to correct it at the time.
    Ms. Harbert. Congressman, if I might, I think we need to 
recognize why there were high oil prices or high gasoline 
prices. It was not because we were exporting some of the 
refined product. Most of that product was actually going to 
Canada, and it was a very small amount of what we were 
refining. The reason there were high prices is because demand 
was outstripping supply, and the reason it was outstripping 
supply is because we haven't brought new supply onstream in 
this country in so long.
    Mr. DeFazio. But there were no gas lines like in the 1970s; 
there were no absolute shortages; there was no rationing. I am 
not aware of anywhere in the world that there were gas lines 
outside of Iraq, which has its own set of problems, so to say 
there wasn't enough supply, I guess, means we were rationing 
through high prices because we were not rationing at the pump, 
there were no absolute shortages, there were no red flags, 
yellow flags, green flags, any of that kind of stuff.
    Ms. Harbert. We did see consumer behavior moderate quite 
substantially and, in fact, in August of last year we saw 
driving behavior change, and people drove five percent less in 
August of last year as they did the year before, so the 
consumers responded to the high prices. We certainly don't want 
to make decisions today that would put us 10 years from now in 
an even worse situation. So, 10 years ago if we had brought new 
supply on, we wouldn't be importing as much and we wouldn't 
have seen those high prices this summer.
    And so we really have an opportunity now to make a 
difference. You know, the stimulus package stipulated some 
long-term investments to get us out of this energy crisis, and 
whether or not leases can be brought on line in one year or 
three years or more, we should be investing for the long term 
because this is a long-term challenge.
    Mr. DeFazio. Sure. And if Congress had chosen to impose 
higher fuel efficiency standards 17 years ago, we wouldn't have 
been in the same pickle either, but those are what if's. Let us 
look to the future. I appreciate that. Let me ask a question 
about prices today and OPEC. OPEC, which some of you deal with 
on a regular basis, regularly meets. They have meetings and 
they decide to constrain production.
    Now, they do that not for conservation purposes, but for 
purposes of driving up the price and profiting themselves, and 
the profits seem to flow through the chain to your books, too. 
I believe five or six of the members of OPEC are members of the 
World Trade Organization, and three are observers and want 
admission. The clear rules say the only reason you can 
constrain supply is for conservation purposes, not to 
manipulate the market and drive up prices.
    I have asked, to be fair, President Clinton, who refused to 
file a complaint against OPEC, President Bush, who refused to 
file a complaint against OPEC, and we will soon be asking 
President Obama to file a complaint against OPEC. Would any of 
you support, you know, such a complaint as consumers, or you 
are providers but you are also consumers of their product, 
because they are illegally constraining supply to drive up and 
manipulate the market price?
    I mean, because you have to have standing to file these 
complaints and consumers can't. I can't. No one I represent 
can. The government can or industry could. Anybody willing to 
take on that question?
    Mr. Odum. Congressman, if I could just comment. I think 
what it tells me is I could be clear about what I do support--
which relates to what the President said last night--which is, 
what can the U.S. do to stimulate its own energy sources and 
energy supply to reduce the number of imports?
    Mr. DeFazio. Sure. Well, I am all for that, and I have been 
for the 20 years I have served here; but what I am saying is 
that since we are all here about free trade every day of the 
week, every day of the year, and I voted against all these 
agreements because I said they aren't to benefit the American 
people, mainly to benefit multinational corporations, of which 
you are some, this is a clear violation. They can't do that.
    If you do it, you will go to jail, right? If you say, 
``Well, we are going to hold back stuff here and we are going 
to collude with each other and drive up the price''--which, of 
course, I know doesn't happen, so you know that there would be 
the force of law on you. This is international law. These 
governments are signatories. The U.S. is a signatory. Shouldn't 
the U.S. defend its consumers by filing a complaint against 
OPEC for improper, illegal constraint of supply?
    Ms. Harbert. I think there is a couple of comments on that. 
First of all, what would be the consequences of doing such a 
thing, whether there is the legal ability to do it or not? That 
is probably the subject of a much longer conversation?
    Mr. DeFazio. It might break up OPEC because some of them 
might say, ``Heck, you know, we are out of here.'' Right now, 
they are colluding very nicely and cooperating in a record way, 
which usually doesn't happen, and it is happening now. They are 
all coordinating to drive up the price now. Even though demand 
is way down, consumers are going to be paying well over $3 a 
gallon by Memorial Day. I can predict it right here, right now.
    Ms. Harbert. If the desire is to lower prices by suing the 
producers of the actual product, I don't know what type of 
effect that would have on prices, but one could assume that 
that may have a negative effect on prices.
    Mr. DeFazio. Well, you know how the WTO works, which is, it 
is an extraterritorial penalty, and we can then discriminate 
against any of their products in any way, as can other members 
of the WTO extraterritorially, and they really don't have much 
recourse at that point.
    I mean, we cave in to the WTO all the time, so I am just 
kind of wondering why the USA has to cave in to complaints 
filed against us, but somehow OPEC, we don't even dare file a 
complaint, which is what you are telling me here, ``We don't 
dare file a complaint because they have us by whatever.''
    The Chairman. The gentleman's time expired over five 
minutes ago.
    Mr. DeFazio. Thank you, Mr. Chairman.
    The Chairman. The gentleman from Colorado is recognized. 
Mr. Coffman?
    Mr. Coffman. Thank you, Mr. Chairman. First of all, I have 
had five overseas military assignments, four of which have been 
in the Middle East, have taken me to the Middle East. I fully 
understand the dangers of our dependence on foreign oil. It is 
not just bad for our trade deficit; it puts some of the money 
in the hands of those who wish to kill Americans.
    And so I think my question is, what is the capacity for the 
offshore drilling that we are discussing today if you had the 
capability to do it in a manner that would also address some of 
the environmental concerns that were raised today, which 
already are probably in the regulatory framework around 
offshore drilling? What capacity would it have in displacing 
the importation of foreign oil? To any member of the panel.
    Mr. Nichols. Well, an exact number for that is going to be 
difficult because we don't really know how big that resource 
is. As all of us have said in different ways, estimates about 
the resources out there are unknown, and will remain unknown, 
until we start exploring. Clearly, all of the numbers that you 
have heard today are very significant oil and natural gas 
numbers that really would replace, in time, foreign imports of 
oil and natural gas, too, for that matter.
    Mr. Odum. Congressman, could I just add. One of the things 
I worry about is this impression that it is not significant 
enough. As you have heard the discussion around the vast 
resources that could be there, they are likely even bigger than 
the estimates that exist. When we talk about importing 60 
percent of our oil, what comes to my mind immediately are some 
of the larger projects that are out in the Gulf of Mexico now 
and a project we have coming on just in the next probably six 
months or so.
    The project that I have in my mind produces 180,000 barrels 
a day per one single development. So, again, as we talk about 
moving, you know, vast areas up to a million or more barrels a 
day, I think that is a very reasonable estimate, and that is 
significant.
    Mr. Cejka. To go back to an earlier point several of us 
made in terms of it takes all the sources, as we move to 
alternatives and unconventional ways of finding energy and 
producing energy, we need to be doing that as we add this extra 
bit of production. So, you know, if the additional production 
offsets five percent of our imports, maybe fuel efficiencies, 
solar, wind offset another five. I think we have to clot that 
piece by piece because five percent is a huge number.
    It doesn't sound like it, but that would be a tremendous 
amount of production. If we don't do it, we are going to 
continue to be dependent. The U.S. right now is declining in 
its production. That will not stop until we find new areas to 
bring new production on. And so, we are looking at a further 
decline if we don't do something now.
    Mr. Coffman. Any other? Great. Thank you. There have been 
some concerns that were raised about the issue off Santa 
Barbara, Hurricane Katrina. If we were going to look with 
today's technology, where would you say the greatest 
environmental concern would be in the whole process if you were 
to aggregate offshore drilling from the first phase of 
production to the last phase of bringing it in? If there was a 
sensitive point environmentally, where would that be?
    Mr. Luquette. Well, let me have a go at it and we will have 
other thoughts, I am sure, but I think natural disasters--and, 
in particular, in the OCS we are talking about hurricanes--
represent our biggest threat. Industry has had some pretty 
significant storms in 2005 and 2008 that have really devastated 
a lot of the facilities.
    The good news is that the record, from a spill-performance 
standpoint, has been outstanding considering the amount of 
devastation. I still think that represents our biggest exposure 
when we talk about OCS areas.
    Mr. Coffman. It was brought up yesterday that it was a much 
greater concern about the spillage with the importation of 
foreign oil coming in on tankers than it was in offshore 
drilling. I wonder if anybody could comment on that. It would 
seem to me that if anybody is interested and concerned about a 
ban in offshore drilling, they ought to be concerned about a 
ban in the importation of foreign oil, given the dangerous or 
precarious situation with the tankers. I am wondering if 
anybody could address that.
    Mr. Odum. Well, I think just simply to confirm that the 
numbers do, I believe, show that tankering, that there would be 
more spillage from that than the type of operations we are 
talking about offshore. I think, you know, and I will refer to 
the written testimony that I know I submitted where we put 
quite a bit of detail in there to try to represent what is the 
performance of this offshore industry in terms of spillage? It 
is stellar performance.
    I will just add one small thing. I think when you look at 
what opening new areas would look like and what type of 
developments you would have, you should look at the Gulf of 
Mexico in terms of the latest projects because that represents 
the latest technology for some of the deepwater projects and 
others--and look at the record of those projects. They are 
stellar.
    Mr. Coffman. Some concerns also were raised yesterday about 
the visual blight of having them within a distance offshore 
where they could be seen in some of our areas that, say, base 
their economies on tourism, and it was mentioned that there was 
a way to have them not be visible. I think one was facades, but 
another one that struck a greater interest with me was having 
them at or below the surface. What is the capability of doing 
that?
    Mr. McKay. We have a couple of different things. One, we 
have subsea technology. Fields can be developed with subsea 
wellheads on them so it would be beneath the surface and tied 
back offshore. Due to the curvature of the Earth, about 15 
miles out you wouldn't see a normal height platform. So, 
roughly tied back offshore to a central processing facility is 
one way to do it. I think there are several ways to do it, but 
that is one of the simplest ways to do it.
    Mr. Coffman. OK.
    Mr. Cejka. If I could just add one thing. With this new 
long-distance drilling capability, you could put a rig onshore 
and drill six miles offshore. There would be nothing on the 
water.
    Mr. Coffman. Thank you, Mr. Chairman. I yield the balance 
of my time.
