[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
EXPLORING ALL THE ENERGY OPTIONS AND SOLUTIONS: SOUTH TEXAS AS A LEADER
IN CREATING JOBS AND STRENGTHENING THE ECONOMY
=======================================================================
HEARING
before the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
FEBRUARY 13, 2012
__________
Serial No. 112-115
__________
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
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Page
Hearing held on February 13, 2012................................ 1
Statement of:
Jones, Elizabeth Ames, chairman, Railroad Commission of
Texas; Charif Souki, Chief Executive Officer, Cheniere
Energy, Inc.; and Jeff Weis, executive vice president,
Orion Drilling Co. LLC..................................... 7
Jones, Elizabeth Ames.................................... 7
Souki, Charif............................................ 10
Weis, Jeff............................................... 18
Stanford, Scott, operations manager of Royal Offshore, Royal
Production Co., Inc.; Mark Leyland, senior vice president
of Offshore Wind Projects, baryonyx Corp.; Roland C. Mower,
president and chief executive officer, Corpus Christi
Regional Economic Development Corp.; and Robert E. Parker,
president, Repcon, Inc..................................... 32
Leyland, Mark............................................ 42
Mower, Roland C.......................................... 50
Parker, Robert E......................................... 54
Stanford, Scott.............................................. 32
Letters, statements, etc., submitted for the record by:
Issa, Chairman Darrell E., a Representative in Congress from
the State of California, prepared statement of............. 4
Leyland, Mark, senior vice president of Offshore Wind
Projects, baryonyx Corp., prepared statement of............ 45
Mower, Roland C., president and chief executive officer,
Corpus Christi Regional Economic Development Corp.,
prepared statement of...................................... 52
Parker, Robert E., president, Repcon, Inc., prepared
statement of............................................... 56
Souki, Charif, Chief Executive Officer, Cheniere Energy,
Inc., prepared statement of................................ 14
Stanford, Scott, operations manager of Royal Offshore, Royal
Production Co., Inc., prepared statement of................ 36
Weis, Jeff, executive vice president, Orion Drilling Co. LLC,
prepared statement of...................................... 20
EXPLORING ALL THE ENERGY OPTIONS AND SOLUTIONS: SOUTH TEXAS AS A LEADER
IN CREATING JOBS AND STRENGTHENING THE ECONOMY
----------
MONDAY, FEBRUARY 13, 2012
House of Representatives,
Committee on Oversight and Government Reform,
Corpus Christi, TX.
The committee met, pursuant to notice, at 9 a.m., at the
Performing Arts Center, Texas A&M University Corpus Christi,
6300 Ocean Drive, Corpus Christi, TX, Hon. Darrell E. Issa
(chairman of the committee) presiding.
Present: Representatives Issa and Farenthold.
Staff present: John Cuaderes, deputy staff director; Linda
Good, chief clerk; Frederick Hill, director of communications
and senior policy advisor; and Kristina M. Moore, senior
counsel.
Chairman Issa. The full committee hearing on ``Exploring
All the Energy Options and Solutions: South Texas as a Leader
in Creating Jobs and Strengthening the Economy'' will come to
order.
The Oversight Committee mission is that we exist for 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 and 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. Our job is to work tirelessly in
partnership with citizen watchdogs to deliver the facts to the
American people and bring genuine reform to the Federal
bureaucracy.
Today, we will explore both the good that comes from
natural gas and oil exploration and wind and the problems
created by government and the impediments at times to that.
I'd first like to take a moment to thank the university.
Texas A&M, a place I wanted to come to and thought that it
wasn't in Corpus Christi until I found out there were multiple
campuses, was very generous to provide this lovely hall today.
And I want to thank my colleague, Mr. Farenthold, for
arranging this and for being born in such a beautiful part of
Texas. Your parents did think ahead.
Briefly, energy is the life blood of our country's economy.
No matter where you are in the energy debate, we all know that
if you take back all forms of energy, we are back to being in
the stone age as a caveman.
Ultimately, all of the progress of mankind starts with
leveraging energy. That energy warmed the early homes, but it
also created the opportunity for leisure and thought and
research and development.
In fact, today it's the, a tremendous amount of food is
provided by very few using fossil fuels mostly to reap harvest
from our land. It's the factories that turn out ever greater
products more efficiently, less energy--or more energy in some
cases, but certainly less human labor.
The truth is, without finding affordable energy, we will
slip back as a society. And with 7 billion people on the earth,
that problem is bigger than ever.
Until recently, America was a net importer. We made the
assumption that in fact we would be importing ever more oil and
ever more natural gas. And although our imports of oil
fortunately have stemmed their ever increasing flow, the real
good news for us, in addition to domestic oil, is the abundance
of natural gas. People on the left and the right now talk in
terms of the United States being the Saudi Arabia of natural
gas.
Additional oil production is yielding even more natural
gas, while improved fracking techniques have made natural gas
reserves throughout the United States, both here in the south
and all the way to our northern border, more abundant.
It has become so obvious that we are going to be a major
producer and exporter of fossil fuels that even in the
President's State of the Union, he took great recognition of
the increases on his watch, and of course, the creation by DOE
of hydraulic fracking during his presidency. Well, maybe that
was slightly off.
I come to Texas today for two reasons. First of all,
because when we held the hearing in Bakersfield, California, my
good friend, Blake, was willing to come there and be--well, I
think you did brag a lot about Texas.
Mr. Farenthold. I did.
Chairman Issa. He did. But in fact, he came with the wealth
of knowledge that growing up here gave him. And it was, it was
a great addition to our field hearing on the potential for oil
and natural gas on very old fields in California that made us
realize that there were many reasons to come to Texas, not the
least of which was my colleague and friend on the committee.
Texas still ranks number one in crude oil, but a lot of
what we're going to hear about today is the areas of growth in
Texas in addition to oil, the natural gas reserves, the wind
energy, and of course, the willingness by Texans to do oil
refining and gas liquefaction.
So though we come here primarily to hear from our
witnesses, we come with a great deal of research to know we've
come to a place, to a State that is energy excited, energy
friendly, and in fact where jobs in energy and the derivatives
thereof have made this an area of low unemployment and a
likelihood of even lower unemployment.
So with that, I'd like to recognize for an opening
statement my good friend, colleague, a man I have only known
for 1 year but who I really believe has changed the Oversight
Committee, particularly because of his knowledge of computers,
law, the constitution, and oh yes, energy, Blake Farenthold.
[The prepared statement of Chairman Darrell E. Issa
follows:]
Mr. Farenthold. Thank you, Chairman Issa, for coming down
here. We have a great story to tell in Texas, how with our
regulatory environment being friendly and rational, our tax
structure being friendly and rational, and the natural
resources that God has blessed this State with, that we can be
an example for the rest of the country in how we can safely and
economically produce the natural resources that we have, be
they oil, be they gas, be they wind, be they geothermal. We are
a leader in the energy industry, number one in oil, in oil and
gas, and we will continue to be the leaders.
And really, it's what this country needs right now, low
cost energy, which we are now seeing not just in the shale
sands, or the shale gas that we're producing here in Texas, but
across the entire country. We're seeing plentiful and cheap
energy. And that really gives us a competitive advantage in the
United States, and especially here in Texas, with our proximity
to this oil and gas and the infrastructure that we have in
place.
You know, to build things requires energy. And our low
energy costs can sometimes trump the lower labor costs in other
parts of the world.
Now, you add to that some of the regulatory burdens that we
face, well, maybe we can do something about those regulatory
burdens. And I think we're going to hear a little bit about
that today.
So I'm really happy we're able to take the Texas message to
the rest of the country. I'm happy that we've got a great panel
to educate the committee, create a record, that can be referred
to as we look for what is right to do in America as far as
energy goes.
So y'all didn't come to hear me talk. We came to hear from
our panel of experts. So I'll yield back the remainder of my
time.
Chairman Issa. I thank the gentleman.
All Members will have 7 days to submit opening statements
and extraneous material for the record.
We now will recognize our first panel. Ms. Elizabeth Ames
Jones is the chairwoman of the Railroad Commission of Texas.
And I guess without rail that coal wouldn't be exported and an
awful lot of other things wouldn't.
Mr. Farenthold. And the Railroad Commission in Texas
regulates the oil and gas industry. It's not--it's
counterintuitive.
Chairman Issa. No, no, it's not counterintuitive, it's
government.
Mr. Charif Souki is chief executive officer of Cheniere
Energy, Inc., and a long-time participant in the energy
industry, first--and I will say this if he doesn't get to it--
first in the idea that we would import, and now in the idea
that we will successfully export natural gas.
And Mr. Jeff Weis is executive vice president of Orion
Drilling Company, LLC.
Pursuant to our committe rules, you know the drill. Would
you please rise to take the oath before your testimony and
raise your right hands?
[Witnesses sworn.]
Chairman Issa. Let the record indicate all three witnesses
answered in the affirmative.
And please have a seat. Thank you.
This hearing is still an official congressional hearing
with all the same rules, but we came here to hear you. So the
two things I would say is, although lights will come on and
there's a guideline that implies 5 minutes, we're not going to
cut you off exactly at the end of 5.
Additionally, your entire written record, written statement
is in the record, so use the 5 minutes for summarizing and
anything else you want to say, and then hopefully we'll have a
healthy debate in which our questions match your answers. That
is critical, you know, that we have questions for their
answers.
With that, well, ladies first. Ms. Jones.
STATEMENTS OF ELIZABETH AMES JONES, CHAIRMAN, RAILROAD
COMMISSION OF TEXAS; CHARIF SOUKI, CHIEF EXECUTIVE OFFICER,
CHENIERE ENERGY, INC.; AND JEFF WEIS, EXECUTIVE VICE PRESIDENT,
ORION DRILLING CO. LLC
STATEMENT OF ELIZABETH AMES JONES
Ms. Jones. Thank you, Chairman Issa and Congressman
Farenthold. It's wonderful to be here today, and I appreciate
the opportunity to testify here. And I am delighted to
represent the interests of Texas and our sister oil- and gas-
producing States who are effectively regulating oil and natural
gas exploration and production activities, including hydraulic
fracturing and horizontal drilling within our State borders, in
our State waters, and on our lands, privately owned and State-
owned as well.
And I might say, Congressman Farenthold, thank you for
bragging on us, but it ain't bragging if it's true, as we say
in Texas.
In fact, we are the country's number-one oil- and natural-
gas-producing State. We produce--over 30 percent of all the
natural gas that comes up out of the ground in America comes up
out of the ground in Texas, not too far away from where we sit
today. And over 20 percent of all the crude oil that comes up
out of the ground in the great country of America comes from
the State of Texas.
And in fact, that crude oil production has turned around,
thanks to the renaissance, if you will, of drilling due to
hydraulic fracturing and horizontal drilling techniques. Very,
very exciting what the future bodes, not just for our State but
for our country in energy security.
The regulation of oil and gas activities in Texas--
Chairman, I'm sorry to say, only in Texas would you have an
agency that is named that has absolutely nothing to do with its
mission statement. And the Railroad Commission has nothing to
do with trains anymore. We last--we lost the little bit of
oversight we had of the rail industry in 2005. So we are purely
and simply the State's energy agency, from----
Chairman Issa. You know, in any other State, what they
would do is make a new agency and not close the old one----
Ms. Jones. Exactly.
