[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
  PATHWAYS TO ENERGY INDEPENDENCE: HYDRAULIC FRACTURING AND OTHER NEW 
                              TECHNOLOGIES

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

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 6, 2011

                               __________

                           Serial No. 112-36

                               __________

Printed for the use of the Committee on Oversight and Government Reform


         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform



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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 6, 2011......................................     1
Statement of:
    Grove, Shannon, Assemblywoman, 32nd Assembly, District of 
      California; Rock Zierman, chief executive officer, 
      California Independent Petroleum Association; Tupper Hull, 
      vice president, Strategic Communications, Western States 
      Petroleum Association; William Whitsitt, Ph.D., executive 
      vice president, Devon Energy; and Steve Layton, president, 
      E&B Natural Resources Management Corp......................     6
        Grove, Shannon...........................................     6
        Hull, Tupper.............................................    51
        Layton, Steve............................................    37
        Whitsitt, William........................................    17
        Zierman, Rock............................................    13
Letters, statements, etc., submitted for the record by:
    Cummings, Hon. Eljiah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............    72
    Grove, Shannon, Assemblywoman, 32nd Assembly, District of 
      California, prepared statement of..........................     8
    Hull, Tupper, vice president, Strategic Communications, 
      Western States Petroleum Association, prepared statement of    53
    Layton, Steve, president, E&B Natural Resources Management 
      Corp., prepared statement of...............................    41
    Whitsitt, William, Ph.D., executive vice president, Devon 
      Energy, prepared statement of..............................    20
    Zierman, Rock, chief executive officer, California 
      Independent Petroleum Association, prepared statement of...    15


  PATHWAYS TO ENERGY INDEPENDENCE: HYDRAULIC FRACTURING AND OTHER NEW 
                              TECHNOLOGIES

                              ----------                              


                          FRIDAY, MAY 6, 2011

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                    Bakersfied, CA.
    The committee met, pursuant to notice, at 10 a.m., at the 
Kern County Board of Supervisors Chamber, 1st Floor, 1115 
Truxtun Avenue, Bakersfield, CA, Hon. Darrell E. Issa (chairman 
of the committee) presiding.
    Present: Representatives Issa, Farenthold, and McCarthy.
    Staff present: Lawrence J. Brady, staff director; Kristina 
M. Moore, senior counsel; Ali Ahmad, deputy press secretary; 
and Michael R. Bebeau, assistant clerk.
    Chairman Issa. Full committee will come to order.
    This field hearing is on Pathways to Energy Independence 
and, particularly, on Hydraulic Fracturing and Other New 
Technologies.
    The Oversight Committee mission: We exist to secure two 
fundamental principles. First, Americans have a right to know 
the money Washington takes from them is well spent; and second, 
Americans deserve an efficient, effective government that works 
for them.
    Our duty on the Oversight Government Reform Committee is to 
protect these rights. Our solemn responsibility is to hold 
government accountable to taxpayers because taxpayers have a 
right to know what they get from their government. We will work 
tirelessly in partnership with citizen watchdogs to deliver the 
facts to the American people and bring genuine reform to the 
Federal bureaucracy. This is our mission, and this is what we 
are here for today.
    This weekend, national gas prices surpassed $4 a gallon. 
That's no surprise to the people of California, who are 
tiptoeing, on high steps, toward $5. A number of factors are 
included in this. Our committee will, in fact, look at all of 
them.
    Let there be no mistake. Today is not about only one part 
of the cost of natural gas, oil, and other sources of energy. 
Consumption from China and India are rising, thus stressing a 
world that had a norm of supplying mostly Europe and the United 
States with its fuel. Many of the wells that produce oil and 
natural gas have been operating for decades or even, here, a 
hundred years.
    Here in Bakersfield, we discover an early set of wells that 
still produce and can produce much more. We're here today to 
talk about--sorry--to talk and listen to experts who can help 
us understand how we can safely extract more, not less energy 
from this region. It is very clear that America suffers from a 
willingness to buy, a willingness to consume, but not nearly 
enough willingness to produce domestically.
    Hydraulic fracturing or ``fracking'' is largely responsible 
for the increase in natural gas production. The proven 
technology has revolutionized the extraction business, 
particularly in natural gas. But let us make it very clear. 
Hydraulic fracturing or ``fracking'' is not new. It is the 
improvements in a 60-year-old technology that we are so 
interested in.
    In North Dakota, we have a stunning example, where 
horizontal fracking for oil production has increased 7,500 
percent in just 5 years. Pennsylvania, one of the areas first 
used for oil, has the same potential, as does California. But 
to recognize that potential, we are going to have to listen to 
all the concerned citizens; we are going to have to recognize 
that in America today, there are safe ways to do things and 
then there are shortcuts.
    Our committee is interested in making sure that no industry 
ever again takes shortcuts, as we believe occurred in the Gulf. 
At the same time, oil and natural gas will be produced 
somewhere in the world to meet our consumption needs. Our goal 
is to make sure that the safest possible activity goes on in 
the United States and the maximum amount that can be extracted 
is extracted safely.
    America has the highest standards for drinking water. EPA 
is to be commended for what they've done. At the same time, 
clean water without, in fact, an economy operating are mutually 
exclusive. Most of what we do in the way of clean air, clean 
water are the result of a vibrant economy that is able to 
support technologies that make these--clean air and clean water 
more available and more abundant, not just here but around the 
world.
    So as we look at this issue today, let me make it clear. We 
will be looking at the entire group of issues, including ways 
in which we can produce more and consume less.
    President Obama has set goals for increased production and 
increased safety. We, as one-half of one-third of the 
government, seek to make sure that his goals of clean, safe, 
and abundance of American fuel is able to be met by his 
administration through the work of this Congress and Oversight.
    Before I recognize other Members for the opening 
statements, I would like to add one more thing for the record. 
I'll be including a comment of the committee on the 
announcement of the President's fracking advisory panel. 
Secretary Chu has appointed a panel. We've reviewed it.
    I guess I'll ask. Any of you hear about it in time to be 
included in that Commission? No.
    From what we can find, this is a Commission that lacks 
operators. It lacks people with the experience in the 
production and appears to be a combination of, if you will, 
intellectuals and opponents of all natural gas, oil, and other 
fossil fuel production.
    So we're hoping, through this letter in the record, and a 
followup to the administration, that this Commission can be 
expanded so that its consensus is a consensus of the entire 
industry and beneficiaries and not simply those who have 
already decided they don't want the end product.
    And with that, I would recognize the gentleman from Texas, 
Mr. Farenthold, for his opening statement.
    Mr. Farenthold. Thank you, Mr. Chairman. I'm honored to be 
here today in California, another great oil-producing State. As 
I drove in last night----
    Chairman Issa. There's another.
    Mr. Farenthold. Yes, there is.
    As I drove in last night, I looked around and kind of 
smelled the air and got a feeling of the community. When you go 
into a town, there's just kind of a vibrancy, a feeling you 
get. And I was commenting to Jessica Blake, who was with me, a 
member of my staff, who actually grew up in Midland, Texas--and 
we both agreed--``Wow, this is West Texas with the mountains in 
the background and a few degrees cooler.'' So I'm honored to be 
here, and I feel right at home.
    We have created a situation in this country where gasoline 
prices are so high that it's affecting every area of our 
economy. The food that we eat, every good or service that we 
purchase is affected by the increasing cost of gasoline and the 
increasing costs of energy. We are producing--we are importing 
the bulk of our oil and gas from foreign countries, many of 
whom are not our friend.
    Energy independence, increased domestic oil and gas 
production is an important economic issue, it's an important 
jobs issue, and it is also an important national security 
issue.
    So I would like to thank our panel here for taking the time 
to come talk to us and let us explore and understand better the 
technologies that have been used--in use for over 60 years--
safely for increasing oil and gas production here in 
California, at home in Texas, and now throughout the United 
States of America. I look forward to the testimony. I look 
forward to asking some questions to the witnesses, and would 
also like to thank Mr. McCarthy and Mr. Issa for having me 
here. Thank you.
    Chairman Issa. I thank the gentleman. And it now gives me 
great pleasure to recognize your hometown hero, one of my 
heroes, someone who I knew when he was in leadership in the 
statehouse and was pleased when he came to Congress and even 
pleased when he passed me by to be one of the top-ranking 
members of Republican leadership.
    So I'm the chairman, but Kevin McCarthy is the boss. We now 
go to the gentleman from California.
    Mr. McCarthy. That was very kind.
    I do want to thank Chairman Issa. He's been going up and 
down throughout the Nation. Kern County is not new to him; he's 
been throughout here.
    But the work that he's done through his committee--his 
committee is Government House Oversight. And for too long, 
government has not had the oversight. We have passed a lot of 
different pieces of legislation, but we've never gone back and 
had the accountability. And his is the one committee that 
brings accountability back to government. And he's done an 
extraordinary job with it so far. And the one thing I want to 
thank him for is coming to the 22nd Congressional District.
    And when you look at the challenges, when Blake talked 
about the security of America and jobs from the ability to have 
energy independence, there's probably no better district in the 
Nation than the 22nd District. We go from the Mojave Desert to 
the Pacific Ocean. We have the fourth largest potential in wind 
and the Nation's fourth largest in the State for solar. You can 
go across; you can find a nuclear facility in San Luis Obispo; 
you can go out to find geothermal in Ridgecrest.
    As Kern County knows, we produce more than 70 percent of 
all the oil in California, 10 percent of the Nation, 1 percent 
of the world. It's more than a hundred years; so the technology 
has to be different. But as technology has changed our life, as 
I look across into this field of individuals, they all have 
different forms of canvas.
    When we landed on the Apollo, with the Apollo landing on 
moon, there is more technology in my BlackBerry today than 
there was on the Apollo. It has made our life better. And just 
as that technology has improved, it has improved our ability to 
use the resources of America instead of paying someone else for 
it. When we send our money someplace else, we send our jobs 
someplace else, but we also constrain our economy.
    Now, we are the Saudi Arabia of natural gas, but do we have 
the ability to bring it up? We've watched fields more than a 
hundred years old. And there are independent representatives 
here in the oil business that many have sold them and moved on.
    We find in Kern County you have--Oxy is based here. Well, 
government sold them their field for $3 billion, and they 
thought they got a really good deal out of it because they 
didn't think anything would extract. One of the largest finds 
undiscovered in the last little bit is out there.
    So there's new potential each and every day. Our decision 
has to be as Americans, do we want to control our own future, 
do we want to invest in America, and do we want to use that 
technology to protect our environment at the same time and make 
it better than we're using it today? And it's almost every week 
I'm able to go out and see a new form.
    In Kern County, our oil happens to be thicker; so we have 
to enhance it to get it even to come up. But we have now used 
new technology where we are first in the world putting in solar 
panels out there to put the steam in. It is a new approach, a 
new style, and that's what we believe in, America reaching the 
new opportunities.
    Winston Churchill always said about America, ``You can 
always count on them to do what's right after they've exhausted 
every other option.'' I think that's right when you look at our 
energy policies. We put in an energy department because we want 
to become energy independent. We import more today than when we 
created that department.
    We have to be honest with ourselves. We have the resources 
in America; we have the ability. If we make the decision that 
we do not want to utilize our natural resources, that doesn't 
mean we're not going to get it from somewhere else; it just 
means we're going to pay somebody else, somebody else is going 
to have the jobs, and it's going to cost our own economy. And 
we've watched that, and we watch the world continue to grow.
    That's what today's hearing is about. We want to protect 
our environment; we want to do it in a common sense, sound way 
that makes the investment right here, and we want to utilize 
the technology that allows us to do it.
    It's a little ironic that the chairman of this committee 
probably knows technology better than anybody else inside 
Congress. He was very successful in business, based upon 
technology, and he continues to enhance that ability and apply 
that. But also, he understands accountability, and that's what 
he wants to apply to government as well. That's why he goes out 
across the country and has a hearing and goes directly to where 
it can have an effect.
    So I want to thank the chairman, and I want to thank the 
committee, and I yield back.
    Chairman Issa. I thank the gentleman.
    Just another reminder, we've probably got the third highest 
ranking Republican in half the time that I've been in Congress.
    We now recognize our panel of distinguished witnesses.
    Assemblywoman Shannon Grove represents the 32nd District of 
California and is also an entrepreneur and a very successful 
one at that.
    Rock Zieman--Zierman--sorry about that, Rock--is chief 
executive officer of the California Independent Petroleum 
Association.
    Dr. William H. Whitsitt----
    Mr. Whitsitt. Whitsitt.
    Chairman Issa [continuing]. Whitsitt is executive vice 
president of Devon Energy, which is the largest U.S.-based 
independent oil and gas producer. And as I was reminded, both a 
Californian and an Oklahoman depending, and we miss you here.
    Mr. Steve Layton is president of E&B Natural Resource 
Management Corp. of California, a California-based independent 
oil and natural gas exploration company. Thank you for being 
here.
    And Mr.--is it Tupper?
    Mr. Hull. Yes, it is.
    Chairman Issa [continuing]. Hull is vice president of the 
Western States Petroleum Association, which represents large 
and medium oil producers and a frequent testifier on these 
kinds of important issues.
    Pursuant to the committee's rules, I would ask you all to 
rise to take an oath.
    [Witnesses sworn.]
    Chairman Issa. Let the record reflect all witnesses 
answered in the affirmative.
    This is a field hearing. And although many of you, who I've 
seen in Washington in the past, understand the formality of 
Washington, it's a little different here. You're not going to 
see adversarial questions and can we get you in 20 questions 
and cut you off as you're answering. Anyone that comes to a 
field hearing, Republican or Democrat, generally comes to 
listen. So although we would like you to try to stick to more 
or less 5 minutes because your entire opening statements are 
going to be placed in the record, as we go through the 
questioning, don't be surprised if Blake comes in and says a 
followup to what I say or Kevin comes in.
    The idea is we're here to listen, and we're here to learn. 
At the same time, if one is answering and you want to pipe in, 
don't wait to be asked. We want to make the record complete 
with the knowledge that you bring to us to take back to 
Washington.
    And with that, Mrs. Grove or Ms. Grove, I will recognize 
you first, mostly because you're first on the schedule but also 
because you're the lady present.