    The Chairman. The gentleman's time has expired. The Chair, 
unfortunately, with the indulgence of the panel, is going to 
have to ask for another recess after Mr. Costa's questions as 
we have a vote on the House Floor, but this should be a very 
quick vote. I will go over and vote and come back and resume 
the Committee's hearing immediately upon my return. The 
gentleman from California, the Chairman of our Energy and 
Minerals Subcommittee, Mr. Costa, is recognized.
    Mr. Costa. Thank you very much, Mr. Chairman. Thank you for 
the thoughtful hearing process that you are lending to this 
important issue, both last week, this week and as we continue 
to work with the Subcommittees. It is very important, as you 
have noted from your statements, that we try to get it right 
and that we try to develop a balanced, comprehensive energy 
policy that in my view, or I like to refer to, uses all the 
energy tools in our energy toolbox, both with near-term, 
interim and long-term strategies to reduce our dependency on 
foreign sources and to make us less reliant on fossil fuels.
    Having said that, for the record, I would like to, without 
objection, submit the National Academy of Sciences report 
published in 2002; and I want to know, just quickly, by nods of 
heads by the witnesses whether or not you agree, it indicates 
after a compendium of looking at studies that, in fact, today's 
accidental spills from platforms represent one percent of 
petroleum inputs in North America waters and about three 
percent worldwide. Do you support the National Academy of 
Sciences report? All heads nodding. Without objection.
    Not a lot of time, obviously. I want to talk about the 
discussion last year that I thought was not as thoughtful as 
the ``Drill, Baby.'' Comparable to that was the ``Use It or 
Lose It.'' I would like to get your concepts. I mean, I thought 
most of them were not very thoughtful, both responses.
    Why does ``Use It or Lose It'' not relate to the realities 
of the availability of the carbon, the oil and the natural gas, 
and why should, therefore, we consider opening up? Because I do 
believe that OCS, as well as Federal lands, is part of one of 
the energy tools in the energy toolbox. Who wants to take the 
first crack at that?
    Mr. Nichols. I will take a crack at that. The oil and gas 
industry has absolutely no incentive to continue paying the 
Federal government leases to maintain a lease that is not 
serving us some use. If you go through the history of a lease, 
we first identify broad prospects and then go through the 
leasing process with the government.
    Mr. Costa. And then you do a bid.
    Mr. Nichols. You do a bid, and if you get the leases, then, 
since you own those leases for a period of time----
    Mr. Costa. Now, don't the bids differ in price? I mean, not 
all bids are alike.
    Mr. Nichols. They do. Yes.
    Mr. Costa. And that is based upon a guesstimate, estimate 
of what the carbon content is in a leased lot? A leased lot is 
three-by-three miles?
    Mr. Nichols. Each company has its own assumptions on what 
may be underneath that prospect, underneath that lease. No one 
has knowledge, I mean good knowledge.
    Mr. Costa. Which is why the price varies on what the lease 
bids are?
    Mr. Nichols. It varies widely from block to block, and the 
price can vary widely on what each----
    Mr. Costa. From millions to hundred millions, and then last 
year there was a record price of what, a billion dollars?
    Mr. Nichols. Yes. They vary widely because we don't know 
what is under there. We have guesses and estimates of what is 
under there.
    Mr. Costa. What are the chances in the Gulf of Mexico or 
elsewhere that you will hit a find after you spend millions or 
hundreds of millions of dollars on a lease that you have 
successfully bid on?
    Mr. Cejka. If you take the Gulf of Mexico all in, it is a 
25 percent chance.
    Mr. Costa. Twenty-five percent chance. That is after you 
have successfully bid whatever you have bid, that is after you 
have done your due diligence five to six years, after you have 
done the test well to determine whether the carbon footprint in 
that three-by-three square mile is sufficient enough to put a 
permanent well in.
    Mr. Cejka. That is correct, and it may be several three-by-
three miles put together.
    Mr. Costa. No, they are, generally speaking when you do 
your bids.
    Mr. Cejka. But, you know, that is using the best technology 
we have because we have been in the Gulf of Mexico a long, long 
time, and a lot of the more obvious things have been found.
    Mr. Costa. Logically, in terms of the concept of whether or 
not we provide additional OCS leases or not is really--I mean, 
logic would tell you that all the leases that you currently are 
holding under the concept of ``Use It or Lose It'' would seem 
to suggest that the carbon content in each lease provision is 
the same in terms of the volume of oil or natural gas and, 
therefore, you should be using all of it and be drilling all of 
them concurrently, right? Am I missing something?
    Mr. Nichols. Yes. No, that is the assumption there. Of 
course, it is an invalid assumption because once you own a 
lease, as you continue to do more detailed geophysical work and 
seismic work, you may decide that the assumptions upon which 
you bought that lease in the first place are no longer valid, 
and so you drop the lease. So, the gap between when you do the 
leasing and when you actually have a discovery, those are 
leases in process. They are leases we are working on.
    Once we get to the conclusion that that lease is not one 
that is going to continue to be a prospect that will be worth 
drilling, then we drop it because there is no incentive to pay 
the government a delay rental, an annual rental, to maintain a 
lease that you are not going to ultimately drill.
    Mr. Costa. Go ahead.
    Mr. Cejka. If I can give you some statistics. For our 
company in particular, about half the acreage we hold is under 
production, the other half is under active exploration, and 
only four percent, under that definition, would be inactive. We 
are dropping those acres and giving them back to the government 
this year. That is how we keep that cycle moving. So, you know, 
``Use It or Lose It'' is what we do on a daily basis.
    Mr. Costa. My time has expired, but let me just for the 
record state that when I was in Iraq last year, I was talking 
to an Army Corps of Engineers colonel who was helping 
rehabilitate the fields there in Iraq. I was asking about the 
chance of success when they put a hole in the ground in Iraq 
versus the Gulf of Mexico, where you say it is a 25 percent 
chance of success. He says it is 70- to 80 percent chance of 
success in Iraq when they put a hole in the ground.
    That low-risk investment versus the Gulf of Mexico, I 
think, ought to be considered. I just would say, members of the 
Committee, that for me ``Use It or Lose It'' is as nonsensical 
as ``Drill, Baby, Drill.'' They are both nonsensical. I want to 
thank the Chairman for the time that you have given me.
    The Chairman. Yes. The Committee will stand in recess for 
five minutes. I am going to run over and vote and come back and 
resume the Committee hearing. Anybody want to get in line and 
be recognized immediately for questions?
    [Whereupon, a short recess was taken.]
    The Chairman. Committee will resume its sitting, and the 
gentleman from Colorado, Mr. Lamborn, is recognized.
    Mr. Lamborn. Thank you, Mr. Chairman, and thank all of you 
witnesses as well for staying around and working with our 
disjointed schedule this morning. The question I would like to 
ask any one of you could answer, but I would like to just keep 
this, for the sake of time, to one of you. Mr. Odum, could you 
explain what the permitting process requires in terms of the 
length of time that it takes before a lease can actually become 
productive, and how many permits are required per well?
    Mr. Odum. Thank you, Congressman. I think it is a really 
important question. If I can, because I have just been through 
the cycle, let me just focus on offshore Alaska. The time 
period is multiple years, so it is important to remember that 
before a lease sale ever takes place, the Department of the 
Interior does an environmental impact assessment. That is all 
part of that process.
    That takes place ahead of time. The determination is made 
that a lease program can go ahead and then that is when we, as 
companies, come in and bid and move forward. Now, for just the 
exploration phase to drill a well offshore Alaska, there is 
probably 39-or-so permits. I would say major permits, probably 
15 to 20 major permits. That is the first phase.
    Now, as we think about, you know, bringing the production 
on, the second phase is once you discover something and you 
define it, then you go through another environmental impact 
study, the government will, to define what a development would 
look like and what are the acceptable parameters around a 
development. That is also a multi-year project. I have looked 
ahead at that for Alaska and there is something on the order of 
150 permits associated with getting a development to move 
forward.
    Mr. Lamborn. We are up to almost 200 permits?
    Mr. Odum. That is right. In my opening statement, that is 
one of the reasons that I pointed to as an area where Congress 
may want to have a look is that whole system that we just 
described is extremely important to make sure we get the right 
elements----
    Mr. Lamborn. Real quick.
    The Chairman. Are you talking Alaska only?
    Mr. Odum. Well, that is specific to Alaska, which is where 
I have most recently seen the numbers.
    Mr. Lamborn. To build on what the Chairman just referred 
to, would there be a similar type of red tape process for 
either the Pacific Coast, or Atlantic Coast, or Gulf of Mexico?
    Mr. Odum. Yes.
    Mr. Cejka. In the Gulf of Mexico, for example, on the last 
phase Mr. Odum referred to, it would be about 90 permits.
    Mr. Lamborn. Should Congress, as a way to cut through the 
red tape and get energy to the consumer faster, and to reduce 
our reliance on foreign producers faster, should we look at 
something like consolidating this process? Maybe having a 
multiagency one-stop permitting station, if you will, or 
something like that?
    Mr. Cejka. We would highly support that. It allows the 
broad look at the features being permitted, it takes all the 
variables in place, and it gives you one place to have a 
discussion.
    Mr. Odum. I agree completely, and it allows the various 
agencies as a lot of these permits to work together to use the 
same information. I think it increases the quality of the 
product as well.
    Mr. Lamborn. OK. Thank you. There are so many questions 
that I would like to ask you, but for the sake of time, 
obviously we have to focus, so for any one of you, there is a 
general philosophical question I would like to ask. There are 
some critics who say that since you can't solve all of our 
energy needs by doing offshore drilling on the Outer 
Continental Shelf, we shouldn't even bother to go there at all. 
I don't agree with that, but how would you answer that 
criticism that if this isn't a silver bullet, we just shouldn't 
even mess with it?
    Mr. Nichols. I think in all of our testimony we have 
alluded to that, and that the answer to the United States has 
to be ``all of the above''. Using the same rationale that if 
one source is not going to solve all of the problems we 
shouldn't use it, logically you would be against solar, and you 
would be against wind, and you would be against any of the 
sources. We need them all. We need to develop our renewable 
resources, but we also need to develop coal and natural gas in 
all of the places where it can be developed in an 
environmentally responsible way.
    Mr. Lamborn. Any of the rest of you would like to respond 
to that?
    Ms. Harbert. I think it is time to stop taking options off 
the table for the American consumer. We need to put all the 
options back on. It will keep energy affordable, reliable, and 
it will be a long-term investment, if we do that, for a long-
term economic recovery.
    Mr. Lamborn. OK. Thank you for your answers, and thank you 
for being here today.
    The Chairman. I am going to make a few comments and perhaps 
ask a question here, and use just a bit of time to see if any 
of my other colleagues show up for questions. If not, we will 
dismiss the panel. Just summarizing what I have heard today, 
matter of fact, in all the panels that we have had, there 
certainly seems to be more commonalities than there are 
disagreements, and that is what I have been trying to use this 
series of hearings to explore, and certainly those 
commonalities will not be lost on this Committee during our 
future deliberations.