Chairman Issa [continuing]. That no longer had a job.
Ms. Jones. Exactly. We don't want to do what they do in
Washington, DC, and add on layers and layers.
But in fact, everything related to energy production, from
the ground below, is under the purview of the Railroad
Commission of Texas. We've regulated these activities over 100
years, since that day in 1901 when Spindletop came in so big
down the coast in the salt dome. The Railroad Commission not
long after that was involved in creating, to the extent that at
the time there was one, the energy economy that is Texas.
We have oversight of over 1 million wells that have been
drilled, and the Railroad Commission of Texas is responsible
for more oil and natural gas wells than any other entity in the
nation.
Currently, over 45 percent of all the rigs running in
America are running right here in Texas. So yes, we have a lot
of natural resources, not just oil and natural gas, but we, we
preserve and protect our other natural resources, like water,
and we have the regulatory processes in place to manage them
properly.
My goal, as a chairman of the Railroad Commission of Texas,
is very clear, or my goals, and those of my fellow two
commissioners: The protection of our environment; the
prevention of the waste of energy, which is unique to
Washington, and I'll explain that in a minute; and the
protection of the correlative rights of mineral owners, and the
safety of our citizens, of course.
And the intended consequences of all of these State-
centered goals are win-win, not just for our citizens, not just
for the industry and the companies, like those here today, but
also for the environment as well.
So I'm giving you these, laying this foundation for future
questions so that you have a good perspective of what the
Railroad Commission of Texas really does and the contributions
we are making to our sister States and their regulatory
agencies as well.
Our most important protection regime in place is that of
water, and our strong regulatory regime has helped us avoid a
single proven case of groundwater contamination occurring as a
result of hydraulic fracturing.
In fact, I was testifying to Congressman Ralph Hall's
committee earlier in the spring in Washington, DC, and I said
then and I say now, it's virtually, or to the extent that--you
would be more likely to hit the moon with a Roman candle than
you would to contaminate groundwater from hydraulic fracturing
so many miles below the earth.
Unfortunately, there is at least one Federal agency, the
Environmental Protection Agency, that takes another position.
And what it's seeming to me, my opinion and the opinion of very
many people, that they prefer to stir fear by making
preliminary assertions and then retreating from those
assertions once the science rules them inaccurate.
And hopefully, as we move forward in this meeting, and you,
when you get back to Washington, I hope that you can do
something about that.
But as a steward of Texas energy resources, the prevention
of waste is also important. And what that means is that we
statutorily are required to prevent the waste of the mineral
resources, and that means we cannot allow the hydrocarbon to be
left in the ground, or wasted, if it can be responsibly
produced, according to our rules, once a lease is signed.
And this means that operators cannot be prevented from
accessing their private property they have leased, and that
royalty owners have a right to enjoy the use of their private
property, which is oil and natural gas, in the case of the
Railroad Commission of Texas.
And billions of dollars change hands between parties,
including the taxes, severance tax paid on production that goes
to State coffers, the goods and services at various levels.
And this is something unique to the Railroad Commission of
Texas, unique by Washington's standards anyway, and it's
contrary to what Federal agencies and the laws like the
Endangered Species Act, which is used by U.S. Fish and Wildlife
Service in a manner that kills jobs, halts growth, and stifles
the economic development in the State.
In fact, our mission is to protect the private property
rights of the owner by allowing them to reap the benefits of
the use of private property that maybe their grandfather or
great-grandfather purchased so very long ago.
So the reliable regulatory climate we have at the Railroad
Commission is of highest importance to investors who produce
the jobs for this State by investing in deals and drilling for
oil and natural gas. And one of those is our commitment of
issuing drilling permits in a timely manner, 1 to 3 days.
Now, in doing that, we also take very seriously our
inspection of sites. We take enforcement actions against bad
actors, and we're well equipped to oversee all of the drilling
activity, because we have strong rules and we have field
offices and inspectors on the front lines across the State.
And this is in, of course, direct conflict or contrary to
the notion that one size regulatory climate from whatever
Washington Federal agency can do for the States. We certainly
live here. We work here. We play here. We raise our family
here. And we are best equipped to oversee the responsible
production of our own energy resources.
The Railroad Commission had some dealings with the EPA
recently, and we wrote a letter in response to what we were
seeing coming out of an EPA's draft report on groundwater
contamination in Pavillion, WY.
In this, we saw a template, a beginning of a template
anyway, of method of operation, an MO of the EPA, as I said, to
create some kind of fear and hysteria, and then have to back
off because they didn't have the science to back it up.
And we recently sent a letter to the EPA in this
Pavillion--weighing in from the Railroad Commissioners'
perspective on how they approached this Pavillion, WY, Draft
Report that in fact alleged contamination and very well may
have been contamination by the EPA itself in the wells they
drilled to try and assess contamination.
We also had a recent case with a company in Texas called
Range Resources, and the EPA chose to question our ability to
regulate matters within our jurisdiction in that case, too, in
central Texas. And it was a contested issue of alleged
groundwater contamination by a water well owner in central
Texas, and they called in the EPA, who came in and issued an
emergency action to shut down the operator from drilling.
And in fact, we brought the parties in to the Railroad
Commission to assess scientifically what the real facts were.
The EPA chose not to show to defend their position. The other
party appeared and presented their case. And with our ruling,
my fellow commissioners and I asserted our jurisdiction and
authority to ensure regulatory certainty, due process for the
parties, and decisions found based on sound science and fact in
the Texas oil or natural gas patch.
Sound science, fact and deliberative due process are the
principles we stand by to do business. And those are the kinds
of principles that the Texan voter expects and demands of this
regulatory body.
I was recently again at the Department of Energy's Science
Advisory Board Subcommittee on Shale Gas. I'm sure you are
aware of that. And I went to testify to that panel. And the
take-away that I got as I left Washington, what I noticed and
had been keeping somewhat track of, it's hard to do, because
there are a lot of them, the numerous amount of proposed
studies coming out of Washington, DC, on hydraulic fracturing.
I believe that it is a misuse of taxpayer dollars. I can
talk to you about the Federal entities----
Chairman Issa. We'll get to that during questions and
answers.
Ms. Jones. Yeah. Well anyway, it's a list that's so long,
between the Center for Disease Control and Prevention and the
Agency for Toxic Substances. This has been studied and studied,
and I look forward to discussing how we can alleviate those
kinds of misuse of dollars. Thank you.
Chairman Issa. Thank you.
Mr. Souki.
STATEMENT OF CHARIF SOUKI
Mr. Souki. Chairman Issa, Congressman Farenthold, thank you
very much for having me here today. Corpus Christi, happy to be
back. It's been a few years. We've been here with very large
projects in the past, but somehow the testimony to what long
term modeling does can be awfully long. But we're back with
another idea now, and we're going, as the chairman said, the
other direction.
Mr. Chairman, you've mentioned that the shale revolution is
starting to be accepted even by President Obama now, who, to
his credit, is embracing the fact that we have a, really an
abundance of energy in this country. I think the full extent of
how abundant and what kind of new situation is still not very
well understood. The assumption, in fact, is that the United
States has now become the low cost energy producer on a global
basis.
It is not limited to natural gas. It actually goes to oil
as well. And we find ourself in a very strange set of
circumstances where we are, as you mentioned, the Saudi Arabia
of the natural gas business. But I would also venture to say
that we are energy abundant in a lot of different ways.
But we do this without an energy policy. And we do this
with a set of regulatory frameworks that are still based on the
fact that we need to import a tremendous amount of energy for
this country. So the regulatory framework and the reality on
the ground, as new as it is, are totally disconnected.
What has happened in the last 2 years is that the effect of
being energy abundant is starting to get noticed. We are now an
NGL exporter for the first time. We are exporting propane and
butane, when 2 years ago we were importing propane and butane.
Last summer we also became a net oil product exporter for
the first time in many decades. We are exporting 50 percent
more coal in 2011 than we did in 2010, simply because natural
gas has become so abundant and cheap here, it's creating an
opportunity to export coal.
So on a natural--on a fundamental basis, we're becoming an
energy exporter increasingly. And in another few years, we will
be a net exporter of natural gas as well, as long as the
regulatory framework follows.
The full impact of what this means is not completely
understood or grasped yet. I hear much about how the fact that
we're a low cost energy producer is bringing industries back to
the country of the United States, mostly petrochemicals
initially, also car manufacturers.
This is a derivative product. The first and primary product
is much more direct than this. We are drilling with 15 percent
more rigs than we were last year. And this is a phenomenon that
goes on.
What it means is that we're using 15 percent more people to
drill wells. There is no other industry in the country that is
growing and employing people in that kind of growth mode,
nothing else that I know in this country.
Furthermore, we are manufacturing more rigs because we need
horizontal rigs. So the manufacturing industry benefits
directly from the fact that we need those rigs.
In every community where we are actually drilling more
wells, we are supporting the housing industry, the lodging
industry, the food industry, the service industry, the trucking
industry, and on and on.
So the impact of the fact that we've increased the number
of rigs in this country for 3 or 4 years in a row now is a
direct driver of the unemployment reduction in this country.
The 8.3 percent unemployment is directly related to the number
of wells and to the health of the energy industry.
So I would say that we are very fortunate that we have a
leading indicator. And my recommendation to policymakers will
always be why should they count? If the rig count is
increasing, the country is doing pretty well. If the rig count
starts decreasing, we have a problem, see what you can do about
it.
Here in Texas, it's even more true. In south Texas, in the
Eagle Ford, we are using 60 percent more rigs than we did last
year. So our economy here is at full employment. We're having a
hard time finding people, getting hamburgers in restaurants,
finding hotel rooms for visitors, and developing the
infrastructure, the infrastructure contained here, in order to
continue to perpetuate the growth.
To the north, in the Permian Basin, the number of rigs has
increased last year by 20 percent. This is a phenomenal
opportunity, and it's true in other areas of the country as
well, such as North Dakota, most of Oklahoma, northern
Pennsylvania, soon to be Ohio, eastern Colorado. This is a
phenomenon that is on a national basis today.
There are 30 to 32 States now that can be energy producers.
And the critical thing is to be able to develop a demand
response for the abundance of riches that we have.
The regulatory framework is hopelessly behind. We have
directly to involve a number of agencies, the most prominent of
which are the Federal Energy Regulatory Commission, the
Department of Energy, the EPA, and the Department of
Transportation.
They all have their own goals. They don't cooperate with
each other very well. It takes 60 days to drill a well. It
takes 18 months to obtain a permit before you start
construction to move the product to market.
If our upstream industry is growing at 15 percent per year,
the infrastructure that this country needs is going to fall
hopelessly behind. And I would argue it has already done so.
In addition to coordinating these agencies, we also have to
be consistent with other agencies. For example, State,
Commerce, the U.S. Trade Representative, because we cannot have
policies in this country that are inconsistent on a global
basis.
For example, we have just maintained that other countries
do not have the right to restrict the export of their
commodities. And this is following an action that was generated
by the United States, in conjunction with the European Union
and Mexico, and filed with the World Trade Organization, where
we were successful.