  STATEMENTS OF SHANNON GROVE, ASSEMBLYWOMAN, 32ND ASSEMBLY, 
DISTRICT OF CALIFORNIA; ROCK ZIERMAN, CHIEF EXECUTIVE OFFICER, 
CALIFORNIA INDEPENDENT PETROLEUM ASSOCIATION; TUPPER HULL, VICE 
 PRESIDENT, STRATEGIC COMMUNICATIONS, WESTERN STATES PETROLEUM 
ASSOCIATION; WILLIAM WHITSITT, PH.D., EXECUTIVE VICE PRESIDENT, 
    DEVON ENERGY; AND STEVE LAYTON, PRESIDENT, E&B NATURAL 
                   RESOURCES MANAGEMENT CORP.

                   STATEMENT OF SHANNON GROVE

    Ms. Grove. Thank you, Mr. Chairman, and thank you 
Congressman McCarthy and Members and guests. I'm Assemblywoman 
Shannon Grove, but before I became elected to serve the people 
of Kern County, I've been a business owner. And my business is 
primarily a third- or fourth-tier contractor to the oil, 
construction, and agricultural industries.
    And my hope here today is to bring some common sense 
regarding our domestic oil production for these two very 
important reasons: The security of our Nation and jobs. We have 
a vast supply of fossil fuels, oil, in California, and we 
barely are tapping into them. Think about this. For every 
barrel of oil that we cannot produce here we are importing from 
a volatile foreign nation. Most of it comes from volatile 
foreign nations. And why are we, as Americans, relying so much 
on energy from foreign nations when we have the ability, the 
technology, and the people who need jobs in our own State, our 
own county, and our own Nation right here able to do it?
    For example, I know one smaller, kind of mid-sized producer 
that has a platform; and, if allowed, this platform can produce 
an additional 30,000 barrels of oil a day. So if you think 
about that, and you're conservative, if we were allowed to 
produce 100,000 barrels of oil a day additional to what we 
produce now, California could reduce 20 percent--or excuse me--
increase 20 percent of its oil production, and you would reduce 
that from the Middle East countries.
    Equally important is our national security or jobs, private 
sector, non-taxpayer funded jobs. Our Nation has one of the 
highest unemployment rates ever. And here, in our energy-rich 
district that I represent, it's at an all-time high of 17\1/2\ 
percent unemployment. Some of our Kern County cities are close 
to 40 percent unemployment, and that's completely unnecessary. 
Jobs domestic oil production would produce are great paying, 
high quality, non-taxpayer funded, much needed jobs.
    So with over 2 million people out of work in our great 
State, more across the Nation, our national security and our 
economic hope of the future must realize its potential that we 
are leaving in the ground. Allowing increased domestic oil 
production begins to solve both of these very important issues, 
our national security and private-sector jobs that are much 
needed in our Nation.
    Let the people of the United States and California get back 
to work, reduce our dependency on foreign oil, and make America 
stronger, and stop this full-out assault that we have on a very 
prosperous industry that provides jobs in our Nation. It's the 
No. 1 thing that we need--people need to get back to work. And 
this industry provides jobs and has provided jobs and 
technology throughout history.
    So thank you for letting me be a part of this today, and 
I'll keep my opening remarks brief.
    Chairman Issa. That's very un-Washington-like.
    [The prepared statement of Ms. Grove follows:]

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                   STATEMENT OF ROCK ZIERMAN

    Mr. Zierman. Thank you, Mr. Chairman and members of the 
committee. I'm Rock Zierman, the CEO of the California 
Independent Petroleum Association.
    We're a trade association that represents about 470 
companies--independent oil producer companies, royalty owners, 
and service and supply companies that have operations here in 
California. About 160 of those are actual oil and gas producers 
that range in size from small producers, with just a couple of 
wells; to large, multinational corporations that produce 
hundreds of thousands. The definition of an independent doesn't 
have to do with size. It has to do with the fact that they're 
not an integrated company; they don't refine, market, transport 
petroleum products at all.
    Independent producers produce 70 percent of California's 
in-state production of oil and 90 percent of its natural gas. 
As a State, our instate production represents 38 percent of 
what we consume--our refineries and our consumers and on the 
oil side. The rest, as Ms. Grove mentioned, has to be tankered 
in. And 14 percent comes from Alaska, but they're also 
declining. And so the rest of the marginal wells have to come 
from foreign countries, primarily Saudi Arabia, Iraq, and 
Ecuador.
    Independents is the main driving force behind exploring for 
new oil and natural gas reserves. Over 90 percent of domestic 
oil and gas wells are drilled by independents in the United 
States, and their role is increasing.
    In 1999, major oil companies invested $31 billion in 
drilling programs while independents invested $18 billion. By 
2007, the role had totally reversed. Majors invested $49 
billion and independents, $77 billion, for a total of $126 
billion. And that was 4 years ago. Obviously, the numbers are 
quite larger today, which leads us to the next point, which is 
drilling for oil and natural gas is expensive, and it's getting 
more expensive. In 1999, it cost $100 per foot, on average, to 
drill a well in the United States. By 2008, that had risen 
sixfold, to $600 a foot.
    A recent study concluded that, on average, independents 
reinvest 150 percent of their net income back into drilling 
operations. That means they have to go out and get equity 
partners for capital or they have to borrow from banks in order 
to continue their operations.
    Capital budgets, by definition, are driven by how much 
capital is available. And obviously, the market price of oil 
plays a significant role in determining how much capital is 
available; but other factors, such as risk and return on 
investment, also contribute.
    Oil and gas operations, as with all mining operations, are 
producing a finite resource; therefore, producers are basically 
going out of business every day. So in order to survive, 
producers have to drill to find new resources or employ new 
technology to better extract existing oil fields, and that 
takes money.
    So if your goal is to increase domestic oil and gas 
production, you can't hamper the availability of capital. And 
unfortunately, that's precisely what the administration has 
proposed in their last three budgets. The administration claims 
that Big Oil is receiving subsidies from the U.S. Government, 
and nothing could be further from the truth.
    And I've listed a number, in the record, of these tax 
treatments. And I'll just mention two: One is intangible 
drilling costs, which, by the way, are not available to any of 
the integrated majors, only to independents. And these are 
expenses, expensing, of non-salvageable items that can be 
expensed in the current year that they were incurred, just like 
any other business can. If a shoe salesman buys shoes for $10 
and sells them for $20, he doesn't depreciate the shoe over 7 
years, he expenses it.
    So these debates are about the proper accounting method of 
expensing these things. These are not subsidies that are given, 
cash payments from the government, for certain activities. And 
as I mentioned, a lot of the other ones are listed in the 
record. I'd be happy to address those with any questions.
    But the bottom line is it takes a lot of capital to drill 
for new oil and gas production. So let's not hamper the access 
to the capital by raising taxes on our domestic independent 
producers, but let the sector continue to create jobs and meet 
the energy needs of our citizens. Today, they employ about 4 
million people, which represents over 3 percent of our total 
U.S. workforce. And that's what we need to foster in the 
future. Thank you.
    Chairman Issa. Thank you.
    [The prepared statement of Mr. Zierman follows:]

    [GRAPHIC] [TIFF OMITTED] T8218.006
    
    [GRAPHIC] [TIFF OMITTED] T8218.007
    
    Chairman Issa. Doctor, they've all been running under time; 
so there's extra time if you need it.