    Where those deliberations take us, where this whole series 
of hearings takes us, is not defined at this particular moment, 
except to say that we do need to develop a comprehensive 
national energy policy out of this Congress. I think we all 
agree that we need to use ``all of the above'' in our options, 
and ``nothing'', as you have just said, Karen, can be taken off 
the table. I am certainly an advocate of ``all of the above'' 
as long as they are domestically produced energy resources.
    As we look to the future, certainly the development of any 
comprehensive national energy policy will not fall entirely 
within this Committee's jurisdiction. It will involve multiple 
committees in the Congress, and it would involve expertise of 
many others. It is my hope that when called upon, and whether 
called upon or not, this Committee will have in place the 
parameters, if not more, for a legislation that will address 
issues within our jurisdiction.
    The OCS is certainly one of those areas of jurisdiction. We 
developed a bill in the past, a lot of us called it a 
compromise bill last summer. It did not have everybody's 
support but, during that process, I noted there was a lot of 
give and take. That is what I envision this process to be in 
the future--a lot of give and take.
    I know, Mr. Odum, you said there is no tradeoffs, but 
transition, but I think perhaps there are some areas where we 
do need to call it a tradeoff because of the legislative acts 
of compromise while reaching that transition, while exercising 
that transition, I guess I should say. I do hope that at the 
end of the day when these negotiations are undertaken and when 
the compromises are made, they are done in good faith and that 
the commonalities are not etched in stone, but at least etched 
in our good faith negotiations and that we can reach an 
agreement.
    In other words, if there is a compromise made, then we 
don't find that there is something else that needs to be done 
on down the pipe, and therefore, that particular compromise did 
not elicit the support of groups for which it was addressed in 
the beginning to elicit support. I may be a little fuzzy there, 
but what I am trying to say is that I hope we can reach those 
areas of common agreement and have everybody onboard when it 
comes our turn to develop a piece of legislation. Anybody like 
to comment on that? If not, I will go to Mr. Boren on our side, 
recognize him.
    Mr. Boren. Thank you, Mr. Chairman. This has been an 
interesting experience. I mean, I think we have had multiple 
panels on this issue. Earlier we had Philippe Cousteau and Ted 
Danson, we have had now executives of the industry, and how 
pleasing it is to have you all here today. I was a little bit 
late to the hearing because, on the Intelligence Committee, we 
were visiting with the new Director of National Intelligence.
    Something that he talked about was the world economy, the 
global economy, the price of oil and gas and the fact that even 
though prices have gone down, eventually they are going to go 
back up, and for us to keep an eye on it. I told him, I said, 
``You know, what better way to ensure our national security 
than to develop the resources that we have in the United 
States.''
    And so I want to thank you all as patriots and for being 
part of the group that is actually exploring and keeping our 
dollars in the United States, and not having to rely as much on 
foreign oil. I have a few questions, and I want to start with 
my home state leader, Larry Nichols. If he could start, and 
then the rest of the panel may want to respond.
    First question. How do you respond to groups that say 
drilling offshore is environmentally dangerous, that it can 
pose major long-term risks to sensitive ocean ecosystems, will 
damage beaches, hurt marine life, pollute our seas, and will 
worsen climate change?
    Mr. Nichols. Thank you. I think all you have to do is look 
at the track record that this industry has developed offshore. 
Hurricanes have roared through the Gulf of Mexico year after 
year, and yet, the record of this industry is outstanding. 
There have been no significant spills at all, despite 
hurricanes, which are the greatest threat that we have. We have 
seen that year after year with no spills at all coming from 
that record.
    The technology of this industry has developed dramatically 
over the decades, and the proof of that is just shown in that 
track record.
    Mr. Boren. Great. Any others?
    Mr. Odum. Well, I really like Larry's answers, and I think 
it is. Look at our track record. I would just put out the 
invitation to come, we are completely transparent on this 
point, and to come have a look and experience it for yourselves 
any time.
    Mr. Boren. OK. Another question I have--I think it was 
mentioned earlier about increased production and when it will 
be able to come on line with the moratorium being lifted. How 
fast do you all think that we can come on line for your 
individual companies, and not only how fast, but is there 
something that we can do to speed up the process, whether it be 
regulatory burdens being lifted, or something else that we can 
help your industry with?
    Mr. Luquette. Mr. Odum mentioned earlier, you missed the 
response that he provided on the issue of inefficiencies in the 
permitting process. I think there is fertile ground for 
industry to work with the regulator in trying to improve the 
efficiency of that process so that permits can be obtained in a 
more timely manner.
    With respect to timing, it all depends on the nature of the 
resource, the location of the resource. I will give you some 
examples. Something that is discovered in the Gulf of Mexico is 
closer to infrastructure, close to existing pipes, and gas 
plants and refineries. Clearly, from the time you let the lease 
to the time you achieve first oil or gas would be shorter than 
as you extend it out into the deeper waters of the Gulf of 
Mexico, or went onto the Atlantic or Pacific basins where you 
would have to have infrastructure put in, in addition to the 
exploration process in order to move toward commercial 
production.
    Mr. Boren. Great. A question again for Mr. Nichols. You had 
mentioned in your testimony that the estimated amount of 
natural gas and oil resources available if we opened up the OCS 
for more exploration and production, you used terms like 
``billions of barrels of oil'' and ``trillions of cubic feet of 
gas.'' Could you estimate? Do you have any idea what your 
industry could be producing offshore if we had allowed access a 
few years ago?
    Because I think the argument is, well, we won't get these 
resources for 20 years. Well, why don't we start now? What 
would have happened if we had done it 10 years ago, or 15 years 
ago?
    Mr. Nichols. Yes. The argument of, it takes a long time, is 
an argument that you could use against any natural resource. 
You could use it against developing solar, or wind, or anything 
else. They all take time. The sooner we start, the sooner we 
get there. With regard to offshore, as Mr. Luquette said, there 
are some resources that are right next to infrastructure in the 
eastern half of the Gulf of Mexico that could be brought on 
very soon, in a matter of a year or two.
    There is an existing gas discovery that could be brought on 
exceptionally fast. Others will take a longer period of time. 
The volume itself is hard to say. Just bear in mind that the 
original estimates for the western part of the Gulf of Mexico 
that we can explore for now, we have already discovered eight 
times what was originally forecast.
    Will that hold true for the eastern half of the Gulf of 
Mexico, or Alaska, or Pacific, or Atlantic? Impossible to say, 
but you do have that track record showing that these early 
estimates tend to be very, very conservative. A lot of that is 
caused by new technology that continues to open up areas that 
were unforeseeable not that long ago. So, this is a significant 
resource that could be brought on in a meaningful timeframe for 
our country.
    Mr. Boren. Mr. Chairman, I see my time is running out. I do 
want to thank the industry. This is an industry that employs a 
lot of blue-collar Democrats that are in my district, and, you 
know, we always see these high numbers of profits and 
everything else. Right now with the prices down, I mean, there 
are layoffs that are occurring in my district, and so you 
notice the talk of the windfall profits tax has kind of gone 
away.
    We need to remember that prices go up, but they also go 
down, and people lose their jobs. This is an industry that is 
vital to our national security. I will continue as long as I am 
in Congress to support these individuals who employ a lot of 
people in my district. I yield back.
    The Chairman. Thank you, Mr. Boren. Gentleman from South 
Carolina, Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. Thank you very much for 
coming and being a part of this discussion. Like the gentleman 
from Oklahoma said, we have been debating this issue now for, I 
guess, a couple of weeks and we are glad to have your testimony 
today. We recognize you are on the forefront of making the 
deliveries and creating the energy that we so badly need in 
this great country. Are all of the oil just domestic energy 
exploration, or are you dealing in foreign fields, too?
    Mr. Cejka. I have responsibility for global exploration for 
ExxonMobil, so domestic, as well as the rest of the world.
    Mr. Brown. So, you are already doing offshore drilling in 
other countries then?
    Mr. Cejka. Yes. Very much so.
    Mr. Brown. OK. All of the oil is involved then? You are 
not. OK. So, the ones that are involved in, say, offshore--
other countries--what is the difference in, say, permitting a 
well in one of those countries versus, say, permitting a well 
in the Gulf or off California, where else?
    Mr. Cejka. No simple answer, sir. It depends on the 
country. A lot of the countries, we go to the Ministry of Oil 
and Gas, and that really is our one-stop shop. So, although we 
may have long negotiations with that ministry we are not going 
to multiple places for multiple different permits. The other 
thing that is really different is the size of the acreage 
available.
    The three-mile-by-three-mile blocks that the U.S. offers is 
probably the smallest on a global basis. That affords you, of 
course, an opportunity to explore more area to have a greater 
chance of success. Those are really the primary differences 
that we see. As you would imagine, some countries are easier to 
get your permits, and some are more difficult.
    Mr. Brown. In comparison to the one that you just mentioned 
about going and getting sort of a one-stop shop, how long would 
it take you to get a permit so you could go from buying or 
leasing the fields, to getting a permit, to actually getting 
resources out of the ground? How long does it normally take?
    Mr. Cejka. Do you want to take it? There is not a normal.
    Mr. Brown. Well, just take the best country or the worst 
country, whichever one. I am just leading up to another 
question.
    Mr. Odum. If I could, it may steer it in just a slightly 
different direction, but I think, I will look to the panel here 
to see how much agreement there is. In terms of the efficiency 
of getting permits and moving forward with the projects in the 
Gulf of Mexico, I would say it is pretty good. It is 
competitive with the world in general.
    I would express or describe a difference experience that we 
are having in Alaska right now. Where it was open for leasing, 
we bought the leases and we are finding it to be a fairly slow, 
fairly cumbersome prospect. And so I think the question looking 
forward--how are we going to design this for the new areas that 
we open--is very important.
    Mr. Brown. Well, I guess that is my problem. My question, I 
know that we keep talking about it, but it doesn't do any good 
to permit it if it is going to take 20 years. You know, where 
will we be in the energy cycle in 20 years? I notice, Mr. 
Nichols, that piece of, I guess rock or whatever you had there 
earlier, you said it came from New Jersey.
    Mr. Nichols. Yes. It was offshore, a well that was drilled 
in 1979.
    Mr. Brown. Was that to explore to see if there was some 
energy down there?
    Mr. Nichols. That well actually discovered oil and gas. It 
was not commercial at that time and the bans took place shortly 
thereafter, so that lease was abandoned.
    Mr. Brown. So, no cost recovery at all on that?
    Mr. Nichols. No. No. In fact, the company that bought that, 
Tenneco, paid the government $8 million just for the lease, and 
remember this was 1979, so $8 million was more then, and then 
drilled what amounted to a dry hole.