It is very difficult in that context to have a different
agency maintain that we're going to restrict the export of our
own commodities. And therefore, not only do we have to
coordinate some of the agencies, we also have to make sure that
the policies that are declared by these agencies are consistent
with the statute of what the policies of this country and this
administration are.
We have been in a position at Cheniere Energy to try to
promote the ability to export natural gas from the United
States to the rest of the world because it is our position that
the demand for natural gas cannot keep up in the United States
with the abundance of production that we have, and in fact,
with the gas that is already standing in the country that
cannot go anywhere.
We have been successful with the first project at Sabine
Pass to send gas to companies in the United Kingdom, in Spain,
in Korea and in India.
The implication of the fact that we can become an energy
exporter on a global basis has profound implication for the
dual position of the United States in the global scene. It will
have impact on gas producers around the world, including
Russia, and gas consumers around the world, including China.
And these benefits can only be derived if we have a clear
energy policy that lets the market do what the market will do.
We are trying to do the same thing here in Corpus Christi.
We have a site that we have owned for 6 years, Mr. Chairman has
mentioned. Initially, we viewed it as a potential energy
importing facility, but it really does work in both directions.
And we would like to develop it as an export facility to take
advantage of the riches that the Eagle Ford is generating for
this area in general.
I will say that when we produce natural gas, we produce
condensates. We produce ethane, propane, butane, along with it,
and the market for those products is saturated.
Condensates will always be attractive. All the other C's
are not. The propane, butane, ethane and methane have no
outlet. So we need to find something to do with that gas in
order to continue with the prosperity that could be generated
with this. Thank you very much.
Chairman Issa. Thank you.
[The prepared statement of Mr. Souki follows:]
Chairman Issa. Mr. Weis.
STATEMENT OF JEFF WEIS
Mr. Weis. Mr. Chairman and members of the committee, good
morning. My name is Jeff Weis. I'm executive vice president of
Orion Drilling Company, a Corpus Christi-based land rig
drilling contractor, currently operating thirteen drilling rigs
in south Texas.
Thanks to you, Chairman Issa and committee, for traveling
to Corpus Christi to explore our recent job growth, a direct
result of growth in the Energy Sector.
Understanding the positive impact the Energy Sector has on
south Texas employment should serve to strengthen the resolve
of Federal and State policymakers to focus on a consistent and
comprehensive policy to promote energy development across the
United States.
I would also like to thank Corpus Christi Regional Economic
Development Corp. for including Orion Drilling in this process,
and Texas A&M Corpus Christi for hosting this important
hearing.
I began my work, oil and gas career in 1978 with
Halliburton's IMCO Services. At IMCO, I was trained in fluids
management. I continued in fluids management in various
capacities, including division technical advisor and district
manager until 1995, when I joined Pioneer Drilling, a four rig
drilling company based in Corpus Christi.
At the time, Pioneer was truly that, a pioneer in adopting
new technologies to improve the efficiency and quality of
drilling.
After leaving Pioneer in 2003, I joined Wayne Squires to
create Orion Drilling. Initially, we were a single rig drilling
company, with 23 employees. As our reputation as best-in-class
contractor with state-of-the-art equipment continued to spread,
we were able to parlay a single rig into a company that
operates thirteen rigs in south Texas and is opening a new
division with three new-build rigs in DuBois, Pennsylvania, in
2012.
Our focus on providing quality equipment with the latest
technology makes Orion unique. A hallmark of Orion's unique
approach to the drilling business is our focus on the softening
impact of economic cycles and their impact on oil and gas
drilling activity.
From those 23 employees in 2003, Orion has grown to a staff
of over 550, with further growth planned in 2012, as we
continue to build new drilling rigs and begin our operation in
Pennsylvania. Our employees span from skilled rig crews to a
host of petroleum, mechanical and process engineers.
Our commitment to growing a quality team is also apparent
in the fact that Orion Drilling is one of only two drilling
contractors that hold the full array of American Petroleum
Institute certifications.
We are proud of both the symbolic and practical meaning of
these qualifications, as they provide us with the opportunity
to guarantee quality and safety to our customers and attract
the best and brightest rig employees, engineers and
construction professionals to our team.
Not only do we recognize the positive impact of good energy
fundamentals on our business, we also recognize the importance
of positive public policy to maintain Energy Sector growth.
With oil and gas as one of the primary drivers of the Texas
economy, our State and local governments have provided a
positive policy framework in which to operate. However, the
need for a consistent, clear and comprehensive energy policy on
the Federal level is paramount if our industry is to continue
its quest to make the United States more energy independent,
responsibly develop our natural resources, and continue to
provide the fuel that drives the American economy.
Conversely, the lack of a consistent energy policy and the
confusion surrounding current Federal policies, mandates and
regulations will result in growing uncertainty that very well
could put our recent growth in natural resource development and
employment at risk.
The energy industry is comprised of thousands of companies
just like Orion, businesses that are looking to provide fuel
for our economy, jobs for our communities, and be responsible
corporate citizens and stewards of our lands and environment.
The best way to assure that continues is for the Federal
Government to articulate a clear and consistent energy policy
that provides assurances our industry can meet the energy needs
of our country for decades to come.
Mr. Chairman, thank you for the invitation to appear today,
and I'll be glad to answer questions at the appropriate time.
Chairman Issa. Thank you.
[The prepared statement of Mr. Weis follows:]
Chairman Issa. And I'll begin with just a quick, quick
question, and I'll go in reverse order since you've got the
most current thing in my brain here.
You're drilling a lot of wells. Oil? With natural----
Mr. Weis. Mainly oil----
Chairman Issa. With natural gas?
Mr. Weis. Mainly oil. Natural gas is a byproduct of most of
the----
Chairman Issa. What do you do with the natural gas out of
most of those wells? Being flared?
Mr. Weis. Some of it's being flared, because the pipelines
are not in place.
Chairman Issa. Is that a permit process, or is that
infrastructure? Or is it a combination? How long will we burn
one of the most precious forms of energy, typically, from the
time that you are able to begin harvesting to the time that
you're able to actually harvest the natural gas?
That's one of the areas that concerns me in both State and
Federal regulation is how efficient are we in at least being
part of the solution on that?
Mr. Weis. Well, I think that a lot of the wells that you
see flaring in south Texas have a low amount of natural gas
with the liquids. The liquids are being stripped out. And so we
have to look at the economics----
Chairman Issa. The efficiency of how much there really is?
Mr. Weis. Yes. And you know, there are some areas where
pipelines aren't in place.
Chairman Issa. But in a perfect world, we'd harvest every
bit of that natural gas, wouldn't we?
Mr. Weis. I agree with that.
Chairman Issa. The--by the way, what caused you to pick the
home of DuBois Brewing Company for your new headquarters? I've
been to DuBois, and except for DuBois Brewing Company, it's
pretty much just a place on Interstate 80, isn't it?
Mr. Weis. That's one of the main reasons, it's on 80, which
we feel is going to give us access to Ohio.
Chairman Issa. So it's right in the center of a region in
which both to the west and east there's huge resources of
primarily natural gas?
Mr. Weis. And we feel a huge opportunity for not only us
but for the country.
Chairman Issa. So as a Texan, you're willing to invest in
Ohio and Pennsylvania?
Mr. Weis. Yes, and the reason is----
Chairman Issa. I want to thank you as a native Ohioan.
Mr. Weis. Well, what we feel is that that is the largest
gas field in the world. And, you know, the country's going to
need natural gas. And the Utica looks like it's going to have
liquids. If you look at years past, the northern part of
Pennsylvania and Ohio have produced a lot of oil, and there are
some refineries up there. So--and there are pipelines up there,
too. So----
Chairman Issa. They used to bring natural gas north.
Mr. Weis. Right. And you know, we're looking to expand in
what we consider the best basins, in West Texas, of course,
south Texas, and we like the Marcellus.
Chairman Issa. Have Ohio and Pennsylvania begun to embrace
what you're trying to accomplish for them, as much as Texas?
Mr. Weis. Well----
Chairman Issa. Or is that too high a hurdle?
Mr. Weis. No, I think what's happening is that 30 or 40 or
50 years ago when we produced coal--I'm from Pennsylvania. We
produced coal in Pennsylvania, and we didn't do a good job of--
--
Chairman Issa. Strip mining with----
Mr. Weis. Yeah.
Chairman Issa. You know, puddles of water.
Mr. Weis. We do a nice job now, but back then we didn't.
And I think people remember that. And they're afraid of what
oil and gas will do.
And as Ms. Jones said, there are a lot of inaccuracies,
especially in that part of the country. You know, New York has
banned fracking. I think New Jersey is getting ready to ban
fracking. But it's interesting. Where will they get their
energy?
Chairman Issa. We'll get to whether or not you sell them
what they won't produce domestically.
I will note that I did a little research for this project,
and Pennsylvania land was selling for $7,000 an acre,
agricultural land, some of it with coal underneath. The typical
rate for a license right now is $6,000 an acre just for the
mineral rights, basically, because of the potential for natural
gas.
So it is interesting that you could basically buy land 5
years ago and sell just the mineral rights for pretty much what
you paid for it. That's that big a difference.
Mr. Souki, you mentioned something that, as a free trader,
you mentioned that the WTO had found, the World Trade
Organization, found that in fact it was a violation of the law
when I guess China wanted to withhold bauxite. Is that right?
Mr. Souki. That is correct.
Chairman Issa. And I just want to make sort of a record
clear, America has been the largest exporter of food for a long
time. We didn't question, as we fed the world, whether or not
we should hoard food, did we?
Mr. Souki. That is also correct.
Chairman Issa. And isn't it true that no member of the oil
cartels, basically OPEC, can even be a WTO member, because
running a cartel is inconsistent with the WTO?
Mr. Souki. That is my understanding.
Chairman Issa. So essentially, if we want to be a free
trade civilized nation, we, by definition, have to not act the
way OPEC has acted toward us in the world market.
Mr. Souki. Well, you've mentioned the case of our
intervention with the World Trade Organization against China
for bauxite, and I think China, we just have to change two
words, ``China'' to the ``USA,'' and ``bauxite'' to ``natural
gas,'' if we tried to restrict the trade. And the losses would
be in both directions.
Chairman Issa. It is sort of amazing to me that we were all
prepared to import huge amounts of natural gas from Qatar, and
continue importing oil from around the world, and now that we
have a chance to have an abundance, we're not willing to
exchange that.
So I've just got a couple more quick questions. One last
one, because it hit me, you mentioned the excess in propane,
and I'd like to make the record clear. Isn't propane pretty
much the easiest fuel to put into an automobile? Isn't it the
easiest conversion? Do you pretty much just put a tank in the
trunk and plumb it?
Mr. Souki. I wouldn't know about that.
Chairman Issa. But you, so you haven't looked at the
potential for diverting the propane? Well, perhaps our first
witness can do that.
Mr. Souki. No. I'll make a note that maybe that's another
business model that we'd like to look at. But thank you, Mr.
Chairman.
Chairman Issa. Well, I happened to grow up in Cleveland,
Ohio, which is halfway between DuBois and nowhere, I guess,
but--and it was interesting because delivery trucks ran on
propane, liquefied.