                 STATEMENT OF WILLIAM WHITSITT

    Mr. Whitsitt. Thank you, Mr. Chairman. Thank you to members 
of the committee for the opportunity today. And I want to thank 
the local residents with whom I had a great conversation before 
the meeting today. And they had a number of good questions.
    What I'd like to do is chat a little bit with you and 
discuss what is truly a revolution caused by technology--the 
chairman alluded to it--and this is the natural gas revolution 
in the country today. The game has changed, the revolution is 
here, the paradigm has shifted, and there is no going back.
    This is a piece of shale from 8,000 feet below the prairie 
of Oklahoma. And I'd like to pass this around to the committee. 
And also, it's fine to pass it around to the audience too. The 
natural gas is actually trapped in the pores of this core 
sample, and this is the key to the revolution.
    What I'd like to do is start with a little geology lesson 
here. This is geology for non-geologists. And you can follow 
either in the printed testimony or on the screen. But 
traditionally, we were looking for oil and gas that was 
produced in that lower band, that gray area there, source 
rocks. These are shales that I'm referring to here. And that 
oil and gas cooked for 340 million years. The little critters 
and plants would migrate through porous zones up until they 
were trapped by an impermeable layer of rock. And you can see 
that shown there toward the right in the small red area. Well, 
that led us to find or try to find a number of these little 
trapped areas. And that's why you had so many wildcat wells 
that were less successful or more.
    And then back in the 1990's, beginning in Texas--and I'll 
have more to say about that--George Mitchell had the idea that 
we ought to be able to produce natural gas right from the 
source rock, and he started drilling vertical wells and 
fracturing them, and the economics just didn't work out all 
that well.
    So in 2002, Devon Energy that acquired Mitchell, began to 
marry the technologies of hydraulic fracturing and horizontal 
drilling to begin to produce gas from the Barnett Shale of 
Texas. That's the picture of where it is.
    And we'll go to the next slide. And you'll see that in the 
early part of the last decade, the wells were--shown on the 
black line. Those were vertical wells. You can see production 
rates and the production tailing off out into the future. And 
then look what happened, with the blue line there, when we 
started marrying the hydraulic fracturing and the horizontal 
drilling to produce this gas, huge initial production rates in 
these wells in the last 40 or 50 years.
    Let's go to the next slide. You can see the history of the 
shale plays around the country with the use of this marriage of 
technology. And you can go to the next slide to see the 
projections that EIA has in the dark blue there for our gas 
resource production into the future based on this technology. 
This is a depiction of the areas around the country where we 
have shale fairways and the ability, potentially, to produce a 
lot more natural gas for this country.
    And if you go to the next slide, you'll see that has 
already begun to have a very significant positive effect on 
consumer prices. Those are three different projections by the 
EIA over the past 3 years, ending up at that red line on the 
bottom, that show the different price projections based on this 
increase in supply.
    And if you go past this slide to hydraulic fracturing--this 
is what I'd like to spend a little more time on. Hydraulic 
fracturing is, of course, the putting of large quantities of 
water, sand into the ground, pulling the water out of the sand, 
holding the fractures open. And we have a little bit of 
animation here that will show you what it is that we're doing.
    First of all, we drill the well. And then we're going to 
re-run it from the beginning here, hopefully. And you'll see 
that the well is drilled obviously from the surface out into a 
lateral that can be many thousands of feet long. And then once 
we complete the drilling of the well--I'll tell you what. I'm 
not sure if that's going to work so well, but we'll just talk 
about it from here.
    You can see that the drill string is pulled out, and then 
the well is actually perforated with a perf gun--you see that 
happening here--into the shale formation. And after the well is 
perforated--you can see the length of the distance of the 
perforations--then the sand and water, with some additives, is 
put in under very high pressure, and we begin to frack the 
shale formation.
    The frack stages can be multiple. Here, we put a plug, and 
then we'll come back into the well and do the same kind of 
fracture stimulation treatment along that horizontal part of a 
well. And then the water is flowed out; the sand stays, holding 
the fractures open; and the surface equipment is, by in large, 
removed and only a small amount remaining; and the gas is 
produced. So that's basically the hydraulic fracturing process.
    If we go to the next slide, you'll see that one of the big 
concerns about hydraulic fracturing is addressed here by our 
well construction. We, under State regulation throughout the 
country, put pipe or what we call ``casing'' through any 
freshwater zones that usually occur hundreds of feet below the 
surface. And we may be fracking as much as 15,000 feet below 
the surface. But we seal off the water zones before we start 
the operation. And you can see that depicted here.
    If you go to the next slide, you'll see just a depiction of 
the equipment that's used on the site. That equipment virtually 
all goes away after the frack job. And you see some numbers 
there with regard to the amount of water we use. We can talk 
about that later.
    If you look at the frack fluid components that have gotten 
a lot of attention recently, the bottom line is that 99\1/2\ 
percent of what goes into these wells is basically sand and 
water. And, of course, most of that, obviously, being water. 
And the fluids are not all that mysterious. In fact, there's a 
very robust Web site that has been in operation now for a 
little over a month called ``FracFocus'' that was actually 
created and is operated by State regulators under the 
Groundwater Protection Council and the IOGCC on which producers 
are beginning to post what goes into every well that's 
hydraulically fractured.
    This is a shot of the actual screen, the forum that you can 
call up. You can search this by well location, by company, by 
coordinates, by API well number--lots of different ways--and 
find out what's in any well that's hydraulically fractured once 
this site is fully operational and all postings are on it.
    The site is also extremely good--and I'll say this to the 
residents in the audience and to others--because it actually 
has wonderful explanations, in a very robust way, about what 
I've talked about in terms of why we hydraulically fracture 
wells, how it's done, what the additives are, what they're used 
for, and a lot of other information that I think takes some of 
the mystery about hydraulic fracturing away.
    So we conclude by saying that hydraulic fracturing has 
been, as the chairman pointed out, in use for many decades. Our 
first well in Oklahoma was fracked in March 1949. We've done 
100,000 of them and well-regulated by States. FracFocus is up 
for fluid disclosures. And we are continually improving our 
industry practices, and the States are continuing to work to 
make sure that they have the right regulatory framework for all 
of us.
    So with that, I'll conclude. And I'll be happy to answer 
questions.
    Chairman Issa. Thank you. You've answered many questions by 
your presentation.
    [The prepared statement of Mr. Whitsitt follows:]

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    Chairman Issa. Mr. Layton.