    Mr. Brown. OK. So, there was no energy there?
    Mr. Nichols. There was oil and gas there, but at the time 
they did, there was not enough of it that could be economically 
produced so the lease was abandoned.
    Mr. Brown. Could you go back and reclaim it?
    Mr. Nichols. You certainly could go back and reevaluate 
that with modern technology.
    Mr. Brown. But the moratorium has been lifted. I was just 
wondering if there was any movement to go back and----
    Mr. Nichols. No. We can't do anything until the Department 
of the Interior grants leases, and no leases have been granted. 
They haven't really started the process. As you know, that 
process has now been delayed for another six months, so the 
process to allow us to start bidding has not yet begun.
    Mr. Brown. But the oil lease is still not active then?
    Mr. Nichols. No. That oil lease expired decades ago.
    Mr. Brown. Most of them are predicated if you don't deliver 
in a certain period of time, it expires? Is that the way it 
works?
    Mr. Nichols. Yes. That is exactly the way it works. You are 
given a certain amount of time to explore on that lease and 
unless you establish commercial production, the lease expires.
    Mr. Brown. But you have to pay for it whether it is good or 
bad?
    Mr. Nichols. Yes.
    Mr. Brown. One other question, Mr. Chairman. I notice my 
time has expired, too, but the Ranking Member requested that 
you all would give him some kind of a tax figure to what your 
companies are paying. What I would also like to see added to 
that is the number of dollars that you pay out in dividends. I 
just feel like you are getting a bad shake.
    You all are absolutely making this country strong because 
we have the greatest energy source in the world, and sometimes 
you get sort of a black mark for doing it. I was just trying to 
project some of the good things that you all do, and there is a 
lot of it out there. Thank you for letting the light stay on. 
Thank you.
    Mr. Nichols. Thank you.
    The Chairman. Gentleman from New York, Mr. Hinchey.
    Mr. Hinchey. Thank you very much, Mr. Chairman, and thanks 
for organizing this. Gentlemen, thank you very much for being 
here. Sorry I wasn't here for the early part of the hearing, 
for probably the most important part of the hearing, but I was 
engaged in some other things here and, of course, we couldn't 
get here. I just wanted to have an opportunity to ask a couple 
of questions, simple ones.
    We know how the effect of the price of energy has had on 
our economy and how sometime around the middle of last year we 
saw the price of a barrel of oil hit its highest; and the price 
of a gallon of gasoline also hit its highest, sometime I think 
probably last summer, if I remember correctly. But now the 
barrel of oil has gone down to somewhere below $40 a barrel.
    I don't know what the exact price is. What is it? $34 or 
something like that? $34 a barrel. In spite of the fact that 
the price has dropped, the price of gasoline and the price of 
home heating oil is pushing its way up again. Can you tell us 
why that is happening? Doesn't seem to make any sense.
    Mr. McKay. I can give you a view. In the fourth quarter of 
last year when gasoline prices were at their lowest, that was 
on the back of one of the most volatile and severe demand drops 
that we have seen in the last 25 years, and inventories were 
strong and the market was supplied----
    Mr. Hinchey. I can't hear you.
    Mr. McKay. Sorry.
    Mr. Hinchey. Just speak louder. It is just you and me here.
    Mr. McKay. OK. All right. Good point. Demand fell big time 
in the fourth quarter. Lots of inventory. Gasoline was 
essentially sold at zero margin. Refiners were not making money 
selling gasoline. In quarter one, the markets rebalanced, and 
if you take the historical norm for what the cost of crude, the 
ingredient, on a gallon basis, add the taxes, then add the cost 
of refining, marketing and distribution, you get right out----
    Mr. Hinchey. No, I know all of that is, they are all 
important parts in the cost of the produced product, but what I 
am trying to figure out is, why is it that when the price of a 
barrel has dropped down now to $34, why is it that the price of 
a gallon of gasoline, the price of a gallon of home heating oil 
isn't more consistent with the price of a barrel of oil out on 
the market?
    Mr. McKay. The prices I saw a few days ago, $1.90 and $38 a 
barrel, that is consistent with the norms for taxes, price of 
ingredients, crude oil----
    Mr. Hinchey. Taxes haven't increased; taxes have stayed the 
same. Everything has stayed essentially the same, but the price 
of a barrel has gone down. But nevertheless, when you go out 
and buy gasoline and you start pumping it, you look at the 
price and you see the price has gone up a few cents today, a 
few cents yesterday.
    Mr. McKay. Let me just add the components together. If you 
take $38 a barrel, divide by 42 gallons in a barrel, you get 90 
cents or so. It is about 47 cents in Federal and state taxes 
and then it is about 50 cents to refine, distribute and market 
that. That is $1.90 a gallon. That matches the normal price for 
that level of crude oil.
    I would also add that the crude oil that goes into all our 
refineries, 65 percent of it is imported, and those prices are 
higher than WTI by as much as $6 to $10 a barrel. The blended 
price is higher than the posted WTI price.
    Mr. Hinchey. So, in other words, when we see the price of 
oil go down, we can't expect that the price of a gallon of 
gasoline is going to go down accordingly?
    Mr. McKay. No, I am sorry; I am not saying that. I am 
saying the price of gasoline matches the price of oil to 
historical norms.
    Mr. Hinchey. Well, OK. Your answer is interesting, but I 
can't see how the price of a gallon of gasoline matches the 
price of a barrel of oil when we see these changes taking 
place, and the fact that the price of gasoline and home heating 
oil isn't following the drop in the price of a gallon of oil.
    Mr. McKay. I would only say I believe it has fallen. It has 
gone from $4.30 a gallon to about $1.90, last price I saw.
    Mr. Hinchey. Obviously, this needs some further insight and 
further investigation. I know that a lot of the companies are 
now focusing some attention and some resources on renewable 
energy, alternative energy. We see that in the advertisements 
all the time. Can you give us some idea as to what percentage 
of your expenditures are now being focused on alternative 
energy, solar energy, for example? Anyone?
    Mr. McKay. Our capital----
    Mr. Hinchey. BP?
    Mr. McKay. BP capital that we spend on total energy in the 
U.S., it is about eight percent of our total capital in terms 
of alternatives. Eight percent.
    Mr. Hinchey. The total that you spend is eight percent?
    Mr. McKay. On alternatives as compared to total capital.
    Mr. Hinchey. On alternatives. What are the specific 
objectives of that?
    Mr. McKay. We are working on solar, wind and biofuels, and 
we spent, as an example, about right at $1 billion last year on 
all those three.
    Mr. Hinchey. According to the Department of Energy, the 
natural gas and petroleum receives over $2 billion in tax 
subsidies just in 2007. We don't know what it is in 2008 yet. 
We know that the oil companies have been very successful. $119 
billion in profits last year. Do you think that it is necessary 
to continue those subsidies in the neighborhood of $2 billion a 
year in spite of the fact that the profits are close to $120 
billion?
    Mr. Nichols. What subsidies do you think we get?
    Mr. Hinchey. Well, I am just saying, these are subsidies 
that are talked about by the Department of Energy. They say 
that Federal money goes out to the oil companies, and these are 
subsidies for the production of oil for petroleum and gas, and 
that they amounted to $2 billion in tax subsidies in 2007. Are 
they wrong about that?
    Mr. Nichols. I am unaware of any subsidies that my company 
gets.
    Mr. Hinchey. No tax subsidies?
    Mr. Nichols. Correct.
    Mr. Hinchey. No tax subsidies? No companies get any tax 
subsidies from the Federal government?
    Mr. Odum. I would just say that there is a set of tax laws, 
of course, and regulations and that is what we follow and that 
is what we pay to, so I agree with Mr. Nichols' comments.
    Mr. Hinchey. Well, are you saying that there are tax 
subsidies?
    Mr. Odum. No. What I am saying is there are clear tax laws, 
clear regulations that dictate what that payment to the 
government is, and that is exactly what we follow.
    Mr. Hinchey. No, of course. That is obvious. We all do that 
as good as we can, but we are also informed that there are $2 
billion in tax subsidies that benefit the industry. That is not 
correct?
    Mr. Nichols. I do not believe that is a fair statement. No, 
sir.
    Mr. Hinchey. OK. Well, we will have to go back to the 
Energy Department and figure out exactly what they are saying. 
My time is up, and I thank you very much.
    The Chairman. Thank you. Gentleman from Texas, Mr. Gohmert.
    Mr. Gohmert. Thank you, Mr. Chairman. I appreciate the 
chance of having this important hearing. Let me follow up on 
that. I am from East Texas, and oil and gas has always been 
important. There in East Texas now they are exploring, they are 
producing. People are doing everything they can to try to help 
the country with its energy needs, and it always amazes me how 
everyone in the country is using energy but not in my backyard 
do you produce it. You know, as much of a team player as we try 
to be in our neck of the woods, we kind of need a little help 
from some of the rest of the country.
    On the tax law issue, I think there may be some confusion 
because there are those who, in their efforts to vilify 
companies that are producing energy, have talked in terms of 
subsidies, when actually my understanding is there are tax laws 
obviously that affect every manufacturer, every company that is 
producing anything, and there has been a push to try to 
eliminate the deductions for operating costs that the energy 
industry has that every other industry has a chance to deduct 
in order to get to what the profit is and that this movement is 
to say, ``Well, we are not going to allow them to actually 
deduct the actual costs of generating oil or gas from the money 
that they take in so that they will have to pay higher tax 
basically on what they get in.'' Is that your understanding?
    Mr. Nichols. Yes.
    Mr. Gohmert. OK. People talk about subsidies. Nobody is 
sending you a check, isn't that right?
    Mr. Odum. That is absolutely correct.
    Mr. Gohmert. We are talking about the deduction of 
operating expenses that are real and true operating expenses, 
but one way of raising taxes on energy companies is to say you 
may have to put these rigs out there and pay all these people 
to do all these things to get it out of the ground, but we are 
not going to let you deduct all of that; therefore, you pay the 
government more tax. That is my understanding, and so it is a 
little bit of a misnomer.
    Now, I understand that it was mentioned earlier about the 
pipeline in the Gulf of Mexico, for example. We hear all this 
talk about, well, it takes 10 years to get ANWR on line, it 
takes 10 or 20 years to get the OCS on line, but they are not 
giving credit to what has occurred over the last 20 and 10 
years. It is my understanding there is a pipeline in the Gulf 
of Mexico that was not there 20 years ago, correct?
    Mr. Nichols. I don't know when that pipeline was built, but 
there is a pipeline there now that goes by a trillion-cubic-
feet gas field that could easily be brought onstream very 
quickly.
    Mr. Gohmert. A trillion cubic feet of gas that is not being 
produced, isn't that correct?