Mr. Souki. Yes.
Chairman Issa. The liquefied gases have a tendency to be
the easiest ones to convert. That's why we all have--that's why
we all have those gas ranges. It's just easy to do.
Well, Ms. Jones, you had, you have some very interesting
testimony. I think the area that I'm most concerned about, and
I'll ask you the tough questions--you can answer the propane
one if you'd like--but you also have responsibility for
licensing and safety in your State waters, your territorial
waters.
Post--and our committee did extensive hearings and research
into the post-BP spill. Would you like to tell us how you take
that, how you approach drilling safety in the water? And any
comment you want to make in the intervening period between BP
and today and how you've adjusted to it would be appreciated.
Ms. Jones. Thank you, Chairman Issa, because that----
Chairman Issa. You covered everything else in your opening
testimony.
Ms. Jones. Yeah, I did. Well, I squeezed it, and there's so
much more.
Quickly, I just would like to say that as far as flaring
natural gas, they have to get a permit from the Railroad
Commission, because it is a precious commodity, and they can
roll it over if they need to. But any flare, flaring that's
going on has been approved by the Commission. And we do have a
lot of permits to flare, because of the shortage of the
infrastructure to get the natural gas to market.
A little bit on the, the economics of the Eagle Ford is
that the drillers and the operators, they, the companies will
go and find the oil rich regions, the oily parts of it, of
course, because of the economics and the price right now, and
they're trending away from the natural gas areas of the Eagle
Ford.
But there were still contracts they had with, for their
leases, and some of them have to go ahead and drill. And so
this is where government can come in and at least avoid hurting
the equilibrium that is going on by putting more and more
regulations in front of a company that is trying to make the
market work with the property owner, the natural gas lease
owner, mineral owner.
So flaring, approved by the Railroad Commission, we watch
that very closely. We're very concerned about the
infrastructure, the lack of, and we also permit the pipelines
that are laid in the Eagle Ford shale.
And propane is a great fuel, and Texas is very rich in
propane. And in fact, the Railroad Commission lets grants to
change over school buses to propane-powered school buses and
vehicles.
And so you were right on when you mentioned propane. But
natural gas also has a tremendous role to play in the fueling
of fleet vehicles. So to the extent that the market will go
ahead and is ready for a transformation to natural gas fueled
vehicles, it's--we're just on the cusp of doing that.
We had a, the first president of the Republic of Texas, Sam
Houston, who was so smart and had many other traits that were
very colorful----
Chairman Issa. He understood where to pick a battle, too.
Ms. Jones. The what? Yes. But he was a colorful character.
And when we went into the United--into the Union, we joined
America through treaty. And so we, the Republic of Texas, soon
to be the State of Texas, got to keep the jurisdiction of our
waters out to three leagues offshore.
We're the only State in the United States to maintain that
jurisdiction, but for the western boundary of Florida. And so
we are unique in that all of the natural resources below the
ground out to three leagues, which is about 10 miles, belong to
Texans, the people here in this room, and across the State who
couldn't be here today, but I know they would like to have if
they could. It would have taken them 12 hours to drive from the
top----
Chairman Issa. It is tough that you can get to Chicago
faster than you can get to Corpus Christi in some cases.
Ms. Jones. But nevertheless, we all benefit from the
natural resources. And we have had--I thought it was
interesting when I was testifying after the Macondo BP blowout,
a lot of legislation came down before the Congress had its own
transformation, if you will, to leadership who understood how
important oil and natural gas operations were to this country.
Chairman Issa. Thank you for sending us the percent against
Blake.
Ms. Jones. That's right, exactly. But we were concerned
because there was an attempt to take over our jurisdiction out
to three leagues and put it under Federal purview.
And I spoke out against it and wrote against it, but it was
lurking there that in fact the Federal Government, who--under
whose watch the BP blowout occurred, would know better than the
Railroad Commission, under whose watch no BP blowout has ever
occurred, in our State waters.
And so thank you for, you and your colleagues, for putting
the brakes on that, some of that legislation that was designed
to take over our jurisdiction offshore.
But since then, I have, in the last year and a half, I made
sure that we worked collaboratively with another State agency,
Texas Parks and Wildlife, and we have done a very in-depth
inspection of every well off the coast of the State of Texas,
in our State waters, to make sure that, yes, we were on the
right track in our permitting and our regulatory, and there are
no liabilities or risks out there to this great bay that you
see out the window.
We are on top of oversight of our drilling in our State
waters, to the extent that the Federal Government should be and
ought to be taking our template, the Texas plan, and applying
it to Federal waters, where the royalties are owned by all
Americans as well.
So I hope that we can provide a standard that the Federal
Government can aspire to be like.
Chairman Issa. And now for a man who shares your view on
that, Ms. Jones.
Mr. Farenthold. Thank you very much. Ms. Jones, I'd like to
visit with you a little bit. You're hearing and we are all
hearing a lot from the EPA about the alleged dangers of
hydraulic fracking. How long has fracking been going on in
Texas?
Ms. Jones. We have been fracking 60 years, at least.
Mr. Farenthold. That's 6-0?
Ms. Jones. Yes.
Mr. Farenthold. Sixty years.
Ms. Jones. Sixty. The myth is that this is some new
technology. And in fact, it's not new at all. It's improved,
and the footprint is smaller. And that's what happens when
Americans put their minds to technology and applying it in the
workplace. We've built a better mouse trap every day, and it's
gotten better.
But in spite of the early days 60 years ago, we have zero,
zero instances of groundwater contamination.
Mr. Farenthold. And so what is done to protect the
groundwater? I understand that generally the fracking takes
place between one and two miles----
Ms. Jones. That's right.
Mr. Farenthold [continuing]. Below any of the groundwater.
But obviously, to get down there----
Ms. Jones. That's right.
Mr. Farenthold [continuing]. You may have to pass through
groundwater.
Ms. Jones. Sure.
Mr. Farenthold. So what's done to protect the groundwater
and the surface water?
Ms. Jones. That's right. And the Railroad Commission has
very strict rules and regulations regarding cementing and the
engineering of the wellbore in and of itself, and double casing
through aquifers, until such time as the aquifer level is, it's
identified and casing is--it's double cased and cemented
through any kind of potential aquifer to ensure that there is
no break out or migration or contamination of aquifers,
groundwater aquifers.
So, you know, we set a very high standard. And industry
adheres to that standard because nobody deliberately--of
course, I am assuming that they are going to make me proud all
the time, but nevertheless we have rules in place and
enforcement actions that we use to ensure that our rules and
regulations are followed.
Mr. Farenthold. Do you think there's a need for national
regulation by the EPA, or is this something you think the
States can do on their own? And why do you think the EPA is so
interested in regulating it?
Ms. Jones. Fortunately, I can't even begin to imagine the
mindset of the EPA. I can imagine that the need for more jobs,
bureaucratic jobs, maybe something like that is driving their
initiative. But I will say, I absolutely am opposed to any kind
of national regulatory scheme.
And there is a practical reason for that, along with my
philosophical leanings. The practical reason is that the
geology underground is not the same in any of the States. In
fact, you know, just--a State boundary is above ground, as you
know, as you know, but the geology is ever changing underneath
the ground.
And we have different tax laws. We have severance taxes
other States don't have. We have different sales tax plans. So
the economics of each individual well are different in every
State as well.
So when you're combining that with the geology, the
topography of the roads in the Marcellus shale in Pennsylvania
and Ohio, they will have different issues related to the
disposal of water, produced water, than we have in Texas.
So they'll have smaller roads and maybe more hills and
winding roads that we might not have in Texas. But we'll have
different issues.
It's impossible, even if they wanted to have a national
plan, it would be practically impossible to try and attempt to
have a one-size-fits-all parameter of regulatory oversight for
all of these varieties and variations in topography and geology
and tax, tax plans in the various States.
So I am opposed, practically speaking, and philosophically
as well, that the States need to have their, maintain their
sovereignty and maintain their control over their own natural
resources.
Mr. Farenthold. Thank you.
In addition to the EPA attempting to regulate fracking,
which would have a, I believe, a negative effect on oil and gas
production in Texas and the country, is the Federal, are there
other Federal agencies that are making it difficult or pose a
threat to the oil and gas industry, or the energy production
industry in Texas? I know, I hear a lot from my friends in West
Texas about Fish and Wildlife----
Ms. Jones. Yes, yes.
Mr. Farenthold [continuing]. Being involved.
Ms. Jones. The Endangered Species Act has morphed into
Endangering the Human Species Act. We are seeing now, what
you've been hearing are the stories about the listing of the
lizards.
Endangered Species Act [ESA], is an example of a process
that is lacking sound science and peer review. Possible listing
of two lizards in Texas that are going to put road blocks in
front of, and drive costs up of the drilling and production of
oil and natural gas in the Permian basin, historically the
largest oil-producing basin in the United States of America, is
faced with, you know, the doomed sagebrush lizard.
And then down here in the Eagle Ford, a potential listing
in the future is a spotted tail earless lizard. And that's in
the Eagle Ford shale.
Now, interestingly, the ESA itself has maintained that fire
ants are one of the causes of the diminishing population of
these lizards, although no studies have really been done to
establish what that population is. But if it has been
diminished, it could be by fire ants.
And so we have fire ants that attack lizards, potentially
diminished population, which gives the ESA, the Endangered
Species Act, the justification to put the brakes on oil and gas
and ranching operations, which are very important in Texas.
These operations have been going on for decades in the
Permian Basin. It's a very mature and experienced oil field, if
you will. And trucks and traffic and drilling rigs and ranching
have been going on for years. And all of a sudden, this new
diminishing of potential population of lizards that have been
listed is something that they have a concern about. I--so
you're right on in our concerns.
Mr. Farenthold. And let me just get to a couple of other
witnesses just for a couple of seconds.
Mr. Weis, you've been, your company is growing, and you've
been hiring quite a few employees. Are you having trouble
finding skilled employees? Are you having trouble finding them,
or are there plenty of people there to take the jobs?
Mr. Weis. Well, you know, we're a smaller company, and we
offer newer rigs. And we're, they--we are the highest paying
drilling contractor, or one of the highest paying. But yes, we
still struggle with that.
Three years ago, we used to require 2 years' experience.
Now we require 1 year experience. And we're beginning to start
training programs where we can take somebody that we like and
actually bring them within our fold and make an oil field
worker out of them.
Mr. Farenthold. So what does an oil field worker typically
make? What's the salary?
Mr. Weis. The lowest guy on the rig makes approximately
$65,000 a year. The driller, which is a, I want to make this
known, is a highly skilled position, they can make as much as
$120,000 a year.
And in Texas, we normally work a rotation of 7 on, 7 off.
And so you actually live out there 7 days in a row. You work 12
hours a day for 7 days. It's hot down here. It is--it's a tough
job. But you can see it's very well compensated.
Mr. Farenthold. All right. And Mr. Souki, you originally, I
guess it was about 7 or 8 years ago, y'all were talking about
building a plant to import liquefied natural gas. Now you're
talking about exporting natural gas. Can you talk a little bit
about the economics of that, what gas is worth here in Texas,
as opposed to what it's worth in other parts of the world?
