[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







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                      http://www.house.gov/reform

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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

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

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



















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on 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 
follows:]




                                 
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