    Mr. Nichols. That is correct.
    Mr. Gohmert. OK. Now, here we are talking about the crunch 
and needing more money, and, gee--where is it going to come 
from, and when you talk about a trillion cubic feet of gas, do 
you know what the existing royalty being paid on profits from 
gas is on new contracts? Anybody?
    Mr. Cejka. I don't have that for gas.
    Mr. Gohmert. Well, let me, I was part of some of the 
discussions with this Committee back in 2006 when we pushed 
through the House an OCS drilling package, and, you know, in my 
neck of the woods it was always standard that oil companies, 
energy companies would pay a one-eighth royalty to the 
landowner. So, you got one-eighth, and there are people that 
got very wealthy by getting that one-eighth of the profit--not 
for lifting a finger--just happened to own the property that 
the well was drilled on.
    But it is my understanding that that one-eighth had been 
pushed up and up and that it may now on Federal lands if we 
talked about drilling right now, probably 16 percent. Is that 
your understanding of kind of what the discussion is?
    Mr. Luquette. New OCS leases are three-sixteenths, so 18.
    Mr. Gohmert. Yes. It is bumped up because the Federal 
government has all this, and that is money the Federal 
government wouldn't have to lift a finger to get, billions of 
dollars that ultimately could come into our treasury without a 
taxpayer having to pay another dime. These are just resources 
we refuse to utilize and recognize, isn't that right?
    Mr. Nichols. That is right.
    Mr. Gohmert. There is no prohibition against this Federal 
Government saying, ``We will lease the OCS, we will take our 
three-sixteenths undivided interest to profits and we will use 
a big hunk of that to finance the exploration, the 
experimentation of the next generation of energy,'' and you 
couldn't do anything about it, right? Isn't that correct?
    Mr. Nichols. That is correct.
    Mr. Gohmert. Thank you. What gets me is, the demigods are 
going to say my time is expired, but it goes back to Philippe 
Cousteau was sitting where you guys are and his grandfather did 
more to open up the ocean and the eyes of the world to what is 
in the ocean, but he had to admit the Calypso his grandfather 
used was not a sailboat. It ran on diesel and because of diesel 
fuel, we had the ocean opened up. Thank you very much, Mr. 
Chairman.
    The Chairman. The gentleman from Washington, Mr. Inslee.
    Mr. Inslee. Thank you. Mr. Cejka, I have been noticing an 
ad that your company has been running on television for the 
last year quite heavily. It talks about your company's efforts 
in renewable resources. What percentage, just rough estimate, 
do you think that ad is of your total television advertising 
budget over the last year? Just rough.
    Mr. Cejka. I will have to get it for you. I am not even 
involved in the advertising. I have no idea what the percentage 
is.
    Mr. Inslee. I mean, it is the one that stands out in my 
mind, certainly. It seems like it is over 50 percent of the ads 
you are running. Is that fair, you think, or not?
    Mr. Cejka. I don't know.
    Mr. Inslee. OK. What percentage of your total revenues are 
dedicated to the research and development of what you might 
call ``renewable sources of energy?''
    Mr. Cejka. I don't calculate the percentages but we spend 
about $100 million in developing a new process called 
``controlled free zone'' to help separate CO2 from 
the natural gas stream to better be able to inject it. If that 
process is successful--this is an experiment--it could reduce 
the cost of separation of CO2 by over two-thirds.
    So, $100 million there, $100 million we have spent at 
Sanford in developing and supporting public research available 
to everybody, with other companies also contributing to look at 
alternatives as well as to look at renewables and 
sequestration. We spent $1 billion looking for ways to gain 
efficiency. Efficiency is one of the best ways we can 
contribute by lessening the impact on our greenhouse emissions.
    We are one of the world leaders in cogeneration. In 
cogeneration of electricity, we have over 30 facilities, and 
what we have done through that and other efforts to reduce our 
energy use has brought our emissions down five million metric 
tons, which would be the equivalent of taking a million cars 
off the road.
    Mr. Inslee. Mr. Cejka, I was just kind of looking for a 
rough percentage of your revenues. Could I ask you to provide 
that to the Committee, please?
    Mr. Cejka. Sure.
    Mr. Inslee. OK. I will ask you to do two things. If you can 
provide that to the Committee, could you also provide the 
percentage of your message about renewable energies to your 
total TV budget for the last 12 months? If I could ask you to 
provide those two numbers. I appreciate that. Gentlemen, I want 
to ask you if--I am making an assumption you are all 
capitalists, and market-oriented capitalists.
    One of those assumptions of capitalists is we pay for what 
we use, and some folks believe that the industry as a whole is 
using the atmosphere because CO2 is a pollutant that 
comes from the use of the product you produce. I just want to 
ask if you believe there should be some national cap on the 
amount of carbon dioxide that goes into the atmosphere that we 
should have as a nation?
    To the extent you can give me a ``yes'' or ``no'' question 
due to the limits of time. You can supplement your answers in 
writing if you think that is appropriate. Mr. Odum, would you 
like to start?
    Mr. Odum. I will start by just saying that, you know, we 
have been out there in favor very strongly of a cap-and-trade 
system in the U.S. for a number of years now.
    Mr. McKay. Yes. BP also supports cap-and-trade.
    Mr. Nichols. Any cap-and-trade system or any carbon tax has 
to be used very carefully. Any additional taxes on the American 
public at a time when we are in one of the worst economic 
recessions of any people's lives could be a very detrimental 
effect to the American public.
    Mr. Inslee. So, that is, you would consider it, or not now, 
or what do you think?
    Mr. Nichols. I think not now. I think now would be a very 
dangerous time to do either.
    Mr. Inslee. OK.
    Mr. Cejka. We are in support of a carbon tax.
    Mr. Luquette. Chevron would also support a national 
framework.
    Ms. Harbert. While not representing a particular company, I 
will say, from the Chamber of Commerce's perspective, we have 
to be very careful as we wade into this debate that we are very 
clear about what the costs are to our economy, what type of job 
dislocations there will be, and we certainly cannot be 
selective on whose industries has to pay for such a scheme. It 
is very important that there be a very transparent debate and a 
very honest discussion about the costs and the tradeoffs.
    Mr. Inslee. I assure you it will be transparent. It will be 
on C-SPAN. I don't know if anybody will watch, but it will be 
transparent. Thank you for that answer. Mr. Cejka, I believe 
you said Exxon favored a carbon tax. A carbon tax does not have 
an enforceable cap on the amount of CO2 that goes 
into the atmosphere. Are you saying that you would resist a cap 
on CO2?
    Mr. Cejka. No. We are saying that, as your beginning 
statement was, we are all capitalists. We believe the financial 
market, by having the carbon tax, will get people's behavior to 
change and it will actually induce or incentivize the reduction 
of carbon. That is what I mean when I say that. We believe that 
has the impact of causing that.
    Mr. Inslee. So, you would resist an actual cap then, do I 
take it?
    Mr. Cejka. It is a hard question. It depends on how it is 
phrased, but yes.
    Mr. Inslee. OK. Thank you. I look forward to your further 
information, Mr. Cejka. Thank you very much.
    The Chairman. The gentleman from Utah, Mr. Bishop.
    Mr. Bishop. Thank you, gentlemen, for being here. I 
appreciate your time and your patience, and especially for the 
interruptions that we have had. You have seen, obviously, here 
that Congress is horrifically bad at time management. If you 
ran your companies' time management the way we do, you would 
probably be as far in debt as this government is at the same 
time. I appreciate that.
    I also appreciate your consideration because I understand 
every time we speak, we emit carbon dioxide into the air, so 
hopefully you will be very careful on what kind of carbon tax 
you place on. I am not sure exactly to whom to address a couple 
of questions I have that go into areas you haven't been asked. 
Maybe Ms. Harbert or Mr. Nichols at first.
    I understand that former Governor Engler either has, or 
will, send a letter to the Committee talking about the impact 
of energy on manufacturing. Indeed, in this country, 
manufacturing consumes one-third of our nation's energy, a 
third or 30 percent of the electricity that we produce, and 
that since the national gas prices began to climb in the year 
2000, we have had the loss of 3.7 million jobs in the 
manufacturing sector of this country.
    If I could have perhaps Ms. Harbert or somebody else just 
speak about the impact on manufacturing jobs a rising energy 
cost gives. Perhaps a second resource of that is that we 
sometimes have this idea that what we are talking about is 
simply cars running, and, yet, for all the gas that is 
produced, a significant portion of that has nothing to do with 
transportation.
    We are talking about pharmaceuticals. We are talking about 
plastics, even feed. Something like, for every barrel that is 
produced, about 19 percent actually goes to transportation. The 
rest have ancillary products that impact and influence our 
life. If I could just ask you to comment on those two.
    Ms. Harbert. I think the point is a very good one. If we 
make smart energy policy decisions, we have the ability to 
actually increase the productivity of this country, increase 
jobs, increase manufacturing jobs in this country. But if done 
poorly, there will be a very big, deleterious effect on this 
economy, which we can ill afford in the financial crisis in 
which we find ourselves.
    You know, the energy industry employs six million people 
across this country. INA has the potential to employ more. I 
think as we look at a long-term recovery, energy is not just at 
the heart of it, but it is part of the solution. It is not part 
of the problem.
    I think this Committee, and some of the tenor that we are 
hearing, is trying to vilify parts of the energy industry 
rather than recognizing that they have a viable contribution to 
make in sustaining the very backbone of our economy and, in 
fact, growing our economy and reducing our dependence on 
foreign oil. That is a very important argument that needs to be 
kept on the table.
    Mr. Bishop. I thank you. Mr. Cejka. You did give me the 
estimates of how far off our estimate is for the Gulf of 
Mexico. You had the numbers there in your opening testimony. 
Can you just give me those again?
    Mr. Cejka. It was originally estimated in 1987 to be about 
nine billion, and now we believe it to be 45 billion.
    Mr. Bishop. OK. I thank you for repeating those numbers for 
me. There have been legislative proposals that say anything 
that we do in the OCS beyond 100 miles of the coastline should 
be given without offering revenue sharing to the states. Are 
any of you in favor of such a proposal? Mr. Nichols?
    Mr. Nichols. Yes. I think we would all be in favor of a 
proposal where areas that had legitimate environmental needs--
that needed special protection, say, around a coral reef--that 
those were protected.
    We all want to protect those sort of natural resources for 
this country, but simplistic bans that are based on arbitrary 
numbers without any real science behind them don't make much 
sense, particularly since we can drill from onshore, we can 
access oil and gas that is within six miles or so of the 
shoreline. We also have the potential to have exploration and 
wellheads that have a very low visibility.