                   STATEMENT OF STEVE LAYTON

    Mr. Layton. Thank you. Good morning.
    Chairman Issa. I think you need to turn your mic on.
    Mr. Layton. Good morning. My name is Steve Layton, the 
president of E&B Natural Resources Management Corp., and it is 
an honor to appear before this committee as a representative of 
the independent oil and gas producers operating here in the San 
Joaquin Valley.
    E&B is a California-based, privately owned, independent oil 
and gas company. We produce approximately 7,000 barrels of oil 
each day and have 140 employees. Our primary objective is 
growth and the replacement of our reserves.
    It is important to note that E&B, along with many other 
independent oil producers, as Rock mentioned, reinvest 
virtually every single dollar-and-some that they earn in order 
to replace produced reserves and hopefully grow our respective 
companies. This significant and ongoing reinvestment of cash-
flow by oil and gas companies is a vital but often overlooked 
part of the way this industry must manage its business in order 
to stay in business. This is exactly what has happened to E&B 
as well as many other companies in the United States, over the 
past 5 to 10 years particularly.
    In 2003, E&B produced approximately 1,500 barrels of oil 
per day, but by reinvesting cash-flow, along with the financial 
support of banks, we implemented a growth strategy that led--
led by field redevelopment and acquisitions. Today our 
production is in excess of 7,000 barrels of oil a day, and our 
employee count has grown from about 20 to 140. I would also 
like to mention that this production growth being matched by 
the job growth is something that we're very proud of at E&B.
    Today I would like to focus on development, also known as 
``organic growth'' to some, because it is this type of 
production growth that is important to all of us given the 
universal concerns about energy security. The industry's 
ability to grow production has been enhanced significantly by 
advances in exploration, drilling, production, and completion 
technology, including the fracking that we've heard about just 
now. But these gains, as great as they are, can be offset to a 
considerable degree by the ever increasing burden of statutory 
and regulatory impediments that we face.
    California's and most on-shore fields are very mature, 
having produced, in some cases, for more than a hundred years. 
The easily captured, easily produced oil has already been 
exploited. For this reason, the application of new technology 
has been a critical part of our efforts to increase the 
production in these mature fields.
    Perhaps the greatest evolution of technology in the San 
Joaquin Valley involves the use of steam to heat and mobilize 
oil that would otherwise be almost impossible to extract. Steam 
has been used for over 40 years; yet, the technology continues 
to be refined, augmented, and improved and continues to unlock 
large volumes of previously inaccessible reserves.
    More specifically, I would like to reference a small parcel 
that E&B owns in one of the nearby heavy oil fields. Five years 
ago, this 5-acre lease was producing just a few barrels a day. 
In 2007, we made a significant investment in the property and 
now have drilled more than 20 wells and implemented a modern 
steam drive. With the help of new drilling, completion, and 
thermal technology, this little 5-acre parcel is now producing 
almost 300 barrels a day and will produce in excess of a 
million barrels of oil before it is depleted. That equates to 1 
million barrels of energy security from just 5 acres.
    In other fields, we have benefited greatly from the use of 
horizontal drilling to sweep and capture large untapped areas 
of very mature oil producing reservoirs. The use of horizontals 
has given us the ability to access substantial new reserves in 
these old fields. One of these fields happens to be the primary 
driver of E&B's growth, and it is the site of a significant and 
ongoing drilling and redevelopment program.
    In the 1990's, this field was on its last legs and appeared 
to be headed for abandonment. About 5 years ago, we began the 
redevelopment program that started with re-drills and, 
eventually, new vertical wells. And with the help of advances 
in well-completion technology--I'll mention fracking again--and 
improvements in artificial lift systems, our redevelopment 
efforts proved successful.
    Last year we stepped things up a notch with the addition of 
a horizontal well development program. Not only now are we able 
to access reserves that would have been left behind, but after 
just 1 year, we're now generating over 10 percent of our 
production with less than 3 percent of our wells. We do expect 
this trend to continue and ultimately lead to a production rate 
in excess of 5,000 barrels a day. This is from a field that was 
almost abandoned 15 years ago.
    Finally, when it comes to technology, I'd like to highlight 
the use of 3-D seismic imaging to help capture untested and 
undrilled sands containing significant quantities of oil and 
gas. In our case, we've acquired 3-D seismic over several 
hundred square miles of land recently, including several 
mature, old oil and gas fields, some having produced since the 
early 1940's and 1950's.
    3-D seismic is usually thought of as a tool to help explore 
for new oil and gas fields, but it is also a very valuable tool 
to help hunt for untapped reserves in and around many of the 
tired, old oil fields that are all over California and many 
other States. It has been said by many that the best place to 
find oil is in an old oil field. Well, with the help of 3-D 
seismic and numerous other technological assets we have at our 
disposal, that statement is more true than ever.
    Moving on to the impediments. In a nutshell, just as 
technology unlocks new oil and gas resources for companies, 
such as E&B, to exploit, new rules and regulations and 
permitting delays combine to hamper that effort. While 
unregulated and environmentally destructive practices have no 
business within our industry, I would like to point out just a 
few examples of what I view as burdensome regulations that have 
directly impacted our ability to produce more oil.
    The first concern is Federal permitting and multiple 
Federal agencies. In our case, permits necessary to proceed 
with one of our 3-D surveys were delayed substantially by the 
U.S. Fish & Wildlife Service. The first permit to conduct the 
survey was submitted to the Bureau of Land Management in 
December 2007. More than 16 months later, the required 
biological opinion was finally issued by the Fish & Wildlife 
Service. This delay paralyzed the project for almost 2 years.
    Then in early 2010, we made a decision to expand the 
project by about 30 percent, which did require a modification 
of the project area. Upon review, the BLM, in fairly short 
order I will say, notified us that they believed the modified 
survey area met all criteria of the original permit and 
approved the plan. Unfortunately, Fish & Wildlife didn't see it 
that way and offered no explanation of why they disagreed with 
the BLM. The net result of these conflicting messages was a 
delay in this project for almost an additional year. That's a 
total of 3 years of delays because of these permitting issues.
    The second example concerns the impact of various 
environmental laws, more specifically, The Endangered Species 
Act. This region has numerous threatened and endangered animals 
and plants. Regulations are in place that require operators to 
survey and determine whether any of these species would be 
impacted by development in new areas. This, of course, is 
common sense and environmentally sound; yet, these same laws 
apply to expansions and development within existing fields.
    For example, in one of our largest fields, we intend to 
implement a steam flood that is directly adjacent to a very 
successful steam drive project operated by a larger company. To 
produce the steam necessary to heat the oil, we need to install 
a gas pipeline to fuel the steam generators. As part of the 
permitting process, a biological study is required, including 
one to determine if the blunt-nosed leopard lizard lives within 
the area of the pipeline. This actually requires two biological 
surveys, one in April and another in October. Our concern is 
that this project is already in a very highly impacted area 
adjoining existing thermal operations.
    Furthermore, much of the pipeline route follows existing 
pipelines; yet, none of this seems to be given any 
consideration within the permitting process. It will be October 
before we can complete the survey, which could very well keep 
this project from being developed for over a year.
    Finally, I want to bring to the committee's attention an 
example of some impediments we also face on the State level. In 
our case, it concerns permitting delays for another steam drive 
project.
    In July 2010, we submitted an application to the California 
Division of Oil and Gas to reactivate a previous steam drive. 
Ten months later, we have yet to receive authorization for this 
multimillion dollar project even though steam floods are 
currently underway in sections directly adjacent to ours. No 
explanation has been offered by the Division of Oil and Gas for 
this delay.
    In summary, it is without argument that the San Joaquin 
Valley, despite its age and regulatory challenges, holds 
significant additional oil and gas reserves that companies like 
E&B, using the latest technology, can exploit. If we can access 
these reserves in a timely and reasonable fashion, I have no 
doubt that all of the companies operating here in the Valley 
can add significantly to our Nation's domestic oil and gas 
production and will hire, train, and provide continued 
employment to thousands of new workers. This will, without 
doubt, improve economic growth throughout this region and, more 
importantly, will aid in the quest to provide our Nation with a 
secure energy future. Thank you.
    Chairman Issa. Thank you.
    [The prepared statement of Mr. Layton follows:]

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    Chairman Issa. Mr. Hull.

                    STATEMENT OF TUPPER HULL

    Mr. Hull. Mr. Chairman, thank you very much. My name is 
Tupper Hull. I am representing the Western States Petroleum 
Association today, and we're very pleased to have the 
opportunity to address you.
    Western represents major petroleum, integrated petroleum 
companies that operate in California and other western States 
that we represent them in, as well as some of the large 
independent producers that Rock mentioned and independent 
refiners as well. We do think it's very important that this 
hearing is being held in Kern County, as others have mentioned. 
Kern County is responsible for producing about 72 percent of 
the oil that's produced in California today. And California, as 
you know, is the third largest oil producing State in the 
United States.
    Chairman Issa. I apologize for interrupting you, but I 
talked to the gentleman from Alaska, and he said as Alaska 
declines, he prefers that we mention we're No. 2 now.
    Mr. Hull. You anticipated. For a period of a couple of 
months earlier this year, we were No. 2. Now we've slipped back 
to No. 3. So I had to correct my testimony. But we're giving 
them a run for their money.
    As others have mentioned, you know, the technology has 
played such an important role in California, and not just 
prolonging the life of the oil production but in the livelihood 
of the tens of thousands of men and women that work in this 
industry, men and women who earn really good salaries and bring 
a tremendous amount of expertise and diversity to this region 
as well as other oil-producing regions in California.
    You have asked us to talk about pathways to energy 
independence with a focus on hydrofracking, and I'm going to 
let others here with a great deal more expertise in 
hydrofracking address that specific issue. But we don't think 
any discussion about energy independence, or we would probably 
say energy security, is complete without mentioning the 10\1/2\ 
billion barrels of oil that the U.S. Geological Survey 
estimates is offshore of California in undiscovered but 
technically recoverable reserves off the coast.
    To give you some sense as to what 10\1/2\ billion barrels 
would mean to California's energy security, if all that could 
be produced, it would and could replace all of the oil we 
currently import from foreign sources for 36 years. If you just 
look at our largest foreign source of oil, which is Saudi 
Arabia, that 10\1/2\ billion barrels--excuse me--could replace 
all Saudi imports for 155 years. It is a tremendous resource 
and one that we believe deserves consideration.
    Now, we're very aware of the tragic event that took place 
in the Gulf of Mexico last year. We spent a lot of time 
explaining to the media and others our view on that and why the 
production that takes place in California occurs under 
conditions that are entirely different, very different, than 
what is taking place in the Gulf of Mexico in their deepwater 
exploration. The reserves on the outer continental shelf in the 
Pacific are in much shallower water; the pressures typically 
are much less than what was found in the Deepwater Horizon 
accident. And the safety equipment that is employed and the 
technology that's used is much more accessible on the 
production facilities in California.
    For the last 40-plus years, a billion barrels of oil has 
been produced off of the California coast. And during that 
time, according to--and I apologize. I can't remember BOEMRE's 
full name. It's the former MMS--estimated or has said that a 
total of 850 barrels of oil have been accidentally released in 
the Pacific during that 40-plus years.
    Now, make no mistake. That's 850 barrels too many. Our 
members get up every morning with a goal to ensure that not a 
drop of oil spills in any form during their operations. But 
over a 40-year period, we believe that's not just a commendable 
safety record but it reflects the kind of commitment and 
technologies that have been developed to protect the 
environment while providing important energy resources to the 
Nation.
    The issue of energy security is particularly acute in 
California because as we say, California is an energy island. 
We are not connected to other refining and producing areas of 
the country by pipelines. Consequently, when there are upsets 
in supply or international events like we're experiencing now 
that impact oil supplies, it's very difficult to shift and move 
supplies around to balance the markets. And so Californians pay 
a price in volatility and upward pressure on prices because of 
this isolation.
    And so for that reason, we believe oil produced in 
California is the most secure source of oil for us, it is the 
lowest cost source of oil. And we believe this conversation 
you're having today is the most important conversation from an 
energy perspective that we can have. Thank you very much.
    [The prepared statement of Mr. Hull follows:]