Mr. Souki. Well, here----
Chairman Issa. You don't actually have to tell us what
you're selling it for. That's okay.
Mr. Farenthold. Just ball park figures, yeah. I mean,
obviously it's got to be, for a project the size you're
proposing, there's got to be a big price differential.
Mr. Souki. You know, the fundamental premise is that the
gas that we want is worth nothing in Texas because it's
associated gas, and it's going to be flared, unless there's a
market found for it.
So today gas prices in the United States are $2.50. This is
a handing out price. It's probably not much different down
here. But as the Eagle Ford continues to develop and as the
Permian continues to develop, we're looking at, in the last 12
months, one BCF of gas that didn't exist last year.
And if you start looking at the rigs that have actually
built wells and cannot find a market for them, cannot find an
infrastructure to move the gas to market and they cannot find a
market to which to sell the gas, who is in a situation now that
the incremental gas that we're finding is worthless. And it's
only being produced because the condensates are very valuable.
And you can move the condensates by truck. You can get a
truck to get to the well and pick the condensates and move them
to market. And on that basis alone, they will pay Mr. Weis in
less than a year. And the rest, they need to find a market for.
In the rest of the world today, in Asia, you're already
substituting for oil products. There is a 100 BCF market on a
global basis. We're using oil and oil products from our
generation for fertilization production and chemical
production, where you really should use natural gas, if it was
priced on the basis of what does it cost to produce this in
Texas and deliver it to that market.
And it's also closer to Puerto Rico, where they're using
diesel and fuel to generate their electricity, at the cost of
$17 to $18, where we could deliver gas to them--and for this we
don't need a permit, because it is still in the United States--
but we can deliver gas to them at $8 or $9 and save Puerto Rico
a billion to a billion-and-a-half dollars a year, and have some
very significant environmental advantages to when you burn
natural gas as opposed to burning fuel.
And this applies everywhere, from Puerto Rico all the way
to China, with a number of countries in between.
Mr. Farenthold. And do you think that our proximity in
south Texas and our, or some of the other shale gas fields are,
is going to be an economic boom to them, because these
manufacturing facilities or other facilities that use gas will
locate there?
Mr. Souki. Here in the, here in Texas? Yes, I think it
will. But we already have an industry and infrastructure here
that has already started. But when you're looking at the
timeframe that is needed to build new infrastructure, it takes
many years.
So you can have a big announcement of a petrochemical plant
that Dow Chemical or Shell announces. That's great. It will
take 2 years to permit and 5 or 6 years to build it. So it's a
solution for 2018-19, not for tomorrow.
Mr. Farenthold. Thank you.
Mr. Souki. The low hanging fruit has already been picked
up.
Mr. Farenthold. Thank you.
Chairman Issa. Recognizing that we could go on with the
first panel forever, but there is a second panel. If you don't
mind, I'd like to give a little homework out. And we call it,
you know, making statements for the record, supplying
additional information.
I'd like a couple of items. First of all, for any member of
the panel, but particularly for Commissioner, every possible
way that you and the Commission look and say groundwater
contamination can occur, you know, our committee held here many
years ago on the fact that we were having huge groundwater
contamination from single, single sited holding tanks at gas
stations, that basically if they leaked, they leaked, and there
was no safeguard.
So we all understand that leaks can happen. And you know,
if you're not fracking but you still have something coming up
through the ground, a leak can happen.
So anything that is in your checklist that you could fairly
easily pull off and provide the committee would be helpful,
sort of how do you view this.
Because obviously, well, we know that there have been no
fracking-related leaks. We all understand that groundwater does
get contaminated by a number of ways, including, you know, the
person who simply is indiscriminate with their oil when they
change their oil.
The geopolitical stuff--and Charif, this is probably more
for you, but it's for all of you--our committee is anticipating
holding a more in-depth hearing in Washington on the impact of
being a net exporter versus a net importer.
This would include many of your customers. We're not asking
for you to talk about customers, potential customers, but sort
of the impact of Russia, being able to turn on and off the
spigot in other countries versus the United States, anything
that you would be able to give us on your view of global market
suppliers, who they are, versus the United States as one,
because that would be feedstock for an additional hearing.
Last but not least, Luis Fortuno, the Governor of Puerto
Rico, is a dear friend of mine. We served in Congress together.
And when I went down to Puerto Rico, all he talked about was
cutting in half the carbon footprint, making it cleaner and
saving money at the same time.
So there's nobody that's more interested in going from oil
to gas than Governor Fortuno. So although I didn't know all the
details of your role in it, from my former colleague in Puerto
Rico, he hopes that to be one of his legacies as Governor.
And with that, I'd like to thank you for your testimony. We
will keep the record open for other extraneous remarks, but--
and you don't have to do the homework, but anything you can
give us----
Ms. Jones. Absolutely.
Chairman Issa [continuing]. Along those lines or other
lines would be appreciated for this and future hearings.
And with that, we'll take a short recess.
Ms. Jones. Thank you.
[Recess.]
Chairman Issa. If everyone will please take their seats, we
will now recognize our second panel.
Mr. Scott Stanford is operations manager of Royal Offshore,
Royal Production Company, Inc. Mr. Mark Leyland is senior vice
president of offshore wind projects for Baryonyx Corp. Mr.
Roland Mower is president and chief executive officer of Corpus
Christi Regional Development Corp. And Mr. Robert Parker is
president of Repcon, Inc.
If you were here, and I think you all were for the first,
then you very much know that the committee rules require that
you be sworn. Would you please rise and take the oath? And
raise your right hands.
[Witnesses sworn.]
Chairman Issa. Let the record indicate that all answered in
the affirmative.
Please take your seats.
Now, I'm going to apologize in advance. We took a lot of
time on the first panel, and it was very informative. We're
going to be a little bit quicker on the second panel, so please
try to summarize so by the time the red light comes on, you've
done with your opening statements so we have time for
questions.
And with that, we'll set the green panel. We now recognize
Mr. Stanford for his opening statement, or for 5 minutes.
STATEMENTS OF SCOTT STANFORD, OPERATIONS MANAGER OF ROYAL
OFFSHORE, ROYAL PRODUCTION CO., INC.; MARK LEYLAND, SENIOR VICE
PRESIDENT OF OFFSHORE WIND PROJECTS, BARYONYX CORP.; ROLAND C.
MOWER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CORPUS CHRISTI
REGIONAL ECONOMIC DEVELOPMENT CORP.; AND ROBERT E. PARKER,
PRESIDENT, REPCON, INC.
STATEMENT OF SCOTT STANFORD
Mr. Stanford. Thank you, Mr. Chairman. I'm here today to
represent Royal Production Company, more specifically Royal----
Chairman Issa. Can you pull the mic just a little closer?
Mr. Stanford. Can you hear me? Yeah, the focus of my
discussion today is centered on the Gulf of Mexico and policies
that have been put into effect over the last 18 months by
virtue of the events that happened in the summer of 2010.
Deepwater Horizon has changed the scope of how we operate.
And coming more from a perspective of direct operations, having
done that for the last 20 years, and kind of give you a glimpse
of what the life is like as an operator in the Gulf of Mexico
in today's times.
I'll give you some examples of some of the policies that we
deal with every day. But specifically, they're centered around
the Bureau of Ocean Energy Management, Regulatory and
Enforcement, BOEMRE, nowadays usually referred to as the MMS
previously. And the Bureau of Safety and Environmental
Enforcement, the BSEE. Those are the two agencies that we deal
with specifically.
Chairman Issa. And they're basically MMS renamed?
Mr. Stanford. They're basically MMS renamed under the
Department of the Interior.
One of the newest changes is a Safety and Environmental
Management System. It's called SEMS. It was put in place and
mandated by all operators to be put in place by November 15th
of last year. It was a monumental effort, for the most part,
for a lot of small independents like us.
It's a very complex and taxing program. It takes a large
amount of resources and commitment to implement. It's based on
a reporting and policing type of system. It's made up of
thirteen elements. And each element has hundreds of pages of
policies to deal with every day.
Basically, the core of, the attempt is to qualify each and
every individual that's on your platform or working for you on
a rig and maintain their certifications, understand their
training, and their whereabouts all the time. And that
reporting goes on each and every day.
So in order for a company like Royal to maintain a policy
and a procedure and a program like that, it takes a lot of
input, a lot of involvement from a lot of people.
Over the last 12 months alone, we've probably spent over
$200,000 in 12 months just to try to implement it. We contract
two layers of different regulatory consultants to administer
it. And the net result is a significant increase to our
operating costs. It's--it goes to the bottom line.
Royal, like the majority of others, operates with a long
history of safe operating practices long before SEMS was
implemented. So, you know, prior to SEMS, there were other
policies that were implemented by the Federal Government,
including Subpart ``O,'' Oil Spill Response Plan, the annual
facility inspections, annual performance measures, topside and
underwater inspections, and many, many more that also were a
part of the safety and environmental pieces of our day-to-day
life in the Gulf of Mexico.
This is new. It takes the place of some of those. It
duplicates a lot of those. But it is a big volume of effort of
reporting. And with that becomes new inspections, new need for
inspectors, which forces the BSEE into hiring. And so with the
new hiring comes new fees to our industry, in the form of
direct fees to the wells and platforms individually.
New personnel that are being hired by these agencies are
pretty limited in training. They have a very short training
program. And for the most part, a lot of them have no industry
experience at all, which is a cause of a problem for us on a
daily basis.
Another example of new policy is the drilling permits.
Everybody reads about them. The moratorium that was put in
place on the heels of Macondo affected Royal and its partners
in a well that we were drilling in deep water. We were 75
percent complete on that well, had already drilled to 15,000
feet, and had already sunk $45 million into that well when we
were told to suspend it.
And so we had to put temporary abandonment cement plugs in
the well. We had to re-lease the well. We had to re-permit, put
new permits in place. And all of this is at a spread rate of
about $500,000 a day, half a million dollars a day.
So we spent 18 months, with $45 million in sunk costs that
we had no utility for, no well that could produce and have
revenues. So in order to get the well resumed and drilling, the
new permitting program had to be put in place, and a new rig
contract had to be put in place.
A new rig contract came with a $10 million risk. In order
to get one of the few rigs to move back on that location, they
had only a small time slot. And that time slot was predicated
on risking $10 million to hit a date. If your permit wasn't in
by that date, then you had to be penalized by virtue of $10
million.
Our permits took in the order of 18 months to receive. We
actually got them, got back on the well. But in the midst of
doing so, it came with a new price tag. The price tag went from
$45 million to $70 million.
So, you know, we added $25 million to the costs of the well
by virtue of having to move off of it, move back on it, and
reestablish production with, or drilling with a new casing
design.
So with that is all part of a new policy that requires
Worst Case Discharge calculations, BOP shear ran calculations,
updates of your Spill Response Plans. All the rigs have to be
identified. They could drill a relief well, and it has to meet
PE certifications for every--so at the end of the day, your new
permit ends up being about two to three inches thick. It takes
a lot of review time, a lot of preparation time, and at great
cost to everybody.