    Mr. Bishop. Let me try and focus you a little bit more. I 
probably was not clear in what I was talking about. There are 
proposals about royalty payments being made that would exclude 
states. As I understand, anything done on ground, on the land 
is basically, well, it used to be 50/50. We have kind of fudged 
it in favor of the national government.
    Mr. Nichols. The industry has historically been in favor of 
including the states in some formula in the royalties that are 
received.
    Mr. Bishop. I realize I have like 20 seconds. This is where 
I come in, once again, as an old schoolteacher that still gets 
a retirement check. I am concerned about a state landlock, like 
Utah, to try to build an education system when this wonderful 
Federal government owns 70 percent of our land. We have a 
difficult time to do that.
    The other day Representative Lummis was talking about what 
they are doing in Wyoming. Wyoming pays their starting teachers 
$20,000 a year more than one of her neighboring states because 
of part of the royalty payments that they use as the basis of 
their education system. One of the groups we had before us was 
talking about the potential of California getting $900 million 
in just royalty payments from offshore drilling, which hit me 
because every year California comes and hits us up on rural 
free school monies.
    In fact, I had one of the superintendents talking to me and 
I said ``Don't you equalize somewhere in California?'' The 
superintendent said, ``No, no, we are kind of left on our 
own.'' It would be brilliant to actually consider the impact 
these systems have on building an effective education system. 
My state cannot survive without a vibrant mining and a vibrant 
manufacturing base, in addition to trade and tourism, and 
everything else that we have going on with it.
    I say that simply as someone who wishes to look at public 
policy, who wants to make sure that our university system is 
there for my last two kids that I have to fund going through 
it. I am over. I am over by a minute, and I apologize for that, 
Mr. Chairman. I had a couple other questions, but we have kept 
you here a long time. I will yield back.
    The Chairman. The lady from California, Ms. Capps.
    Ms. Capps. Thank you, Mr. Chairman, and thank each of you 
from the industries, and also the Chamber, for spending your 
time with us here. This is our third, as you know, hearing. 
Credit our Chairman with getting us into a topic that is very 
important, and when we discuss energy, it is important to you 
as well--offshore drilling and the industry's perspective.
    I am going to start with you, Mr. Nichols, if I could, as 
you represent the API. I take it the API isn't particularly 
pleased with Secretary Salazar's decision to extend the comment 
period on the 2010 five-year plan by six months. That has been 
inferred previously. Is that a fair assessment?
    Mr. Nichols. Yes.
    Ms. Capps. But it has been pointed out by both sides in 
this debate, it takes a very long time for production to start 
from new leases. I think you all agree with that as well. The 
industry has been very clear that it takes many, many years to 
get production going once you do get a lease, and we are a 
number of years away, no doubt, from even being able to lease, 
if we in fact do lease, new areas.
    So, when we are looking at a 10- to 15-year period before 
we could get new production, I am questioning why a six-month 
review period to make sure we are being careful, and that our 
leasing decisions are based on the strongest science available, 
is that really that much of a burden? You want to expand on 
that a little bit?
    Mr. Nichols. Well, yes. Let me first, with due respect, 
challenge one of your assumptions. We have not said, and this 
comment is made by all of us at different times during this 
hearing today, that the 10- to 15-year timeframe that you 
utilized is not entirely valid.
    Ms. Capps. I am not arguing that point. No. That is the 
given. That is the norm in your industry. I know that from my 
district that I represent as well.
    Mr. Nichols. No, that is not the norm or the given. For 
example, there are pipelines that go right through from 
Louisiana over to Florida, there is a natural gas pipeline that 
goes within a few miles of an existing trillion-cubic-feet gas 
discovery that could be brought onstream very, very quickly. It 
could have been brought onstream in the past. It could be 
brought onstream very, very quickly if the leases were granted 
by the Federal government.
    There are undoubtedly other discoveries that could be made 
in that part of the Gulf of Mexico that are near infrastructure 
that could be brought on, not in 10 to 15 years, but in a much, 
much shorter timeframe.
    Ms. Capps. But you still agree that the six-month timeframe 
that the Secretary is asking for in terms of a study, those 
studies that might be necessary to make sure that the science 
is there, that that is unnecessary.
    Mr. Nichols. We have already had a moratorium for 27 years. 
You could argue that another six months doesn't make much 
difference. The concern is really focusing on the fundamental 
issue of are we going to open up those areas or not? If this is 
a process, the Department of the Interior has already received 
tens of thousands of comments on this in the timeframe already.
    It is an area because of the nature of the offshore areas 
and because there has been no studies on this for so many 
decades, the information that is available to anyone is really 
not very viable and very worthwhile because it is based upon 
very old seismic data, very old science.
    Ms. Capps. Right. I am very aware of that. We are not just 
talking about the Gulf, but we are talking about opening up 
OCS.
    Mr. Nichols. Exactly.
    Ms. Capps. I will get to that in a minute, but back to this 
10 or 15 year window, or the delays in the leasing process, or 
whatever it is that is causing this timeframe. I would think 
you might be using some of that time, and also your very best 
profits--we all sit up and take note when the quarterly reports 
come out and we see, particularly the contrast with our 
declining economy, what the profit margins have been for many 
of your companies.
    This came up with my colleague, Mr. Hinchey, in a previous 
set of questions. I want to get specific on how you are 
addressing renewable energy technologies. A lot of advertising 
has gone on with respect to some of you for the public in 
talking about what you are doing. I want to ask you, Mr. 
Nichols, you can represent the industry, but if anyone else 
wants to chime in, you are certainly welcome to. What 
percentage?
    British Petroleum, you have mentioned eight percent of all 
of your profits. I would like to have a percentage from each of 
you, if I could, please, and if you want to get back in writing 
if you don't have the numbers with you. I'd like the actual 
dollar amount per year, or within a timeframe, that you are 
spending on research into renewable energies or production of 
renewable energy sources as you are, kind of sitting, waiting 
for the OCS to open up--and the percentage of that in terms of 
your profit. So, Mr. Nichols, maybe can you speak for the 
industry as a whole or maybe your company?
    Mr. Nichols. There are others that could speak better on 
one of those issues.
    Mr. Odum. I will just start.
    Ms. Capps. Sure.
    Mr. Odum. And be happy to provide----
    Ms. Capps. I would like it in writing, actually, in 
addition to what you are saying because I think that is good 
information for us to have.
    Mr. Odum. I will tell you for us, specifically, 
representing Shell as a company, there is really three areas of 
main focus. Second-generation advanced biofuels, we think, is 
an area that holds great promise so we are putting a tremendous 
amount of effort into that, and we have a strong wind business 
in the U.S. already. I think we are up to about, with our 
partners, 900 megawatts of wind energy.
    We also do some in solar, more international than in the 
U.S., but we are working in that area and, of course, hydrogen 
as well. The first two are the main pieces of business for us. 
The other one, which Mr. Cejka mentioned, is a really important 
one, and that is efficiency. You know, our existing energy 
structure, to the extent we can make it more efficient, that is 
a very important resource, so we spend a lot there.
    Ms. Capps. How many dollars are you putting into that, sir?
    Mr. Odum. You know, I don't have a number off the top of my 
head, but I know we look at every one of our facilities and 
say, how can we increase the efficiency of this facility?
    Ms. Capps. Right. Is it possible to put something like that 
into a report?
    Mr. Odum. I think we could certainly estimate something 
that would be reasonable.
    Ms. Capps. Right. I would appreciate that very much for the 
record, if we could ask for that. Others want to respond?
    Mr. McKay. I just want to clarify. In the last five years 
or so in the U.S., in the U.S., we have put about $1.7 billion 
of investment in the U.S. Our primary investments are in wind--
our largest investment where we have about 1,000 megawatts 
turning now in five states. As for the other areas we have 
worked, we have worked solar for 31 years, I believe.
    We are also working on biofuels research, similar to what 
Mr. Odum said. We believe in working in better molecules, 
better feedstock, and better processes for changing those 
molecules into useable fuels.
    Ms. Capps. Mr. Nichols, and then I am actually going to 
stop it there, if you don't mind, because I am actually going 
to ask indulgence as if this were a second round. Thank you.
    Mr. Nichols. If I might add, since 2000 the oil and gas 
industry has invested $42 billion, and zero in low-carbon 
research and development. That amount is 45 percent of the 
combined spending by all U.S. companies and the Federal 
government. So, the industry has done quite a bit in this area, 
particularly in relationship to the Federal government. That is 
according to a report by T2 & Associates in the Center for 
Energy Economics at the University of Texas.
    Ms. Capps. Thank you.
    Ms. Harbert. I do think there is an important data point 
there, that the Federal government on an annual basis has been 
investing $3 billion in clean energy research and development, 
which is less today than the Federal government invested after 
the Arab oil embargo. It is important that we look at the 
private sectors putting more money into clean energy research 
and development than the Federal government has for quite some 
time.
    Ms. Capps. I think that is a very important piece of 
evidence to have as part of this hearing. I am glad we can make 
this part of the record, and I thank you for that. Any other 
submissions in writing, I think, would really be useful for us 
to understand. You are energy companies, you are not just doing 
drilling, which there is an assumption, particularly on my side 
of the aisle, that this is the case. I appreciate that you are 
giving this information to us.
    I have been given some kind of permission, especially now, 
we have a new minority leader here, to continue my questioning. 
It will be as if it is my second round. This is an open 
question to each of you, at least the oil company 
representatives. There has been a lot of discussion about the 
fact that we really don't know much about what resources are 
under the former moratorium areas, and that new inventories are 
needed. That was just mentioned now.
    I should disclose, I guess I should, that I represent Santa 
Barbara and the coastal area of California, where we do a lot 
of drilling offshore and onshore, and that the resources under 
the OCS are of quite a bit of interest to us. There are a lot 
of earthquake faults running through there. These inventories 
can get quite expensive.
    MMS has estimated it might be up to $80 million to do 
seismic estimates in each frontier area. I want to ask each of 
you to answer if your companies would be willing to pay for 
these investigations of what the resources are. Any of your 
companies willing to do that?
    Mr. Cejka. We would prefer to do it rather than have the 
government do it. We would prefer to pay for the seismic.
    Ms. Capps. OK. And is that something that you are doing or 
you need to be asked to do?
    Mr. Cejka. We will not put the investment in until we know 
there is going to be a stable leasing regime. Otherwise, it 
would be wasted money.
    Ms. Capps. So, you would wait until the decision about 
offshore oil drilling is made, and that study would need to be 
done before the lease could be granted.
    Mr. Cejka. We need the long-term security to know it is a 
reality.
    Ms. Capps. OK. Any of the other companies want to respond?
    Mr. Odum. Well, I would just like to make a point that 
while we don't know exactly what is out there and how much it 
is----
    Ms. Capps. Right.