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    Chairman Issa. Thank you. Thank you all for your 
testimonies.
    As I said, this is a less formal environment; so I don't 
think we're going to do 5 minutes. I think we're going to go 
around multiple rounds, and I'm going a little bit in reverse 
order.
    Mr. Hull, when you said 850 barrels into a billion barrels, 
any guess, just with the ships that come into the United 
States, how much was spilled in the same time off-loading per 
billion barrels of imported oil?
    Mr. Hull. I wouldn't venture to guess. It's not really a 
number my members would be happy to have me carrying around and 
talking about. I mean, obviously----
    Chairman Issa. Would it surprise you to know that just the 
stuff coming out of bilges, that we regulate, far exceeds that.
    Mr. Hull. I don't think there's any question that the risks 
associated with tankers and the volumes of oil that are coming 
into California every day to serve this market far outweigh the 
risks of producing here in the State of California in the 
Federal waters offshore.
    Chairman Issa. Mr. Layton, I'm going to ask you a question, 
and pretend that I'm representing the other side of the 
equation for a moment. I think it would be helpful.
    Isn't it true that you're in an incredibly profitable 
industry, one in which the American people pay far more for 
their fuel than one would ordinarily figure it takes to extract 
and deliver it?
    Mr. Layton. This industry, without question, is 
experiencing a very profitable period. You can look at the 
earnings releases of the public companies. I guess it depends 
on how you view it. If----
    Chairman Issa. Well, let me give you the followup for a 
second.
    Whenever you have a really profitable industry, one in 
which foreign competition is not really competition because we 
need them, therefore, we must buy from them--it's not a 
question of ``Do we buy from you?'' Or ``Do we buy from 
Qatar?'' Or any other place, whether it's oil or natural gas. 
The fact is: We have to import more than half of all we consume 
in oil and beginning to become a net importer in natural gas if 
we don't reverse the trend.
    In a sense, don't we have a world market, such as Saudi 
Arabia, where their lift cost is about $8, that gets into port 
for $8 a barrel--we're delivering them the difference between 
$8 a barrel and $140 a barrel. Well, your margins, your lift 
costs, are dramatically higher.
    What would you expect, for example, the lift cost of a 
typical Bakersfield delivery of a barrel of oil to be, all in 
all?
    Mr. Layton. In the steam drive projects that I mentioned in 
my testimony----
    Chairman Issa. Yes.
    Mr. Layton [continuing]. We will--a typical operation, 
we'll spend $40 to $50 a barrel to extract the oil, including 
the cost of steam.
    Chairman Issa. And if you looked at the regulatory costs 
or, if you will, the delays, the excess that you spoke about in 
your testimony, how much of that is, in fact, an additional tax 
on this lift cost that you have.
    Mr. Layton. It is easily another 10 to 20 percent on top of 
our regular lifting costs. And it certainly depends on the 
area. It does vary, but it is significant. The delay and the 
uncertainty, although difficult to quantify in terms of a 
dollar-per-barrel lifting cost, it is equally as harmful as 
high lifting cost because it doesn't allow you to plan.
    In our business, as I see it, stability equals security. 
Stability in the sense that we need a stable regulatory and tax 
environment operating. And if we have it, we can provide 
additional oil production that does ultimately lead to more 
energy security for this country.
    Back to your question on the profitability, as I said, it 
depends on how you look at it. If you look at it as a company 
that takes those profits and puts them in a shoebox and buries 
it in the backyard, that's not such a good thing. But if you go 
to what really is happening--and I testified to and Rock 
mentioned--those profits are reinvested. That reinvestment 
leads to more energy security. And if you look at what's 
happened with the total production from the United States in 
the last few years, you're going to see a big difference in the 
production curve. We're on the incline now.
    Chairman Issa. I want to go back to that quickly. You're on 
the incline with a $40 cost, of which probably 10 or more is 
produced by excesses in regulatory costs, over your competitors 
because an $8 competitor is getting $140 a barrel because 
there's not enough supply. Is that a fair statement.
    That's what I was trying to get to in that rhetorical 
question, that, in fact, you triple your production--if America 
becomes close to self-sufficient, the Saudis' $140-a-barrel 
oil, which costs them $8 a barrel, or the Kuwaitis', which 
costs them $6 a barrel to lift, they'll have to match the 
market, which would certainly drop into the $60, $70.
    What I'm saying, in a way, is: Aren't you here asking us to 
give you the ability to produce enough to actually reduce the 
price of oil and the excess profitability that exists in the 
world today?
    Mr. Layton. If we, as producers, are successful in what I 
think is a universal quest, to grow production, we understand 
the net result will be lower oil prices for the rest of the 
country. I mean, that's what happens with supply and demand. 
You have more supply, the price goes down. And we're trying to 
provide more supply.
    Chairman Issa. Mr. McCarthy mentioned my background in 
business. I've worked a lot in engineering, but the truth is 
that my love was economics. And there's nothing I like more 
than figuring out if you drop the price of energy--and almost 
everything we produce and everything we do is leveraged off 
energy--you drop the price of everything else.
    So thank you for your comments on that.
    Mr. Farenthold. Thank you very much, Mr. Chairman. At the 
risk of being inhospitable, my first question to Mr. Hull is: 
You mentioned California was No. 3 and Alaska was No. 2 in oil 
production.
    Chairman Issa. Or the other way around.
    Mr. Farenthold. Or the other way around, depending on the 
month. Who is the solid No. 1 then?
    Mr. Hull. I don't seem to recall that fact, Congressman. 
It's Texas and I started my career at the Houston Post back 
many years ago and covered the industry and found it 
fascinating.
    Mr. Farenthold. Let me visit, then, for a second, Mr. Hull, 
about the--your group represents a wide variety of companies, 
from the big ones to the little ones.
    Mr. Hull. Primarily the large companies. We have a small 
membership of 26 companies. We're not a broad-based 
organization. We're the household names in the oil and natural 
gas business.
    Mr. Farenthold. So if somebody were going to refer to the 
``evil oil companies,'' they probably would be referring----
    Mr. Hull. It would be Big Oil, yes, sir.
    Mr. Farenthold. So let me ask you. You hear about record 
profits within your industry, and you're always hearing about 
dollar amounts, but can we talk a little bit about percentage 
amounts? What's the typical percentage on return on y'all's 
investment.
    Mr. Hull. What's fascinating about the periods we go 
through now--because I get to handle a lot of these questions--
is we never really talk about this when the prices are 
depressed. I think we forget that in 2008 we had a period of 
extraordinarily high crude oil prices in August. By December, 
crude oil was trading at $30 a barrel, and the price of 
gasoline came down by a comparable amount.
    So we think it's important to talk not only about 
percentages--because you're right. These are the largest 
commercial enterprises on the face of the earth. The billions 
upon billions that are invested and required to bring these 
resources to market are enormous. And over a period of time, 
when you balance out the highs and the lows----
    Mr. Farenthold. An average.
    Mr. Hull [continuing]. The oil and natural gas business 
makes about 6 to 6\1/2\ cents for every dollar they sell, their 
gross sales.
    Mr. Farenthold. How does that compare to other industries.
    Mr. Hull. About a penny, a penny and a half less. So if 
you're an investor, manufacturing, as a whole, is generally 
more profitable than the oil and natural gas business over 
time.
    Mr. Farenthold. And also, you're typically public-traded 
companies, the ``bigs.''
    Mr. Hull. Right.
    Mr. Farenthold. And the owners of those companies, 
typically, what, pension funds, mutual funds? Those are some of 
your largest shareholders.
    Mr. Hull. Absolutely.
    Mr. Farenthold. So pretty much probably anybody in this 
room or watching on the Web, if they have a retirement plan or 
own a mutual fund, are probably the owners of one of your 
companies.
    Mr. Hull. Absolutely. I don't have the exact figures right 
in front of me, but you're absolutely right. The vast majority 
of owners of Big Oil are pension funds and individual investors 
who have their retirement savings in these companies' 
ownership.
    Mr. Farenthold. I apologize for going--just questioning 
with you. I hope I'll have another round or two so I can ask 
some other people.
    I wanted to visit a second about offshore. You talked about 
offshore in California; you talked for a minute about the 
tragedy with the BP blowout in the Gulf of Mexico. Being from 
Texas, let's talk a little bit about the Gulf of Mexico, if you 
wouldn't mind.
    The U.S. oil companies aren't the only ones drilling in the 
Gulf of Mexico, are they?
    Mr. Hull. You know, I don't believe so. But I have to be 
honest with you. Our purview includes only the western United 
States. I'm not familiar with who's operating in the Gulf of 
Mexico.
    Mr. Farenthold. As a lawyer, I don't ask you questions you 
have to answer to.
    And you've actually got China drilling off the coast of 
Cuba; you've got the State oil company in Mexico that's 
drilling in the Gulf of Mexico as well.
    So regardless of what amount of regulation we put on our 
domestic oil companies, we're not going to have any effect on 
what China and Mexico do. We can't change the way they drill.
    Would that be an accurate statement?
    Mr. Hull. I think that's correct, sir. I mean, I think the 
chairman mentioned too that while we are seeing prices at these 
very high levels, apparently related to the unrest in the 
Middle East, the longer-term picture is not just, you know, 
their--these other emerging economies are very actively and 
aggressively out in the world market looking for new production 
opportunities, they're buying a tremendous amount of oil, and 
it's creating upward----
    Mr. Farenthold. So do you think a better regulatory scheme 
or better way for the taxpayers to spend their money, rather 
than making it more difficult for y'all to drill in the Gulf 
and compete and make permitting and all these regulations, 
might be to invest a little bit of time and money some 
response, training and technology, so in the event something 
happened in a well owned by or operated by another country, 
we'd be able to respond to that as well as if something 
happened locally.
    Mr. Hull. I lost the question. I apologize.
    Mr. Farenthold. Rather than putting excessive regulation on 
our domestic companies, making life difficult for them to 
compete, let's say, in the Gulf of Mexico, where you've got 
Mexico and China also drilling--something happens on a Mexican 
and/or a Chinese drilling rig and there's a blowout or a leak 
or something, wouldn't we be better off, rather spending our 
time and effort regulating domestic companies, coming up with 
responses that would benefit any worldwide oil company, 
training and technology?
    Mr. Hull. Well, I think the U.S. oil and gas industry have 
led the world in developing those kinds of responses. In 
California, of course, we have huge resources on standby 24/7 
to respond and have developed, along with other regions of the 
country, this technology that really is used worldwide to 
respond to any accidents that occur.
    Mr. Farenthold. Well, I'm over time. I'll let everybody 
else have a turn.
    Chairman Issa. I assure you, we will--as long as our 
witnesses are willing to indulge us, we would like to learn all 
we can.
    Mr. McCarthy. I thank all the witnesses for their 
testimony. And it really comes down to why we're having the 