So it goes beyond just the drilling of a well. It affects
all activity in the Gulf of Mexico, whether it's an oil tubing
unit or hydraulic workover unit. Anything that has a BOP with
it has to be recertified.
And every time that you have a procedural change in your
permits, you have to resubmit, you know, recertify all these
elements by a certified engineer. Each one of those
resubmittals along the way, even if it's an ordinary change,
takes time. And the review process may be 24, 48 hours.
All of our operations in the Gulf of Mexico run 24 hours a
day, 7 days a week. They don't shut down for nights or
weekends. You know, so we spend somewhere between 100,000 to
half a million dollars a day.
And so every time you make an ordinary change in your
procedure and you have to get it repermitted, it's inefficient
and it's costly.
And we just got through last year doing a decommissioning
program that ended up costing twice as much money, twice as
long, because of that.
We have one well in particular that we had to resubmit five
times after it was initially approved. And one of those five
times, there was an iteration that happens three times. There's
no longer an interface between the district level for
permitting to talk about options.
And at the end of the day, it leads to a great
inefficiency, because you just have to offer your options, get
them rejected, offer them again. And the whole time it has to
be recertified. So that inefficiency has percolated its way
through everybody's activities.
Another example is ``idle iron.'' It's a new policy. If it
meets the definition of no further use or operations, you have
to take platforms and wells out of the Gulf of Mexico.
In essence, it sounds like a good thing. But in reality,
real estate in the Gulf of Mexico is very important. You know,
what might not be used 1 day by one operator is very valuable
to another operator that might be right next to it and needs a
structure to operate off of.
So in essence, you're taking the chance of taking out new,
relatively new facilities that possibly could be used,
especially new facilities that meet modern standards. So to me,
that's a, that's an issue.
So in summation, you know, I gave a few examples of what
daily life's like working with the regulatory arms of the
Federal Government, but you know, I'd like to see the
government provide companies with a way to compete on an equal
basis.
You know, if you're a small operator, it's really hard to
take all these extra costs, distribute them over a finite
revenue of cash-flow, as opposed to a very large company that
can do that a little bit better. So the playing field, to me,
has been shifted because of the new policies. They're so
excessive that, you know, there needs to be a large staff in
order to deal with them.
And so I encourage the BOEMRE to add staff, add good staff,
and you know, raise their salaries. Hire highly qualified
people that we can deal with, and train them correctly. And I
think that would help our industry considerably.
But, you know, instead of taxing us on new fees, I think
that ought to come out of the existing royalty structures that
are already there.
So, in essence, I think the entire operating group in the
Gulf of Mexico was penalized by one event. Everybody was
characterized as possibly being negligent, and now the
repercussions are very big government putting in a lot of
policies and a lot of policing that is a giant burden on our
industry.
And I think that it needs to be changed in a way that helps
promote our basin for discovery, not one that prevents people
from being able to afford to be there.
Chairman Issa. Thank you.
[The prepared statement of Mr. Stanford follows:]
Chairman Issa. Mr. Leyland.
STATEMENT OF MARK LEYLAND
Mr. Leyland. Yes, good morning. First I would like to thank
you, Mr. Chairman, for inviting me to testify today. And as you
can probably tell, I've come from a long way east of Texas, but
it really is an honor to be invited here today.
Chairman Issa. Texas is a very big State.
Mr. Leyland. It is a very big State, but I've come a long
way, from a long way east of Texas, although I do have family
relations in Texas.
Baryonyx, it's pronounced, which is an old dinosaur by the
way, is actually a Texas registered company and was established
in 2008, and is actually based in Austin. Most of its senior
management come from long backgrounds in the offshore oil and
gas industry.
And our CEO, Ian Hatton, and I were involved in the
development of the most innovative offshore wind farm in the
world, the Ormonde Wind Farm, which we took through permitting,
design and engineering, all the way through to financial close.
And interestingly, in the context of the oil and gas
discussions that we've had this morning, it was actually
originally conceived and planned as a hybrid project, which
sought to balance the variability of wind by using offshore gas
turbines, which need gas to generate power, and use the spare
capacity in the transmission asset to export that power ashore.
So it was an interesting development.
Ormonde was also the first offshore wind commercial
development using five megawatt turbines, which are about twice
as big as anything you see onshore, and it was the first to use
classic oil and gas type jacket foundations.
Interestingly enough, it was the first to be delivered on
budget and on time.
And whereas I'm sure Ian and I would love to be able to
claim credit for that significant achievement, I think we'll be
the first to admit that was probably due to the project
management team we had alongside us which, not surprisingly,
came from, you've got it, the oil and gas industry.
And with that success behind us, we are asked when we go
back to the UK, ``Why did you go to Texas? Why offshore
Texas?'' And I guess it's a legitimate question. We've heard an
awful lot about gas incentives that's existed in Texas, and
people ask us that question.
And it was a positive choice, and it was based on our
understanding of what it takes to actually make offshore wind
viable. And I guess it can be summed up under a few very brief
headings:
First, we have the leasing process. And we've heard today
about the submerged lands of Texas extending to three marine
leagues, which is kind of a quaint British European type
measurement, measuring stick, or 9 nautical miles, 10.4 statute
miles, or about 16.3 kilometers. Pick whichever measuring stick
you want.
And this enables developers within the State to apply for
leases from the General Land Office, the Texas General Land
Office. There's no Federal involvement at all here.
And basically the responsibility, as you've heard from the
other, the previous panel, rests with the State, and the
process is we lease from the General Land Office, which, under
the stewardship of Jerry Patterson, has been very supportive
throughout the whole process. And we currently hold about
67,000 acres of the submerged lands to develop offshore wind.
Within State waters, the permitting authority is very
clearly defined. It doesn't fall under any Federal authority at
all. It falls under the jurisdiction--well, it does. The U.S.
Army Corps of Engineers are a Federal agency, under the MMS, or
whatever it's become or morphed into.
So basically, they run a process which has been proven
through the oil and gas industry, and we're able to take
advantage of that. It's a very straightforward process, and
it's clear.
But basically, why again with offshore wind do we come to
offshore Texas? An awful lot has been made about--everybody
hears all the time about the offshore wind industry off the
east coast and things like that.
If you actually look at a map of offshore wind, there's a
very nice resource which exists between Corpus Christi and
Brownsville that blows very reliable and very, every day, in a
very, you know, a very useful forward. I call it ``Windy
Crescent.''
It's about the only bit of the Gulf that is actually like
this, but it does have tremendous potential. The wind resource
is excellent. Profile is reliable. And basically, simply, the
wind blows when the power is needed. It blows in the afternoon,
when the demand on the system exists. Onshore wind isn't quite
like that.
But most importantly, the oil and gas legacy of Texas is
something where I believe you have major, a major contribution,
where major contributions to the success of offshore wind will
come from.
Basically, offshore wind is an offshore construction
project. An offshore construction rig belongs in the Gulf of
Mexico. When I set foot on a barge, a Brown & Root barge in
1974 in the North Sea, and that barge was built in, I think it
was Livingston Shipyard in Houston, I think.
And basically, if you look at what Texas has, it has the
engineering and design houses, the project management teams,
like what I said was the result, basically resulted in the
successful delivery of Ormonde. The fabrication yards are out
there, the ports and harbors, the marine construction legacy,
all those things are there.
And the message to me, from my perspective, is clear. If
Texas can demonstrate it can build assets off the coast of
Texas in the Gulf of Mexico, then it can also provide those
services to any and all the developments off the Atlantic
coast.
We're talking about developing a maximum of about 3
gigawatts of power, from our leases, but the Federal Government
wants to install 10 gigawatts by 2020, 54 gigawatts by 2030.
And the scale of the potential market is absolutely staggering
for offshore construction.
The development of offshore wind has very little to do with
green energy in Europe. This has everything to do with energy
security as we move into the 21st century.
Oil and gas, quite rightly, should remain at the heart of
the energy solution, but by offering a basket of generating
methodologies, it is absolutely imperative.
In Europe, we did the gas, the ``dash for gas'' in the
1990's. We're now importing gas from Russia, Qatar, places like
this. And they do quite rightly, as you said, Mr. Chairman,
stick there hand on the spigot and turn it off if you tend to
vote the wrong way in the United Nations.
So natural gas and wind are complementary. They are not in
opposition. They are absolutely complementary. I come from the
oil and gas industry offshore, and I seriously believe that.
And they form the cornerstone of what is a very reliable
government policy moving forward.
I'm convinced, from my experience with other projects in
Europe, that Texas can produce power from offshore energy more
cheaply than anybody else in the United States. That's beyond
doubt. The opportunity for Texas to lead the offshore wind
industry and the new offshore construction boom is just waiting
to be grasped.
Texas is an energy State and an offshore construction
State. It is not simply an oil and gas State. The existing
infrastructure that has been built up over decades to support
the oil and gas industry merely needs realigning to address
this new market and the new opportunities.
It remains our view that offshore wind should be viable
without subsidies. And in the longer term, all forms of new
generation, you know, have always started to require some form
of support. In the long term it should exist without subsidies.
There are more platforms being taken out of the Gulf of
Mexico than there are going in at the present moment. From our
projects alone, we would require 50 or 60 structures to be
built every year for 7 to 8 years. And this represents
tremendous opportunity for Corpus Christi, for all the
construction sites around the Gulf of Mexico.
So anyway, eventually the fabrication yards can be full,
the ports can be full, and we can actually bring the turbine
manufacturers, the cable manufacturers and all those support
industries back into the United States, into Texas.
I believe the opportunity is tremendous, and I think it
just needs to be grasped. Thank you very much.
Chairman Issa. Thank you.
[The prepared statement of Mr. Leyland follows:]
Chairman Issa. Mr. Mower.
STATEMENT OF ROLAND C. MOWER
Mr. Mower. Mr. Chairman----
Chairman Issa. If you take a drink of water, we'll
immediately call on you.
Mr. Mower. Mr. Chairman, Congressman Farenthold, good
morning. My name is Roland Mower. I'm the CEO of the Corpus
Christi Regional Economic Development Corp. Our mission is to
strengthen the regional economy. We focus on encouraging
corporate capital investment. We focus on job creation.
Our funding comes from a variety of sources, including
local governments, like cities and counties, the Port of Corpus
Christi, and discretionary funding from the private sector.
We truly appreciate the committee's interest in our region
and the topic of the hearing today. Today you've heard or will
hear from a wide range of business leaders from our region
regarding their issues and concerns related to their specific
businesses or industries.
I'd like to speak from the perspective of an organization
that visits over 150 existing companies in the region each year
and is the primary point of contact for companies interested in
doing business in the Coastal Bend.
The major concerns voiced in our discussions across all
industries are the increasing costs of Federal regulations on
industry, and maybe more importantly the increased, the need
for increased predictability in the regulatory process.
Each year I have the opportunity to speak around the region
and talk about economic development. I describe how I believe a
market economy works, in very simple terms: Investments create
jobs, jobs pay wages, wages buy goods and services. In truth,
it's far more complicated than that.
Before an investment is made, a rigorous analysis is
performed, the business planning process. Potential investments
must offer appropriate returns. If they don't, the investment
won't occur, the jobs won't be created, and the goods and
services won't be purchased.