    Mr. Odum.--I think what we do know, as an industry and as a 
government, is that they are very substantial, large resources. 
I don't want to somehow give the impression we don't know, so 
there may not be very much. We know there is a lot. We just 
don't know exactly how much it is.
    Ms. Capps. OK. I just, I guess, want to get this on the 
record as well and see if there is dispute about the fact that 
your five companies made a combined $119 billion in profits 
last year, and so this would seem to me, and it seems like some 
of you are agreeing at least, a reasonable expectation that 
some of these profits could go into doing those studies.
    They would have to be verified as being independently 
accurate, but that is something that is possible to do. Anyone 
else wish to comment on this? We will leave it to those who 
have spoken up. I have another question to ask, an open one, to 
the panel. We hear a great deal about how the industry has made 
vast technological improvements in recent decades. I have heard 
this a lot because my ocean was the scene of the 1969 blowout 
on Platform A.
    It has been pointed out to me many times that over the 
decades risks of spills have been, if not removed, but at least 
drastically improved. I have pointed out at some of our 
previous hearings that it is not just the spills from pumping 
the oil that is of concern to many of us, but it is other 
impacts as well. According to MMS, over the past 10 years there 
have been an average of 6,200 barrels of various hazardous 
fluids spilled each year on the OCS.
    In the 20 years before that, the average was just over 
3,000 barrels spilled per year. My question is going to be 
about what kind of improvements have there been made, but I 
want to let you know that there is a company called Greka that 
is operating in northern Santa Barbara County onshore--I 
believe the parent company is Green Dragon Gas that is based in 
China--and they have spilled hundreds of thousands of barrels 
into our creekbeds and into our wildlife areas in that region.
    EPA calls this company in my Congressional district the 
biggest polluters in our state, and they actually consider, and 
they have said publicly, that the fines that they pay are the 
cost of doing business. So, some of us in my Congressional 
district have a little jaundiced view of progress that has been 
made over the past years. I will give you this chance on 
borrowed time. I do have one final question to ask Mr. Nichols. 
You want to just highlight some of the improvements that would 
give someone like me confidence about opening up the OCS? Any 
of you?
    Mr. Odum. Well, first of all, I would support the 
discussion, and clearly you have been a big part of that in 
terms of what have been the technological improvements, so I 
won't go over that again. What I would actually like to do is 
provide the actual numbers from our operations. I don't have 
them all right here with me----
    Ms. Capps. And that could be done in writing.
    Mr. Odum. This is an area where I think it is extremely 
important. It is has got to be a major area of questioning for 
people as we think about opening new areas. I say, let us look 
exactly at the track record. I would open that look at what we 
do in the Gulf of Mexico.
    Ms. Harbert. I would like to note that the U.S. has the 
most stringent environmental regulations on production than any 
other country in the world, and so if we are not going to open 
up here, and we are going to be more and more reliant on 
imported oil, that oil will be coming from places that have 
less stringent environmental regulations. So this is an energy 
and environmental choice. We can produce it here, cleanly with 
the best technology, or we can import it from places that don't 
necessarily have our interests at heart, and certainly don't 
have the type of stringent environmental regulations that we 
have here in this country.
    Ms. Capps. I think that is a very good point that should be 
part of discussion, and I appreciate that you have offered 
that. Anyone else before I turn to the last question? Still on 
borrowed time. Then I will sum up by taking exception, I guess 
I will say, Mr. Nichols, to the part of your testimony where 
you insinuate that the United States is not proactively 
developing our domestic natural gas and oil resources.
    This idea, I consider it a false idea, is used by a lot of 
our colleagues, my colleagues, that support new drilling as 
well. Mr. Luquette pointed out--I hope I said your name 
properly--I am sorry if I didn't--we are an energy powerhouse, 
you said that, producing the third most oil of any country in 
the world, second in natural gas, and that we drill more wells 
than any other company. Did I get that right in your statement?
    We also lease huge swaths of land in the Gulf of Mexico and 
in the Arctic Ocean. There are 24 billion barrels of unleashed, 
undiscovered oil still in the central and western Gulf of 
Mexico. Is this not true? Unleased, undiscovered oil available 
in the Gulf? I have been told that is correct. And every year 
we put those resources up for lease twice, two times a year. Am 
I correct on that?
    Mr. Nichols. I am not sure where you got the numbers. I 
mean, there are leases that are put up regularly that the oil 
and gas industry does not believe that oil and gas is there and 
therefore don't lease them. So, the fact they are unleased just 
means that we don't think there is any oil and gas there.
    Ms. Capps. Well, these figures came from MMS, so I will 
have them entered into the record, but I will note that that is 
the source of it. You are welcome to challenge that if you 
think these figures are wrong. In 2005, I was a part of the 
Energy and Commerce Committee--where we passed it out of the 
committee and then in the Congress--new tax incentives and 
royalty relief to incentivize drilling.
    This is my question to you. Can you really, in light of 
that, continue to say with a straight face, I am assuming, that 
the U.S. is not developing our domestic resources?
    Mr. Nichols. Absolutely can say that. The United States, as 
you well know, has had a moratorium on all of the Atlantic 
Coast, all of the Pacific Coast, all of the eastern half of the 
Gulf of Mexico, and all of Alaska. There is no other country in 
the world that has that kind of moratorium on 85 percent of its 
offshore lands.
    That includes very environmentally conscious countries, 
like Norway and England, that have stellar records, as we do. I 
think it is a very accurate statement, when you look at the 
sheer percentage of offshore lands that have been under a 
moratoria for decades, to say that the United States has not 
been doing what it could do to develop our resources.
    Ms. Capps. Yes, I have heard that. It is not the first time 
I have heard that, but you didn't really address the issue of 
the undeveloped leases or available land in the Gulf, resources 
that have not, by your decisions--all of you, or any number of 
you, have chosen twice a year as the MMS has offered these, you 
have passed on them.
    Mr. Nichols. The answer to that is very simple. There is 
not oil and gas under every single lease or under every single 
acre that the United States owns as Federal lands. We pass on 
those as an industry because each company individually, using 
their own geological and geophysical information, concludes 
that there is not something there worth exploring for.
    Mr. Luquette. Many of these leases that you are referring 
to, bonuses were paid, rentals were paid, seismic studies were 
done, in some cases wells drilled, and these leases were 
returned because of the determination they were nonprospective. 
I am having a difficult time reconciling MMS resources with the 
open lease count, but there are a number of these leases that 
have been through a number of bid cycles, and many of them have 
garnered significant investments in the investigation process.
    Ms. Capps. I guess I am belaboring the point. The area 
offshore that I am very familiar with off Santa Barbara's 
coastline, many of those leases as well were not tapped into 
because of the technology that wasn't available in previous 
times. Now, with things like slant drilling, there are many 
more projects being proposed, and I am curious that your 
industries have in the past explored, or maybe made 
assessments, and that you have said ``no,'' and you continue to 
say ``no.''
    Have you thought of the new technologies that might make, 
as we have seen with some natural gas fields, that these are 
now available with new technology? Again, you have talked about 
areas on land. How about offshore in the Gulf?
    Mr. Luquette. Well, just let me attack that problem from a 
technology standpoint. If you look at the industry's track 
record, we used whatever technology we had available. In the 
early days, we drilled shallow wells in shallow water. Now, the 
companies represented here are drilling in ultra-deep water to 
ultra-deep depths. As the technologies evolve, we move out to 
those.
    So, a particular lease that might have sat in 6,000 feet of 
water 20 years ago would have been uninteresting to us because 
we didn't have the technology. When we have the technology and 
it is available, we pursue.
    Ms. Capps. So, you wouldn't pass on some of these onshore 
or in the Gulf that you have passed on in the past, but you 
don't have the technology now?
    Mr. Luquette. If there was a new idea. People come up with 
new ideas. If one of us drills a dry hole somewhere else, it 
may give a different company a different idea and they can come 
back to a lease that had been abandoned with a new idea and 
potentially find something. So, we turn these leases over, as 
an industry, on a constant basis, and it is this generation of 
new ideas, this generation of new technology, that allows us to 
continue, but there is a point of no return. I mean, we are 
drilling depths now at 30,000 to 32,000 feet where you----
    Ms. Capps. On land or off?
    Mr. Luquette. Offshore and on land, where the temperatures 
and the pressures are such we are not going to be able to do 
that, so we are now drilling on a pincushion, and we are 
running out of spaces to do it.
    Ms. Capps. And in the Gulf as well are you?
    Mr. Luquette. In the Gulf as well.
    Ms. Capps. Thank you. I have way overstayed my time. I 
appreciate, also, your taking the time to address the issues I 
have brought up. Thank you very much.
    The Chairman. Do you have any questions, Ms. Lummis?
    Ms. Lummis. My name is Cynthia Lummis, I am from Wyoming. I 
want to thank the gentlemen and lady for appearing before us 
today, and I apologize for being unable to appear until now at 
this hearing. I do have a couple of questions for you. I come 
from one of America's largest onshore oil, gas and coal 
producing states. I have toured sites in the Pinedale Anticline 
in Wyoming that even four years ago would not have existed.
    Thirty-five wells on one well pad--drilling horizontally 
and directionally--producing natural gas that we never could 
have recovered four years ago. Stunning developments that have 
really reduced the footprint on the surface of the ground. My 
familiarity with onshore does not necessarily translate to 
offshore, so I would like to ask how has offshore exploration 
and production technology changed over the past 40 years? What 
have been the impacts of these changes and advancements on 
industry's overall environmental impact, specifically offshore?
    Mr. Nichols. There is a lot I would love to say about that 
but we would be here all afternoon. Let me just give you a 
couple of examples about offshore. Ten years ago, the industry 
did not really have the capacity to have drilling rigs that 
could drill in 8,000 and 10,000 feet of water. We do today. Ten 
years ago, we did not have seismic that could see below thick 
salt bodies out in the deepest water and see land out there.
    If you had asked this industry 10 years ago whether or not 
a geologic formation known as the Lower Tertiary would be 
prospective, or could even be explored for, the answer would 
have been no. It was really beyond technology. Today we have 
multiple hundred-million-barrel discoveries out there that the 
industry is trying to bring onstream--a major potential 
resource. None of it is producing yet, but we are working very 
hard to make that happen. So, technology continues to open up 
new areas and new ideas offshore, just as it does onshore.
    Ms. Lummis. Well, thank you. Follow-up question, Mr. 
Chairman. How long will it be before we will start seeing 
increased production on the Outer Continental Shelf, assuming 
that the lift of the moratorium stays in place. This question 
is for anyone who wishes to respond.