hearing and why we're having this challenge. We use more energy 
than we produce in this country. Having said that, that means 
we have to get it from somewhere else; so we pay for it from 
somewhere else.
    The challenge that I've always faced in this job is: There 
are many times we think in California--we realize other States 
compete with us. We have the ability to say which State 
produces more. We watch every day when a company leaves 
California or somewhere else because they maybe give a little 
better price. We never really think that America competes with 
other countries, but we do. And energy is probably the No. 1 
industry that you can find that could happen. If we make it 
harder here, we will still buy it somewhere else.
    Now, this country has faced a lot of challenges. And 
normally when we face a challenge, we meet a goal and we go 
forward. We've done that in World War II. We achieved our goal. 
When we found that Russia went to space first, we made a goal 
for us and in a decade, we were going to go to the moon. We 
faced our attention on that.
    For too long in energy, we only face our attention when the 
problem gets too big, and then we put our attention there, then 
we forget about it when it comes down so don't have the ability 
to go there. If anybody's ever lived in a community that has 
oil, you've seen the booms and the busts. If you've lived in 
this community, you watched a time where the cost to lift it 
was more than the barrel you could even sell it for. But you 
could not shut it down so you had to maintain it.
    I have found that the country gets very divided. Now, a 
time that we all get united is usually during the Olympics. Why 
is it that we cheer for our country? We never ask them whether 
they're Republican or Democrat. But the other reason why we 
cheer so strongly is because America gets a level playing 
field. We do a 100-yard dash, we all start at the same starting 
line; we all have the same finishing line.
    So we've got to think from that mindset too, that when we 
make stuff more difficult here, someone else can still be 
drilling someplace else that have different protections on the 
coast then we would have.
    And so taking some of that, I thought some of this--some of 
this ability is what I saw here today. I loved the presentation 
where you've actually shown how it was going.
    Now, technology has changed. And probably the best analogy 
I've heard from somebody, if you think of a bathtub and you 
fill it with water--picture that underground, that's a natural 
resource. An old way of doing it was putting a lot of straws 
into the bathtub and trying to get that water out. Horizontal 
is fundamentally different. Now we can just go to the drain and 
use one. So that's one over the land, and that's one ability to 
bring it up in a different capacity, and it's environmentally 
safer.
    When oil was first discovered in Kern County, it was 
untapped. It was a lake. There's pictures of people in a boat, 
not of water but of oil. It's a fundamentally different place 
of where we have it now and our protection.
    But I want to take that technology a little further, and I 
want to followup with Mr. Whitsitt.
    When you do the fracking, you had shown in your graph that 
there has been some people bring up the issue about the water 
table and the protection. If you can walk me through that one 
more time to show where fracking goes and where the water table 
is and what protections we have in going and using the 
technology.
    Mr. Whitsitt. Great question, Congressman. Water tables or 
the aquifers that are drinkable are essentially shallow, and 
with very few exceptions, as I've indicated, a few hundred feet 
below the surface.
    The States require and we, with our practices, implement a 
very strict regimen of sealing off those water sources at the 
surface or close to the surface with multiple layers of steel 
and cement, and then the frack job is done through those layers 
that seal off the water.
    Mr. McCarthy. And when you normally do the fracking, how 
farther down is that from the water table, itself.
    Mr. Whitsitt. Thousands of feet, in most cases. Certainly 
15,000 feet is not uncommon. We, at Devon, are doing 8,000 to 
10,000 to 12,000 feet, and so you're well below, far below the 
water sources.
    In Canada--I will mention too--and this goes to other 
things we're doing to try to protect both water quality and--
quantity and quality. We actually in our heavy oil operations 
in Canada have found ways to use non-potable water; so we use 
no freshwater to generate steam. And we're trying to find areas 
where we can do things like that all the time because we are 
very much in tune with concerns that are very legitimate, 
particularly in the west, about water issues.
    We also try recycling where we can; we do it where we can. 
And we also blend water; so we use flowback water to put in the 
next job, if we're able to do that. And we're making progress 
on that technology all the time as well.
    Mr. McCarthy. Now, we all know that one form of energy is 
not going to get it done. We also know that as advancements go, 
we will have renewables that have great potential for the 
future, but we need that bridge. The challenge that we have is 
that we have to have a policy that allows us, with the ebbs and 
flows of the cost, to actually bring the cost down. Because our 
economy, 70 percent is based on consumption.
    With the price of oil rising so rapidly, what happens is: 
People are still paying that cost to business, and they're 
taking consumption out of the economy; so our economy drops. 
But that price still goes someplace else and goes out to 
another economy.
    So, Rock, you brought up insight talking about the taxes, 
that they are very similar and the same taxes based upon any 
other business. Which of you could explain that a little 
further.
    Mr. Zierman. Well, there's been a lot of discussion about 
whether or not oil companies receive subsidies. And I was 
trying to make the distinction between a subsidy and a tax 
treatment.
    In fact, first of all, the actual components that are 
within the administration's budget that they want to eliminate 
target independent producers, not major oil. So that's the 
first distinction. Most of those tax treatments are not 
available to major integrated oil companies; they're only for 
the independents.
    But the second, more important point that I was trying to 
make is: A subsidy is a cash payment from the government for 
doing some sort of activity. It's quite different if you are 
having a debate within the IRS about how to treat a certain 
expense. And we woule be happy to have that debate. But keep in 
mind, the only way that you have this debate and the only way 
that you have these expenses is if you're deploying capital. 
And that's exactly what our companies are doing is they're 
deploying capital. And the question is: How best can they 
redeploy the new capital?
    And that's what a lot of these tax treatments were designed 
for. Given the fact that this is highly risky, it's very 
expensive, and our energy security depends on it, the taxes in 
the teens and 1920's, a hundred years ago, were designed in 
order to encourage the rapid reinvestment of this capital back 
into the oil and drilling programs. And that's exactly what 
we've experienced.
    Mr. McCarthy. If you do not invest the risk, you cannot get 
the tax.
    Mr. Zierman. That's correct.
    Mr. Whitsitt. Can I just add one point here, please? I'd 
just inject for Devon--and we are a large independent 
exploration and production company.
    The recent proposals by the administration, just on the 
intangible drilling costs--which are the real costs, as Rock 
has pointed out, in drilling a well--it's clearing the land, 
doing the environmental remediation. If those proposals were 
put in place, it would cost Devon about a billion dollars in 
the first year. And that would equate to our complete drilling 
program in the Barnett Shale--as I mentioned, is where the 
shale revolution really started, and it's the most prolific 
area in the country.
    To us, we have to say, ``What is that all about?'' That 
looks to us like it is totally a wrong-headed policy that 
actually would penalize the companies that are most efficient 
at producing domestic resources that power this Nation.
    Mr. McCarthy. I want to go to Assemblywoman Grove because 
she has witnessed, one--and kind of all your presentations--the 
redundancy of regulation, not just with oil, with renewables, 
trying to find--from wind and solar out in East Kern.
    But from her own personal experience in a business, finding 
out because of what California does, we're setting up business 
in another State.
    So I wonder if you can touch on, one, redundancy, what you 
are viewing outside in the district as well with our ability to 
produce more energy in America.
    Ms. Grove. Thank you. With all due respect, I would like to 
address just one thing prior to. We talked about taxes or tax 
that you guys were just addressing.
    Industry, meaning the oil industry, is now at 41.4 percent 
of tax. And if California liberal politicians have their way--
what we're fighting up in that building right now--and they did 
a 12\1/2\ percent oil severance tax--it will increase the 
industry tax to 53.9 percent.
    Now, to give that number some perspective, if you take 
Apple in 2010, they paid 28 percent of its revenue or profit to 
the government--Apple did--while it generated more profits than 
Chevron. So in perspective, the oil industry is being punished 
on a tax base and--than other employment agents or industries.
    If you go back to--Mr. Chairman, you had a question earlier 
about the ``average products of goods and profit.'' And 
everyone in business knows that somebody could say, ``Well, you 
run a $25-million-a-year corporation,'' but after you pay 
payroll taxes, workers' comp, liability insurance, and you get 
down to net profit, it's less--it's around $100,000, not in the 
millions.
    So if you take Apple, for instance, again, in a comparison, 
the average products sold are about 25 percent above the cost 
of materials and production for marketing and sales. And if you 
use that for the same--in comparison to with Exxon, Exxon's 
profit margins, in comparison, were about 8.7 percent. And 
that's hardly the windfall that people are proclaiming.
    If you take the oil industry as a whole, they have 11\1/2\ 
percent basic on profit and making that the 45th most 
profitable industry of the year. That is hardly close to the 
top 10. So just to clarify those two things.
    And then back to your question, Mr. McCarthy. I'm sorry. 
You know, from a business standpoint, being a third- and 
sometimes fourth-tier contractor for the oil industry, the job 
multiplier that we have--and I ran on jobs. You know, we have 
2\1/2\ million people unemployed in the State of California, 
which affects our Federal revenue as well. And when I ran on 
jobs and you look at what industry can place in these jobs, you 
talk about the job multiplier.
    A lot of individuals in the testimony have referenced the 
oil industry jobs. And I'm going to name a few local companies. 
If you take one oil field job in a platform, you have 
engineers, and you have site engineers, you have chemical 
engineers, you have mechanical engineers, you have people that 
are the ``job multipliers'' is what I call them.
    If you build a site, you have an excavation crew, a site 
crew, a gravel crew. The gravel is produced someplace, mainly 
in one of the facilities that we have either on the Grapevine 
or in Mojave. You have trucking companies that transport that 
gravel to the site. You have everything from all those 
companies that are supported by oil--or Big Oil--small oil, 
independent oil. These are small businesses that thrive on this 
industry. You have people that supply more paper and pencils 
and products, like from Stinsons or O'Leary's. You've got the 
simple things like Mona at Speedway Market where 90 percent of 
the people that go to work in the oil fields stop and purchase 
stuff from her for their daily consumption of food and 
breakfast.
    So when you look at the small business that thrives on this 
industry, the jobs that are created and not created from 
private business because of the limitations with permit delays 