Again, this is a simple explanation of a complex topic, but
it helps illustrate a significant challenge faced by industry--
by industry.
Increasing regulatory costs for U.S. industries who compete
in a global marketplace are placed at a disadvantage when
competing with producers from other countries which do not have
the same regulatory burdens or costs.
The second piece of this challenge is injecting some level
of regulatory predictability into the equation. Companies need
to know if their project complies with current regulations,
there's some level of certainty they will be able to move
forward in a timely fashion, and the rules of the game will not
change.
Please allow me to tie these thoughts together with the
topic of the day. Our region, the Coastal Bend, is very
blessed. We're tracking significant potential capital
investments and job creation opportunities. Our ability to
realize the benefits of these potential projects is limited in
some ways by an increasing regulatory burden and the lack of
predictability in the regulatory process.
In closing, let me share a couple of data points. In the
past year, our Metropolitan Statistical Area, which is Nueces,
San Patricio and Aransas County, added over 7,800 jobs. Our 12-
county region added over 11,000 jobs.
Most of the job growth in this, in the region this year can
be attributed to the activity surrounding the Eagle Ford shale.
If we can stabilize the cost of the regulatory burden and
increase the regulatory predictability, our job creation
numbers will increase significantly. With your help----
[Note.--Lights flash due to power surge.]
Chairman Issa. I told you we had to hurry.
Mr. Mower. Yes, I need your help.
With your help, our offshore industry can get back to work,
and our local refining and chemical companies will continue to
invest and hire in our region.
I thank you for the opportunity to share my thoughts, and
I'll be happy to answer any questions.
Chairman Issa. Thank you, Mr. Mower. And I'm convinced the
lights are just because we don't have enough wind power.
[The prepared statement of Mr. Mower follows:]
Chairman Issa. Mr. Parker.
STATEMENT OF ROBERT E. PARKER
Mr. Parker. Chairman Issa, Congressman Farenthold, I'm Bob
Parker. I'm the president of Repcon, Inc. We're a local
industrial contractor headquartered here, and we work in 34
States. We work primarily for the refining, petrochemical and
midstream oil and gas sectors of the economy.
We're a little bit different than most of the other people
that have talked today, because we're a service provider, as
opposed to an actual owner or operator, but our whole
livelihood is tied directly to the energy industry.
Clearly, from earlier discussions and from your own
research, Texas and south Texas is a leader in oil and gas
production and is a critical part of our economy. And I think
everyone recognizes that.
There are thousands and thousands of Texas jobs that are
provided by the owners and operators and their supporting
contractors, suppliers, vendors in south Texas. So the
multiplier on what the refining and petrochemical plants and
the energy industry in general do in Texas is multiplied by a
factor of 20 or 30 in most cases.
The energy industry cares, which is something that you
don't hear often out of Washington, and you don't hear often
from the environmental side of the house.
The energy industry cares about the environment. We care
about safety. I can sit here and testify, without a doubt, that
the owners that we work for put safety and environmental
protection above everything else in their facilities. It's
above production. It's above profits. We have to do it. They
know we have to do it. And they expect their contractors and
service providers to be the same way.
Over the last 5 years, sulfur levels have been reduced by,
by approximately 90 percent. And this brings up something. Just
because something is technologically feasible does not mean
it's economically viable or it's something we should do.
They have spent tremendous money, to the tune of probably
$40 billion to $50 billion as an industry, to reduce sulfur, to
reduce greenhouse gases. To get that last 10 percent may take
an equal amount of money.
So we believe that every single regulation, every single
law should have a cost benefit analysis done on it to determine
whether it is worth the cost. Again, just because it's feasible
or technically able to be done doesn't mean it's something we
should be doing.
The energy industry has been under attack. And the policies
of this administration, at least from our perspective, are the
most onerous on business, on free enterprise, and on the energy
industry of any administration in my lifetime.
I have actually been in the refining and petrochemical
business since 1971, so about 40 years. We have seen numerous
administrations and EPA regulations come and go. But this is
the most concentrated attack on the energy business that I can
recall in my lifetime.
During the last 20 years, there's been approximately 60
refineries that have shut down. A large number of them shut
down because margins were not sufficient to support the
requirements and upgrades that were being required by the
regulations.
Unfortunately, when the oil and gas industry are weakened
because of shutdowns, it not only impacts their employees, it
impacts the entire south Texas area, Texas area, and the United
States. It also impacts our national security.
At a time when we have more and more of our oil that comes
from countries and states that are not necessarily friendly to
the United States, that is a prime reason we should be drilling
and producing our own and being less dependent on sources that
could be cut off at some future time.
There's also regulation outside of the energy industry that
applies to the business. And I realize this particular focus is
on the energy industry, but as a contractor, I wanted to speak
briefly about some of the overreaching that is going on.
The National Labor Relations Board has basically recently
been reconstituted during a 1-day recess appointment. It is the
most anti-Merit Shop, anti-free enterprise NLRB that we have
had. They have quit being a neutral arbiter and a neutral forum
for solving labor disputes, and they come down clearly on the
side of the organized labor section.
Whether it's ambush elections, card check, in every case
the items that the NLRB is pushing will be detrimental to our
business and to most of the non-union business. Texas is a
right-to-work State. There were four States that recently
passed laws guaranteeing a right to a secret ballot during a
union election. The NLRB is challenging them and filed
preemptive lawsuits against them.
This is something that is just an indication of the amount
of red tape and the amount of regulation that this
administration has for business.
In short, I think the regulation is stifling jobs. It's
reducing output, dragging the economy, and I believe it's
threatening the, not only the economy of the United States, but
the security of the United States long term. Thank you.
Chairman Issa. Thank you.
[The prepared statement of Mr. Parker follows:]
Chairman Issa. And this committee has held a number of
hearings, both before and after the non-recess recess
appointment, so we're very concerned that the actions of the
NLRB will not in fact be lawful, that just as happened in
previous times, they've had to undo decision after decision.
Now, it sounds like in your case undoing those decisions may
not be all bad.
But I think--I'm going to be brief, and then I'm going to
concentrate on Mr. Stanford. Then Blake, I think, will
concentrate more broadly.
It sounds like times are good in the oil patch, but they
could be better. Is that a fair statement? That in fact
business is up, you're drilling more, but you're drilling with
greater costs across the board?
So in a sense, this administration--which includes, quite
frankly, credit or blame you give to the House or the Senate--
is sort of living off of the fruit of very expensive oil, and
in fact--$100 a barrel--and in fact new developments that are
making yields here in the United States go through the roof.
Is that a fair statement from all of your knowledge?
Mr. Stanford. I think the Gulf of Mexico specifically has a
lot of natural gas that still comes out of it, and that natural
gas isn't very valuable right now. And the economic burden on
top of that, that low cash-flow for natural gas is not always
profitable to everybody.
Chairman Issa. And, Mr. Stanford, I wanted to follow up on
your testimony, because I had some specific questions. Have you
sought any kind of reimbursement from the BP fund?
Mr. Stanford. No.
Chairman Issa. Have you--do you see any reason that you're
not as much a victim of that spill, and then if not BP
responsible, then the government? Because one or the other
apparently broke a promise to you in your deep water drilling,
where you had a license, you had a contract, they changed the
rules.
And if I understand correctly, and correct me if I'm wrong,
they didn't just change the rules, they entered into a, we call
it a permitorium, but a moratorium, when they, so they can go
think about rules they were going to write. Is that roughly
what you experienced?
Mr. Stanford. Exactly what we experienced. And I think it
is unfair. I think that the Federal Government, without
request, ought to review those situations. And there ought to
be some compensation for that.
I think it was the intent of Royal and its partners to
resume drilling as, as fast as they possibly could. In doing
so, they focused on trying to get a new permit, as opposed to
reconciling what seemed to be unfair, thus far.
Chairman Issa. Were any of your rig workers paid at all out
of that fund, BP fund? Did any of those individuals apply?
Mr. Stanford. Not that I'm aware of.
Chairman Issa. When you have a slow down through, mostly
due to the inexperienced of these new Federal employees, where
you lose a day, 2, 3, anything your employees can do other than
continue drawing salaries, or any way, use them in any other
way as a small operator?
Mr. Stanford. It's purely a cost of lease operation that
affects us, and when you have somebody in a group service----
Chairman Issa. I realize you sub some of that, but those
workers, if you were a very large organization, you might be
able to tell your contractor to move crews.
Mr. Stanford. That's true.
Chairman Issa. My understanding is that might work for BP.
Mr. Stanford. True.
Chairman Issa. It can't possibly work for you. You're just
not big enough to have the kind of ability to fly crews around.
Mr. Stanford. That's correct.
Chairman Issa. So many of the inefficiencies right now
coming out of the Federal expansion hit you harder than they're
going to hit a conglomerate. Is that true?
Mr. Stanford. That's true.
Chairman Issa. Now, I'm going to look at the sunny side for
a moment with my remaining time. If you survive, if you're able
to continue borrowing and leveraging and doing everything you
need to bring in your wealth, your expectation is you'll still,
you'll still break even or make money. Right?
Mr. Stanford. Our hope is, but the plan cost on a lot of
offshore projects are planned and scheduled months to years
before they're executed. So when new policy comes down, we have
to spend twice as much money.
You know, we're already engaged in the economics of that.
And for the most part, it makes what would be a two to three
return a break-even return.
Chairman Issa. So I just want to go final on that. You had
this $50 million sunk costs. And I realize you're just talking
about some of the costs.
Mr. Stanford. Sure.
Chairman Issa. But let's just assume for a moment you have
a $50 million project, becomes a $100 million project. It was
going to make $90 million to you. So instead of making a huge
profit you often hear about, you know, the 40 percent, 80
percent return on investment, you go to a negative return, $10
million.
And these numbers are unfortunately not the numbers.
They're going to be larger than that in profit or loss. Right?
Mr. Stanford. That's correct.
Chairman Issa. Now, you drill in deep waters. You bought
your lease from the Federal Government. Right?
Mr. Stanford. That's correct.
Chairman Issa. And if I'm roughly right, you're paying 17.5
percent of anything that comes out of that, that well. Right?
Mr. Stanford. That's exactly right.
Chairman Issa. So on a $100 million, the Federal Government
makes $17.5 million, whether or not you make a penny.
Mr. Stanford. Whether we make a penny. That's right.
Chairman Issa. Plus, of course, your lease purchase.
Mr. Stanford. That's right.
Chairman Issa. I just wanted to make sure. That's why I
said I was going to concentrate on you, because somehow as a
native Clevelander, now living in California, it is sort of
poetic justice that the Federal Government has no incentive to
make you profitable. They have no incentive to do anything
except collect their 17.5 percent.
Because ultimately, as long as it comes online with you or
if you don't make it, the next guy that takes it over, they're
basically making the same amount, even if they make your
project cost double what it should.
Mr. Stanford. That's exactly right. They're not sharing any
of the risk of the loss. And so long as the well comes
onstream, they will make their royalty. And that's----
Chairman Issa. Now, I've got a potpourri of people here,
EDC, independent driller, somebody who--Leyland, you're lovely
in the sense that you're out there, even if you're not
drilling. Do you believe that this committee should try to find
a way to link the ultimate revenues received to the original
estimate of burden placed by the government?