    Mr. Nichols. You know, part of that is going to depend upon 
whether and how long the Department of the Interior takes to 
grant the leases. We obviously can't start doing the detailed 
research until the leases are granted. At that time, we can 
start bidding for the leases in the orderly process that the 
Department of the Interior typically does--due to the detailed, 
expensive seismic work to refine where prospects might be and 
then drill them. The answer, in terms of time, can be very 
short to very long.
    As I said earlier, on some of the prospects that are 
immediately adjacent to the western half of the Gulf of Mexico 
where we have been allowed to drill, those oil and gas fields, 
if discovered, could be brought onstream in a matter of a year 
or two, a couple years. In other areas, it would take longer 
because it would take longer to do the fundamental research.
    Ms. Lummis. You know, once again, I am more familiar with 
onshore than offshore. Could one of you describe the usual 
permitting or environmental study process that would occur for 
an offshore lease?
    Mr. Odum. Well, I will pick an example that we are going 
through right now, which is offshore Alaska, and so in terms of 
just understanding the timeframe, of course, what is done 
before a leasing actually takes place is an environmental 
assessment of the area by the government, by the Department of 
the Interior. That typically takes a couple of years, I would 
say. Then, a leasing process and then, of course, an 
exploration plan is developed. That is then analyzed from an 
impact and mitigation point of view.
    We apply for the permits. That again can be another one to 
two years, let us say, and then in the meantime, we are 
building the infrastructure to be able to drill, and then we 
can go out and drill a well. So, it is multiple years, that 
process.
    Ms. Lummis. I want to ask a question specific to California 
production as well. How many adjacent leases would you be able 
to drill nearly immediately after the lease is issued regarding 
California production where you could slant drill or use newer 
technologies? Anyone?
    Mr. Odum. This is going to be a very generic answer, I am 
afraid, because it is really all over the map. I mean, some of 
it, again, back to Mr. Nichols' point, could happen fairly 
quickly. Some would take more time. There are so many variables 
involved.
    Ms. Lummis. I have another question, Mr. Chairman. It is 
with regard to comprehensive resource inventory. Some people 
have requested that that is needed on the Outer Continental 
Shelf prior to additional leasing on previously off-limit 
areas. Would such a process prove helpful, or would it be a 
hindrance to responsible offshore development?
    Mr. Nichols. The word ``inventory'' implies that there is 
something that you can go count. The information we have on the 
places that have been under moratorium for almost three 
decades--the information there is not very good. It is old 
treatises. It is old seismic data that by modern technology is 
essentially worthless.
    So, the inventory that we could do with existing data won't 
really tell you anything other than what we already know, that 
by making comparisons to other similar geologic basins around 
the world, including the western half of the Gulf of Mexico, 
these offshore areas should contain substantial oil and gas 
reserves. Exactly where they are and how they might be 
developed, each of the companies here, and other companies that 
are not here, would have their own separate ideas.
    The most efficient way from the government's standpoint 
would be to put these up for lease just as it has for decades 
in the western half of the Gulf of Mexico, let the industry go 
do what we do best at our expense, not at taxpayer expense, and 
do the seismic studies there, and then drill the wells, which 
is ultimately the only way you really know whether there is 
anything there. The model that we have used successfully in the 
western half of the Gulf of Mexico for years is the model that 
would seem to make the most sense.
    Ms. Lummis. Thank you. I am assuming since someone just got 
beeped by your caucus that we will be beeped by ours as well to 
go vote. Thank you, Mr. Chairman. I have additional questions, 
but I think we are getting called to vote.
    The Chairman. Gentleman from Oregon, Mr. DeFazio.
    Mr. DeFazio. Thank you, Mr. Chairman. Perhaps after a 
lengthy session, we can find some consensus on something. I 
heard earlier that you want to participate in helping Americans 
conserve. Let me give you an observation. A number of you 
represent the largest distributors at the retail level. I know 
some are franchises, some are company-owned. I don't know the 
exact mix, but you have a label out there and you have some 
control.
    We have numbers showing that if Americans just properly 
inflated their tires, according to the Bush Administration, it 
would save three million gallons a day. Carnegie-Mellon 
students from an extrapolation said 2.4 percent a year in terms 
of gallons consumed. There are other estimates out there, but 
we know there is a lot. I will just say, as a consumer, what I 
reflect is I have to drive past seven gas stations to find one 
that has an available pay for air pump.
    It used to be everybody had compressors and air pumps at 
their stations. As the industry has changed, you don't. I would 
suggest if you want to contribute something and really help us 
with significant conservation linking, say, to the government 
with an education program and you guys making it available.
    If the government put out an education program, it would 
still be I am driving past seven gas stations halfway through 
my town to find the one where I can pay 50 cents to blow up my 
tires. Make them free and put them in all your stations and 
help us conserve. Anybody interested in that? I hope you are. 
Then the other, I understand, in response to Mr. Inslee, that 
Shell and BP said they would support cap-and-trade.
    I want to know, if you support cap-and-trade how you 
envision the market existing in a way that it can't be 
manipulated, because economists say, ``Well, it has got to be a 
very fungible market because we have to have liquidity.'' To 
them, liquidity means hedge funds, it means derivatives, it 
means God only knows what new bubble and what new instrument. I 
worry that we are going to create profits and cost without 
product.
    In Europe, cap-and-trade over the last two years has $60 
billion of cost and their carbon is up. Now, what is the 
objective here? Now some can say, ``Well, they were in the 
process of setting a price and the price came out at $60 a ton, 
pretty much average over two years.'' That is great, except 
now, with a bad economy, it has dropped to $15 a ton. So, if I 
made an investment last year at $60 a ton, suddenly, whoa, I am 
way underwater here and nobody is going to be wanting to buy my 
offsets.
    I am just wondering how Shell and BP, if you have a 
sophisticated vision, and if you do, I would love to have you 
share it with me, because I am very concerned about this market 
and the potential for its manipulation. You guys have any 
thought on that?
    Mr. McKay. I can't answer every one of your concerns, but I 
would say the EU cap-and-trade system has gotten better. The 
verification and understanding of the emissions themselves, and 
the way allowances and credits are utilized, has gotten better. 
They are essentially into starting Phase 3.
    Mr. DeFazio. $60 billion on top of consumers and business 
later, but, yes, OK, we have to experiment.
    Mr. McKay. Any price that is put on carbon, whether it is a 
tax or a cap on emissions, will have an economic effect.
    Mr. DeFazio. Well, here is just the thing. I mean, I am an 
old, very simplistic kind of guy. I tell you, I grew up at a 
time when the rivers in the East burned and the Willamette 
River in Oregon was an open sewer. The government didn't think, 
``Well, let us have a market-based system to clean up those 
rivers, and we will sell credits to pollute, and we will sell 
offsets.''
    They said, ``Hey, we are going to stop the polluting. Here 
is the schedule. It is predictable. You will pay for permits 
and if you don't meet the schedule, you will pay fines. We are 
going to clean this darn thing up.'' I think if, as a society, 
we adopt that approach and decide we want to deal with carbon, 
it is honest, it is predictable and it is long term. I don't 
see that in the market. It is certainly not predictable.
    Maybe Europe has got its act together now after $60 
billion, but since the price just dropped to 25 percent, I 
think that is going to create some new problems with cap-and-
trade in Europe ongoing. I think the fascination with the 
market, given Enron and given Wall Street, is a little bizarre 
at this point in time. If you have thought out how we are going 
to have a limited entry or a market that is going to be 
resistant to manipulation, I would love to have your thoughts 
on it because I am going to be trying to offer amendments as we 
move through this what seems to be, unfortunately, an 
inevitable process. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you. That concludes this third in a 
series of hearings on OCS oil and gas drilling. Again, I want 
to express my deep appreciation to the panel for traveling to 
be with us today, I am not going to ask you how you got here--
and also want to say thank you for your time and patience. That 
concludes today's hearings.
    [Whereupon, at 1:35 p.m., the Committee was adjourned.]

    [Additional material submitted for the record follows:]

[ NOTE: Responses to questions submitted for the record by the 
        witnesses have been retained in the Committee's official 
        files.]

    [The prepared statement of Mrs. Capps follows:]

  Statement of The Honorable Lois Capps, a Representative in Congress 
                      from the State of California

    Thank you, Mr. Chairman.
    I'm pleased the Committee will be hearing today from the oil and 
gas industry.
    As someone who witnessed the horrible economic and environmental 
consequences of the huge 1969 oil spill, I know I have a certain bias 
against new offshore drilling.
    But, even so, it seems obvious that the renewed interest in 
offshore drilling as a potential solution to energy independence hits 
many dry holes.
    First, even if we wanted to, we simply can't drill our way to 
energy independence.
    The U.S. has less than 3 percent of world oil supplies, yet we make 
up nearly 25 percent of world demand.
    More drilling off our coasts isn't going to change those numbers, 
so no one should believe arguments that more drilling in pristine areas 
means we stop relying on foreign oil.
    More drilling won't end our addiction to oil it just enables it.
    Second, 80 percent of the oil and gas resources off our coasts are 
already available for leasing and drilling.
    While large swaths of our coasts are off limits to new drilling, 
the areas where most oil and gas are located are not.
    Listening to proponents of more offshore drilling, you'd think 
we've been locking up all our resources. The opposite is true.
    Third, we are drilling more domestically than we have in years.
    The Bush Administration's energy policy was basically to drill for 
more resources. It leased public lands for drilling throughout the 
west, the Gulf Coast and elsewhere at a record pace over the last eight 
years.
    It even issued a draft proposal days before leaving office that 
would result in the leasing of the entire Atlantic coast, and four 
areas off my state of California.
    Right now, the oil and gas industry has some 6,000 leases in the 
Gulf of Mexico where the majority of oil and natural gas reserves are 
found that are not being drilled on.
    For years, the oil and gas industry has said that it wants to lower 
prices for American consumers, but they can't because they're prevented 
from drilling. This couldn't be further from the truth.
    Finally, the Energy Department says that opening up our coasts to 
new drilling would have little to no effect on gas prices today or 
tomorrow.
    The best estimate is that it would take 10 years for the product to 
come on line and then maybe it would affect prices by a few cents.
    So, we're drilling domestically more than ever, the oil industry 
already has access to most offshore resources, the industry is not 
drilling in millions of acres of public land that it has leased and, 
even if it did, it wouldn't lower prices and it wouldn't really have 
any effect on our reliance on foreign oil.
    Mr. Chairman, we should be investing our time, energy and 
creativity into real solutions that put us on the right path toward 
renewable energy solutions for our future.
    America shouldn't be known for chasing after yesterday's energy 
technologies, but for leadership toward the clean energy solutions of 
today and tomorrow.
    Thank you again for calling this hearing.
                                 ______
                                 
    [A letter submitted for the record by Hon. John Engler, 
President and CEO, National Association of Manufacturers, 
follows:]

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