through the Division of Oil and Gas--or I've seen projects 
delayed out in the oil industry where a blunt-nosed leopard 
lizard is onsite and they CAUTION-tape it off and everybody 
sits around and waits for this lizard to leave.
    You talk about--Mr. Layton talked about a description of a 
job that's being delayed, where the activity of this blunt-
nosed lizard is at certain times of the year; so you just have 
to stop working until this lizard finds its way to another 
location or goes into some type of hibernation. Those things 
don't make any sense when it comes to job creation.
    The oil industry and job creators are very conscious of 
things that need to be done to protect our environment and our 
land, but California and the Department of Fish & Game and 
Federal EPA is way overreaching and has become completely 
unreasonable, to the hindrance or full-out assault to private-
sector job creation.
    Chairman Issa. Assemblywoman, if I can followup on that. Is 
there really any difference, in your estimation, between the 
crazy--or the excess, as you're describing, in oil and the same 
excesses that are occurring that are delaying green energy 
roll-off? Because this is also an area of the State that has 
the potential to provide an awful lot of solar and other 
energy. Don't you find the same thing to be true, that the same 
self-inflicted wounds are hurting our ability to reach any 
reasonable goal of renewables?
    Ms. Grove. That's exactly true. And it's not only in 
renewable energy. You take--in East Kern, which I represent as 
well, there was a solar plant that wanted to put a solar 
facility in the Mojave Desert, where the sun is, and it was not 
able to do that because of a Mojave ground squirrel.
    You look at industry--just private business industry 
across--from development. I have a developer in Taft who's had 
a certain piece of property who cannot develop that property 
and provide affordable housing in Taft, where we have a large 
oil production area, because of squirrels that live on that 
property. And you have to tag them and put a little antenna on 
them and transfer them to--you know, double the amount of 
property.
    So the environment----
    Chairman Issa. You saw all that on Animal Planet. It was 
very impressive, the tracking. It's not very productive for 
mankind, I guess, but----
    Ms. Grove. It is not, and not productive for job creation 
in our State and in our Nation. You know, I recently had the 
opportunity to go to Texas. And it was very interesting----
    Chairman Issa. And see the Governor, I understand.
    Ms. Grove. I did. I got to meet Governor Perry.
    And what was interesting is that we talked to--the 
Department of Railroad oversees their permit process in Texas 
for some--I'm not really sure about that, because the Railroad 
is--the permit process.
    And keeping the same environmental protection, protecting 
our land and being conscious of our planet, they issue permits 
within 2 to 5 days, project permits, where we're sometimes 
delayed for up to years. That, and then the environmental 
delays with endangered species on these projects and properties 
causes jobs that we desperately need here in our State and our 
Nation to be delayed as well.
    Chairman Issa. Rock, you said something, and I want to try 
to put it in the record in a way that people who are not 
involved in the oil industry can understand.
    You know, I came from the electronics industry. We watched 
the government come up with this interesting one that--our 
patents. If we had a patent and we went through and we paid the 
legal fees, we had to amortize the patent over the life of the 
patent. All the cost we pay to lawyers. So you pay the lawyers 
today; you finally get your patent--and by the way, if they 
turned down the patent, you could write it off.
    But you actually had something worthwhile; so you got it, 
and you had to amortize. Then if you had to sue somebody to 
defend your patent, you had to put all of that into, if you 
will, a long-term depreciation schedule because the government 
wanted your profits today, even if you had spent them in trying 
to create profits for the future.
    Isn't that basically the same kind of wrong-minded thinking 
that American companies are seeing? Except in your case it's a 
drill bit, that when you dull the drill bit, you break a bunch 
of equipment as you're drilling down, and you set it aside and 
send it off to salvage. It's gone. You've spent--you bought it, 
you paid for it, you spent it, and you disposed of it. They now 
want you to amortize that over the useful life of the oil well.
    Isn't that essentially what--because you say intangible. 
And to me, money out of my pocket that I know I spent, that 
they want me to pretend I didn't spend for 20 years, that's not 
intangible. Is that the intangible we're talking about here 
today?
    Mr. Zierman. That's exactly right. We're talking about mud, 
cement, testing, some drilling operations that you're talking 
about, all the things that are happening before a well is 
completed or any production has come online.
    Chairman Issa. You know what's amazing is America is a 
funny place. We talk about how we support business, we really 
care about it; but people in Washington, in my position, have 
done some amazing things.
    I was in private business when NAFTA was passed. And 
whether you were for or against NAFTA, 1 day I found out NAFTA 
had been signed, and I found out as a result of NAFTA, I was 
going to have to wire-transfer weekly my payroll withholding 
taxes instead of sending a check. And the reason was because 
your predecessor, Bill Thomas, and all the other guys, they had 
a couple of billion they needed revenue to make NAFTA pencil 
out. So they got it by accelerating the speed with which every 
business in America would send money to the government. Now, it 
only scores a one-time event because they just accelerated the 
speed with which they got it from a couple of weeks or a 
quarter for small companies to immediate.
    We're still doing that today, and it's one of the 
frustrations I have. I want your industry to expense 
everything, absolutely, that is consumed. I certainly want you 
to capitalize your long-term assets. If you've got a casing 
there, it's reasonable to have it over the life. But I want 
your capital to be put back to work as quickly as possible. I 
want Devon Energy to have a smaller bank line to put in more 
wells. And the amazing thing is, I can't get my government to 
go along. I can't even get the Ways and Means Committee to go 
along.
    Let me go to another question that I wanted to understand, 
because fracking, which is not new technology, isn't what we're 
talking about here today. What we're talking about is better 
fracking.
    Is that right?
    Mr. Whitsitt. That's right. The new applications of 
fracking.
    Chairman Issa. And if I understood correctly, if we're 
concerned about the watershed, we've been concerned about it 
for 60 years, because you've been fracking for 60 years.
    Mr. Whitsitt. Correct.
    Chairman Issa. And we should know--we shouldn't need 
Secretary Chu to endlessly study something you've been doing 
for 60 years.
    Let me understand something. When you go down once but you 
go far further, as far as what you yield, the only difference 
in that is that you have--only have one area of risk, which is 
that casing, for far greater gain. Is that correct?
    Mr. Whitsitt. The casing is placed for a couple of reasons. 
One, we've been talking about, obviously, is to protect the 
water sources. That's primary, and it happens in every well. 
There are other applications of casing, to prevent the hole 
from collapsing and those kinds of things. But the fact is--and 
what I think you're alluding to is--that we've been doing this 
for a long time. The technology gets better; the materials gets 
stronger; the knowledge of how we do this--and many times we do 
it along that horizontal length of pipe--it all improves. And 
we've seen remarkable efficiency gains.
    And one more thing that is really remarkable today is: 
We're doing much more of what we call ``pad drilling,'' where 
we can actually do these multiple horizontal wells from one 
surface location so that we don't have to disturb the surface 
multiple places around this gas field. So, again, the 
technology just continues to improve.
    Chairman Issa. Well, and that's what I was leading to. And 
I appreciate your clarifying my questionable question, because 
this is something where I'm still learning what you've spent a 
lifetime knowing.
    You've got less exposure to the watershed because you're 
going less times for the total amount you're getting.
    Mr. Whitsitt. Correct.
    Chairman Issa. Your risk, of course, always is--when you 
first drill through a water area, until you get it sealed and 
you're comfortable and all the tests are done, there's always 
some risk.
    Let's just say hypothetically that you hit oil, because, on 
occasion, the earth's oil is much closer than you thought it 
would be, but you eliminated all that risk before you start 
going horizontal. So in a sense, horizontal is getting more 
from this already mitigated, small risk that you had when you 
first drilled, what--I guess in Oklahoma is--what is it, 1.2 
million wells they've drilled or something?
    Mr. Whitsitt. We've drilled a lot of wells and fracked 
100,000 of them in Oklahoma.
    But also, the other point I would make too, Congressman, is 
that in the shale plays, in particular, which is really the 
revolutionary thing now, once we are there----
    Chairman Issa. This is heavy, by the way. Anyone who didn't 
pick this up--when I set it back down, you've got to figure, 
this is pretty darn dense rock.
    Mr. Whitsitt. It's pretty amazing that we're actually 
getting the gas to migrate through that rock to the wellbore.
    And what I was going to say is that, also, when we are 
doing this in the shale plays, it almost becomes a--in those 
particular areas--something that we can replicate with less and 
less--almost zero--risk. Of course, there's always some.
    But I think--in the Barnett Shale, I don't think we had a 
dry hole in thousands of wells for Devon. But that's because 
we've finally nailed this technology. It's right to your point, 
that it's American ingenuity, it's innovation, trying to put 
these things together in different ways in these different 
shale plays.
    Chairman Issa. Now, I'm only going to have about two more 
questions, but they're going to probably be ambiguous; so steer 
me through to the right answer to the questionable question.
    When you used to go down and try to find a pocket of gas, 
methane, etc., all the combinations of what you find down 
there, it was hide-and-go-seek, and then when you found it, it 
could be quite a surprise. There was a risk because this is 
volatile; you don't know what pressure you're going to poke 
into and so on. You're out of that business for the most part. 
You're going into a low pressure but into rock rather than into 
a big pocket of gas with this technology.
    Isn't that true?
    Mr. Whitsitt. Well, the pressures do vary. There are some 
high-pressure areas and lower-pressure areas.
    And I would say too that, as was mentioned earlier, along 
with the improvement in the completion techniques of the 
fracking and the drilling of the wells, we have had very 
significant, and continue to have very significant, seismic and 
geophysics type of technology improvements. And, again, it's 
putting all that together so that we know where we're going to 
find resources more accurately and we can drill fewer wells to 
find them and have more success.
    Chairman Issa. The reason I ask that question is: Like most 
people who don't know your technology, who watch TV, I had 
watched some years ago about what happens if you hit that 
pocket and you shatter the impermeable layer that had kept it 
there for a long time. You can, in fact, have natural gas 
flowing freely to the surface, and that has happened a few 
times in history, at least enough for television to capture it.
    In the case of this technology, you're going through the 
impermeable layer, through the sand that was already there, 
back into the core rock that had not released it. So in a 
sense, it's a much safer operation because you're not up 
against, if you will, the great protection against gas free-