In other words, if the Federal Government again changes its
bargain between the start of a project and the end of a
project, do you think that we should have some sort of a shared
cost so that it's not all on you, while the Federal Government
makes, in that hypothetical example, $17.5 million and you lose
$10?
Mr. Stanford. I would love it. And the reason----
Chairman Issa. I was actually asking the others, too,
because I think that you were a given. But Leyland, you
wouldn't be part of that directly; but indirectly, you would.
If they make putting green energy up in the Gulf much more
difficult, your project might go from a profit to a loss. But
in the meantime, you're still renting. Right?
Mr. Leyland. I think that's true. You know, we are safer
inside State waters. So you know, we--thanks be to Texas, we're
kind of immune from that. But I think----
Chairman Issa. Well, I wasn't going to suggest on behalf of
Texas, because the Railroad Commissioner already left. But, you
know, if they were the problem, I'd suggest that they share the
solution, too.
Mr. Leyland. Well, yes, I think that's true. We do get a
lot of support from the State, you know, a lot of
encouragement.
Chairman Issa. My time has expired. Just briefly, would you
say that that should be a scheme we try to do on behalf of the
American people?
Mr. Parker. We try to get that in with our clients. If they
change the rules after a contract is let, we expect to be able
to go to them and----
Chairman Issa. You get paid for change orders?
Mr. Parker. We believe in change orders.
Chairman Issa. Geez, I always try to avoid that.
Mr. Parker. I'm a contractor. I have to believe in change
orders.
Chairman Issa. I know. You lose a little money until the
first change order.
Mr. Parker. Yeah.
Chairman Issa. Well, thank you.
Mr. Farenthold.
Mr. Farenthold. Thank you, Mr. Chairman.
Mr. Stanford, as a result of what you've gone through and
seen, do you think we're creating an environment where only the
majors can play in deep water? Are y'all going to continue in
deep water or----
Mr. Stanford. I think that the playing field is not level
anymore. I think the major companies have an advantage just by
virtue of the amount of resources they have and the amount of
revenue that comes from that. The distribution of those costs
are more proportional than they are to us. So yeah, I think
there is a shift of advantage there.
Mr. Farenthold. And you're talking about all of the money
that it's costing you, and in fact, it's costing the Federal
Government some money to implement all of these new rules and
regulations.
I'm concerned that we're taking the wrong approach to this.
Obviously, we've got to ensure safety, but the Gulf of Mexico
isn't just U.S. water. It also includes waters controlled by
Cuba and Mexico, in which all of, no matter how many
regulations we pile on folks operating in U.S. waters, or on
U.S. companies, it's not going to have a lick of effect on the
Cubans or the Mexicans.
Do you think it might be a better use of the resources to
develop spill responses and technologies and training for
people to respond for whenever this, when this happens again,
in non-U.S. waters, be it in the Gulf of Mexico, the Arctic, or
anywhere else in the world?
Mr. Stanford. I tell you where it would be a benefit. The
Bay of Campeche is not very far from here. And they polluted
Texas beaches, you know, in the 1970's that lingered for many,
many, many years. So I can only see that would be a benefit.
Mr. Farenthold. And I think you were also talking about
pulling, when you're done, having to remove the rigs, and the
value of the real estate in the Gulf of Mexico. Do you find--
y'all do some shallow water, too, or you just----
Mr. Stanford. Sure, we do.
Mr. Farenthold. Do you find, especially in the shallow
water, that you tend to have fishing boats around your rigs?
Mr. Stanford. Always.
Mr. Farenthold. And they kind of create artificial reefs
and wildlife habitats?
Mr. Stanford. Right.
Mr. Farenthold. Does it make sense that we're requiring,
when we're spending money to sink Navy ships to make artificial
reefs, we're requiring oil companies to spend money to remove
reefs that they'd rather abandon in place?
Mr. Stanford. I do. I think that the number of platforms
that are turned to reefs is much less than it used to be. It
used to be a component you could negotiate, especially off the
State of Louisiana. But there's a big benefit to that.
My issue is with the relatively young modern platforms that
meet the current qualifications, that have to be taken out
because they lapsed a few months of being useful, when it could
be useful to somebody else. And it's important in development.
Mr. Farenthold. Mr. Parker, you do turnarounds for
refineries. But we're not, you're not building any new
refineries, are you?
Mr. Parker. There has not been a new refinery built since
1978 in the United States. There have been some large
expansions. Primarily, over in Garyville, Louisiana, there was
a large expansion by Marathon. And in Beaumont, Port Arthur
area, Motiva did a big expansion.
But beyond that, most all of the capital expenditures have
been for diesel, hydrogen sulphurization, to meet the low
sulfur diesel and gasoline requirements, which contributes not
a dime to the bottom line of refining and petrochemical plants.
It's strictly a cost of doing business.
Mr. Farenthold. And we're at or near capacity in our
refineries now nationwide. Is that an accurate statement?
Mr. Parker. Yes. I mean, those type projects, the ones that
are environmental related, are simply so they can keep
operating. They don't do anything for the bottom line.
Mr. Farenthold. Do you think there's a chance we'll ever
get some more refineries in the United States? Would this cheap
natural gas overcome the regulatory costs of building one here?
Or are we just done with----
Mr. Parker. I think there's a possibility that, assuming
the natural gas stabilizes at a low dollar, you could see some
possible new ethylene crackers come in more on the
petrochemical side of the business than on the refining side.
Mr. Farenthold. And for people with environmental concerns
about the refining, would any refinery built in the United
States be cleaner than a refinery built anywhere else in the
world?
Mr. Parker. You know, I can't speak for 100 percent of the
refineries in some of Europe, the European countries, but I can
tell you that compared to a lot of the Third World countries,
Vietnam, India, China, our refineries are substantially more
modern, in terms of environmental controls.
Mr. Farenthold. And Mr. Mower, could you talk a little bit
about what the abundance of relatively low cost natural gas and
wind energy, to keep our electricity affordable, how is this
making your job easier? What--are you seeing more interest in,
you know, what type of industries are we looking at? What kind
of jobs and wages are we looking at in those industries?
Mr. Mower. Power is very important. Land, water, power,
people. That's what you do in economic development, you sell
land, water, power and people. But we have those assets.
The projects we're trying to do now, we report monthly to a
board of directors. The numbers are almost staggering in terms
of investment and jobs, of projects that are looking in this
region. And it's across the board. I would say generally, it
looks like industry we have in the region today, but we're
certainly seeing some new industries come into the marketplace.
Natural gas, natural gas is really important. When you look
at the competitive environment, when companies are looking to
site a facility, they may get better power in another State. We
offset that with lower gas prices. They may have better
property taxes in another State. We offset that with a 45-foot
channel.
So it's having a balance of, the balance of our assets that
gets us in the competition. Natural gas kind of sways things to
our advantage.
Mr. Farenthold. Do I have time for one more question?
Chairman Issa. Of course.
Mr. Farenthold. I wanted to ask Mr. Parker, you operate
across the country doing these turnarounds. These refineries
want to be turned around quickly. How many people does your
company employ?
Mr. Parker. Today we have about 3,000 working in some 30
States. They're all based out of the Gulf Coast, and the
majority of those, probably 2,200, 2,300 of them, are Texans.
Mr. Farenthold. Are you having trouble finding good people,
or are you getting good people?
Mr. Parker. We absolutely have trouble finding good people.
And this is something, it really probably wasn't the topic of
this hearing, but the fact that a lot of people--we have
employees that are ex-employees that are drawing unemployment.
They won't come back to work for us unless we can guarantee
them 3 months' worth of work. So if we have a month job or
month-and-a-half job, they'd rather just stay on unemployment.
That, that is hurting us.
The other thing is we have a lot of trouble, and I would
venture to say the drilling companies do, too, finding
employees who can pass the drug test. That is a major problem,
not only in Texas, but when we work in California, Washington,
everywhere we go. And I----
Mr. Farenthold. Typically, what does somebody who works for
you make?
Mr. Parker. Anywhere, we have boilermakers that make
$70,000, $80,000 a year, on up to $140,000, $150,000.
Mr. Farenthold. All right. Thank you very much.
Mr. Parker. And we are Merit Shop contractors by the way.
Mr. Farenthold. Thank you.
Chairman Issa. Well, I appreciate your going into areas
besides just directly energy, because one of the reasons that
we do field hearings is to get more than just what you hear
inside Washington.
I would like to follow up just briefly, very briefly,
slightly off track of energy. We are going to be periodically
reconsidering the 99-week Federal unemployment. How would that
impact an area like this?
You have low unemployment here, by comparison to the
national average, different parts of the State. You're in the
sixes or sevens, or sometimes even lower.
How do you view the effects of, as employers, particularly
the effects of the Federal policy of this 2-year unemployment?
How does it affect your ability to get workers? You sort of
started on that, Mr. Parker.
Mr. Parker. I truly believe--this is a personal belief--
that if you don't give people an incentive for going back to
work, they're not. Regardless of all of the discussions out of
Washington, that all these people really want a job, if you can
make $30,000 a year sitting at home watching television, or you
can go out and work, a lot of people choose the other.
I think the thing that we could do to really improve the
employment situation is to reduce the amount of unemployment.
Chairman Issa. Now, you mentioned the 1-month versus 3. How
do you account for that, you know, people won't come back
unless you guarantee them 3 months?
Mr. Parker. They, they just feel that unless we can
guarantee them, you know, like a permanent job--in our work,
we're a contractor. When we have a lot of work, we hire a lot
of people. When we don't, we lay off. So our work is cyclical.
But these guys have been doing this work for 25 years. But
the fact that now they can be, for 99 weeks, they can actually
sit at home--that doesn't mean they're not working. It just
means they're working maybe not, not on the record.
Chairman Issa. That's what I was getting to. Isn't there
sort of a secondary market that builds up when hard-working
people, over a period of time, are taking, as you say, $34,000,
plus, do either abating costs by working around the home and
projects, or are actually earning in some other way?
Mr. Parker. Absolutely. That's what I was alluding to.
Chairman Issa. Well, I appreciate all of your comments.
What I said to the first panel, I'll say to you. We would
appreciate your additional thoughts that come out of this. We
are going to hold a number of other energy-related hearings.
And the one that we know will be in the series, but in
Washington, will be a geopolitical one, one about the impact of
being able to be a supplier of energy, rather than a net
consumer.
And so any thoughts that any of you have on it, as American
citizens, or as people knowledgeable of just how much power
potentially is coming online that can be entered, I should say
that can be made part of the world market, we'd appreciate your
thoughts.
In addition to that, the record will stay open long enough
to get any other comments, and quite frankly, for everyone to
get back and let the Members know what they missed by not being
here.
Well, you can applaud in a second for all of our panelists,
but I do want to thank the audience. You've been applauding
when you thought it was right, very nicely, and it's been a
very congenial hearing.
And particularly, I want to thank the people who brought
young children, or not-so-young children, to learn from today's
civics lesson, if you will.
And with that, you may applaud. We stand adjourned.
[Whereupon, the committee was adjourned.]
[Additional information submitted for the hearing record
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