flowing up.
    Mr. Whitsitt. It's much safer, and it's much safer for 
other reasons as well, which is that our materials and our 
processes and our practices are so much better today as we've 
learned through the years because of the very incidents that 
you've talked about.
    Chairman Issa. Now, one last question for you, and then 
Rock's got an answer for a question that I asked earlier, I 
think.
    This is a heck of a solid piece of rock. I looked at your 
presentation. And as I look at you going diagonally here and 
then there, I get the feeling that there's no question you're 
releasing more than otherwise was released. Is there available 
technology or an available percentage you can give me? What did 
we used to get when we just caught what happened to have 
bubbled up and was sitting there under the withholding chamber, 
what are we getting today when you frack, typically, and how 
much is really down there if you continue to improve your 
fracking to where you can sort of get it all?
    Mr. Whitsitt. Well, I don't know how to answer the first 
part of the question in a global sense, but if you look at that 
one slide, there's a very dramatic representation from one 
area.
    But I will say that the Potential Gas Committee--and these 
are the resource estimators that are the experts in this 
country and, really, known worldwide--they've just come out 
with yet another estimate of more natural gas that's 
recoverable in this country, something on the order of probably 
in North America, 2,500 trillion cubic feet, at least 20 
trillion or so a year now.
    So you can see. It's well more than a hundred years, it 
continues to grow with technology. And that's got to be 
exciting for the country.
    Chairman Issa. Well, certainly for those of us who heard 
that we were going to get our last drop of oil or our last drop 
of gas and we were going to need renewables already because it 
was all going to be gone, to find out that there's plenty more, 
obviously, I'm excited about oil, because I don't want us 
importing oil from unfriendly areas. But I'm even more excited 
about natural gas, because all of the green lobbyists who have 
ever come to see me--and many have--they all talk about how if 
we can just get off that dirty coal and get onto clean natural 
gas, what the benefit would be. Thank you for what your company 
is doing to take us from ``X'' carbon per Btu to a fraction of 
what it would be if we go from coal to natural gas.
    And, Rock, you get the last answer to that question.
    Mr. Zierman. Well, I just wanted to mention another 
application of the directional drilling, and that is: Offshore 
California. Offshore production is a very emotional issue on 
the West Coast, but I want people to be cognizant of the fact 
that you can utilize this technology offshore California as 
well by using existing platforms or even onshore locations. You 
can directionally drill to some of the 10 billion barrels that 
Tupper was mentioning without installing any new platforms.
    And I will also mention in closing that the MMS made that 
prediction in 1985. They have not been permitted since then to 
update their reserve numbers. That same year, they estimated 
that in the Gulf, there were 9 billion barrels of oil 
potential; 25 years later and 6,000 platforms later, which is 
what's been installed in the Gulf, the reserve number is now 45 
billion. So even though we've been producing from 6,000 
offshore platforms for 25 years, we have five times as much 
reserve. And that gets to Steve's point: Where the oil is where 
the oil is. And it has been in the past.
    Mr. McCarthy. Mr. Chairman, can I just touch on that.
    We have Vandenberg Air Force Base there. You have the 
ability on the base to drill horizontally out; so you're never 
even offshore.
    And there's one thing that happens in Santa Barbara that's 
much different. We have a natural seepage of oil onto the 
beach. And an individual came to my office that was showing me 
the statistics of the growth of that and what that does to the 
birds and the environment and the others. The ability to take 
that out, where the natural seepage--where you can control it, 
where it's coming through, to protect the environment from the 
seepage in the direction of where it's going. And you can do 
that now, because of technology, in a much more environmentally 
safe way that you talked about.
    Mr. Zierman. In fact, the seepage is over a hundred barrels 
a day. So when Tupper was talking about the 800 barrels over 30 
years, or whatever the figure was, represents about 8 days of 
what Mother Nature does every day.
    Mr. McCarthy. And if you would relieve that and direct it, 
it would not be causing environmental concerns and problems 
that it is currently.
    Mr. Zierman. That's correct.
    Mr. McCarthy. I yield back.
    Mr. Farenthold. Thank you very much. I'd like to ask a 
couple of questions to Mr. Whitsitt. We appreciate your 
operations, actually, in South Texas. You're a great employer.
    Chairman Issa. You keep going right to the edge of our 
indulgence here. I said it was going to be casual and friendly, 
but, you know, let's just stop rubbing it in. First of all, you 
haven't said Oklahoma once. If you keep saying Texas over 
California, I'll start rubbing Oklahoma against you, and I know 
what that does to Texas.
    Mr. Farenthold. Especially when it comes to football.
    Chairman Issa. Exactly.
    Mr. Farenthold. But let's talk a little bit about the 
water. That is actually of more interest to California than it 
is to Texas. Though we are a semiarid State, we have a great 
deal of water resources.
    The bulk of the water that y'all use in hydraulic fracking 
operations, you recycle. I mean, you pump it down there, and 
you bring it back. Is that not correct?
    Mr. Whitsitt. We recycle where we can. I wouldn't say it's 
the bulk of the water. We're getting better at this all the 
time. But where we can recycle, we can recover about 40 percent 
of the water and then blend it with freshwater and that kind of 
thing.
    Mr. Farenthold. So let's compare a fracking operation to 
amount of energy produced. If you can't just do this in your 
head, that's OK. But I think you were saying that a typical 
gallon of ethanol takes 120 gallons of water in irrigation. So 
to create a gallon of gasoline in a fracked well, it's got to 
be in order of magnitude different.
    Mr. Whitsitt. I think what we've said in the testimony is--
and this is very interesting--that the amount of water it takes 
to frack a well that will produce, I think, up to 3 billion 
cubic feet of gas--that's a lot of gas--would produce about 120 
barrels of ethanol.
    Mr. Farenthold. So let's talk a little bit about--we're 
talking about how much natural gas there is. We're starting to 
see technology develop where automobiles, buses, and fleets are 
starting to run on natural gas. And, again, I apologize if I'm 
getting out of your area of expertise.
    But just--if you take the Btu output, or the energy output, 
of a natural gas versus gasoline to power a vehicle, do you 
have an idea or does anybody on the panel have an idea what the 
cost of a gallon of gasoline, if we were using natural gas in 
vehicles, would be?
    Mr. Whitsitt. I think in Oklahoma City, if I remember 
correctly, the latest numbers that I've seen for an equivalent 
was about $1.39.
    Mr. Farenthold. So the natural gas, $1.39, equivalent of 
what we're now paying, $5. Potentially a great economic boom. 
Is that technology--I assume that technology is pretty close. I 
mean, I see natural gas buses everywhere.
    Mr. Whitsitt. Well, Congressman, I had a natural gas 
powered, dual-fuel Buick in 1995. I had a fueler right in my 
garage that ran off my house, house gas system. And that 
technology is out there. It's a matter of economics. It's a 
matter of getting the range on the vehicles. They are coming. 
And particularly, with fleets and--I think the market is 
sorting that out. It's a great benefit to the country.
    Mr. Farenthold. And I remember as I was growing up--I guess 
it was--it would have been 30 years ago--we had butane-powered 
farm trucks. That's a mature technology.
    Now, I want to shift back to one broad, kind of general 
question, if you would. I noticed in your resume that you 
actually--public policy was something you studied in college. 
Let's take a big, broad, general picture of the energy policy 
of this country.
    As I look at it now, we're promoting an energy policy 
that's looking to do away with some of your tax credits. We're 
looking at an increased regulatory burden. If you were going to 
concoct an energy policy that was adverse to creating 
affordable energy for everybody--and maybe I shouldn't ask 
this--can you think of something we're not doing to make it 
worse?
    Mr. Whitsitt. It's difficult. Let me just correct a couple 
of things that you said and kind of build on that.
    First of all, we don't get tax credits.
    Mr. Farenthold. You're--I didn't read the talking points 
memo, but what the other side calls ``tax credits'' are 
basically the same fair business treatment that any other 
industry gets.
    Mr. Whitsitt. That question that you asked is a great 
question because, first, energy policy should do no harm. And 
it seems like we've got things turned upside down on their head 
now, where we are trying to do things with energy policy that 
would punish those that are doing the right thing efficiently 
for the country. We are ignoring sources of energy that are 
safe and secure--I'll give you one example that this committee 
might be interested in, and that is, when we look at North 
America, we have the most sophisticated gas market in the 
world. And it is relatively insulated from the rest of the 
world. Not totally but relatively.
    And the oil market we also have--our largest supplier of 
oil outside the United States is Canada, and yet we are 
stalling in putting additional capacity through the Keystone XL 
pipeline from Canada to bring more oil into the United States 
and it's incomprehensible why we would be doing that.
    Again, the State Department has found the environmental 
consequences are not great. And we can use the energy; we need 
it. And, again, I could go down the list, Congressman, but it 
really reflects what you just said.
    Mr. Farenthold. Thank you very much.
    Chairman Issa. All good things must come to an end, and in 
this case, mostly, it's we borrowed this room. So I want to 
close.
    First of all, I want to thank the Courage Campaign, who 
came up and gave me a petition with a relatively limited amount 
of information but an awful lot of people who care about this 
issue. I understand there are some other companies and 
individuals who brought items today. If you'll bring them up 
before we leave, they will all be included in the record.
    Additionally, if you note our favorite URL, 
americanjobcreators.com--if you go to americanjobcreators.com, 
especially for the young people--snicker, but please go there--
consider looking and asking yourself what is standing in the 
way of job creation. We don't predetermine. We ask you to tell 
us what you believe. And be specific. If you'll do that, if 
you'll join the endless numbers of people who have done that--
originally it was based on a few letters sent out and then a 
demand by job creators around the country to have an 
opportunity to tell what they believe is stopping them.
    With that, I will ask unanimous consent that we leave the 
committee report open for 7 days so that all Members can 
include opening remarks and other extraneous material. We will, 
as I said, collect information today and through 
americanjobcreators.com.
    I'd like to thank our witnesses. You've been very kind with 
your time. I would also suggest that if answers, based on our 
prompting, come to you, please include those. We want to make 
the record complete. This is the first on this particular 
portion, but we will be looking at all aspects of energy self-
sufficiency in the days to come. So don't be limited in your 
response.
    And with that, the hearing is adjourned.
    [Whereupon, at 11:52 a.m., the committee was adjourned.]
    [The prepared statement of Hon. Eljiah E. Cummings and 
additional information submitted for the hearing record 
follow:]

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