[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
POWERING DOWN: ARE GOVERNMENT REGULATIONS IMPEDING SMALL ENERGY
PRODUCERS AND HARMING ENERGY SECURITY?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS
of the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
HEARING HELD
MARCH 8, 2012
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 112-057
Available via the GPO Website: www.fdsys.gov
_____
U.S. GOVERNMENT PRINTING OFFICE
76-464 WASHINGTON : 2012
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
CHUCK FLEISCHMANN, Tennessee
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Director
C O N T E N T S
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OPENING STATEMENTS
Page
Hon. Mike Coffman................................................ 1
WITNESSES
Tim Barber, Environmental/Federal Regulatory Supervisor, Yates
Petroleum Corporation, Gillette, WY............................ 2
David Ewing, President, Ewing Exploration Company, Sugar Land, TX 4
Kimberly J. Rodell, Regulatory Project Manager, Banko Petroleum
Management Inc., Englewood, CO................................. 6
Mark Squillace, Professor of Law and Director of the Natural
Resources Law Center, University of Colorado Law School,
Boulder, CO.................................................... 7
APPENDIX
Prepared Statements:
Tim Barber, Environmental/Federal Regulatory Supervisor,
Yates Petroleum Corporation, Gillette, WY.................. 25
David Ewing, President, Ewing Exploration Company, Sugar
Land, TX................................................... 28
Kimberly J. Rodell, Regulatory Project Manager, Banko
Petroleum Management Inc., Englewood, CO................... 30
Mark Squillace, Professor of Law and Director of the Natural
Resources Law Center, University of Colorado Law School,
Boulder, CO................................................ 44
Additional Materials for the Record:
Supplemental Statement of Mark Squillace..................... 52
Coatings Engineered for Ultimate Performance Cerenzie
Engineering Consulting Letter for the Record............... 56
POWERING DOWN: ARE GOVERNMENT REGULATIONS IMPEDING SMALL ENERGY
PRODUCERS AND HARMING ENERGY SECURITY?
----------
THURSDAY, MARCH 8, 2012
House of Representatives,
Committee on Small Business,
Subcommittee on Investigations,
Oversight and Regulations,
Washington, DC.
The Subcommittee met, pursuant to call, at 10 a.m., in room
2360, Rayburn House Office Building. Hon. Mike Coffman
(chairman of the subcommittee) presiding.
Present: Representatives Coffman, Tipton, West.
Chairman Coffman. The hearing is called to order.
I appreciate the witnesses for appearing today.
The point of today's hearing is to hear directly from small
oil and gas producers regarding the barriers the federal
government has enacted and the frustrations they face in
producing oil and gas on federal lands. I doubt that there is a
member on this Committee who does not receive a call from a
constituent every day regarding high energy prices, the poor
state of the economy, the lack of jobs, or the federal
government's enormously high budget deficit.
President Obama claims that the solutions to these problems
are complex and that there are no easy answers or solutions.
However, I believe we will hear today there are things the
government can do to address all of these concerns in party by
producing more energy at home. Expanding domestic energy
production will bring more oil and gas to market, helping ease
rising gas prices. Expanding domestic energy production will
create jobs both with the firms drilling for oil and gas and
those that support these activities.
Finally, expanding domestic energy production will bring
new revenue to the federal government without raising taxes
through the payments of rents and royalties on lands leased and
those put into production. The ability to produce more domestic
energy exists. Unfortunately, what is non-existent is the will
on the part of this administration to utilize the oil and
natural gas we have.
In the past few years, the number of new federal lands
available for oil and gas production has dropped significantly
along with approval of permits to drill. While the
administration likes to claim oil production has increased
under its watch, the U.S. Energy Information Agency has found
that overall production is below previous estimates and are
projected to fall further. Addressing these declines has been a
priority of this Congress and a number of legislative proposals
have been introduced and voted out of the House to open up
America's energy potential and expand business opportunities
for small firms. Unfortunately, these are still awaiting action
in the U.S. Senate.
At the same time, an oil or gas lease is worthless unless
the company can obtain a permit to drill. This is why I have
introduced legislation that would require BLM to annually
inventory and report the 200 nonproducing lands with permits to
drill pending that have the highest potential for oil and gas
development and requires the BLM to issue these permits within
180 days of issuing its report. I will agree with the president
that expanding domestic production of energy is no panacea to
our nation's ills, but it offers part of the solution. And a
solution that releases the entrepreneurial spirit of small
businesses is preferable to policies that impose excessive
regulations and new taxes on the very small firms we all look
at to help rescue us from our current predicament.
Chairman Coffman. Let me go over the hearing rules just for
a second. If Committee members have an opening statement
prepared, I ask that they be submitted for the record. I would
like to take a moment to explain the timing lights for you. You
will each have five minutes to deliver your testimony. The
light will start out as green. When you have one minute
remaining the light will turn yellow. Finally, it will turn red
at the end of your five minutes. So I ask that you try to keep
to the time limit but I will be a little lenient as you finish.
And keep in mind we can put your written statements in the
record as well. So you are free to talk in a more informal
manner.
STATEMENTS OF TIM BARBER, ENVIRONMENTAL/FEDERAL REGULATORY
SUPERVISOR, YATES PETROLEUM CORPORATION; DAVE EWING, PRESIDENT,
EWING EXPLORATION COMPANY; KIM RODELL, SENIOR PROJECT MANAGER,
BANKO PETROLEUM; MARK SQUILLACE, PROFESSOR OF LAW AND DIRECTOR
OF THE NATIONAL RESOURCES LAW CENTER AT THE UNIVERSITY OF
COLORADO LAW SCHOOL
Chairman Coffman. Let me introduce first Tim Barber from
Yates Petroleum Corporation. Our first witness today is Tim
Barber of Yates Petroleum Corporation. Yates Petroleum is a
425-employee oil and gas production company with operations in
New Mexico, Wyoming, and Colorado. Mr. Barber works in the
company's Gillette, Wyoming office where he currently serves as
manager of regulatory affairs. Mr. Barber, you may deliver your
testimony.
STATEMENT OF TIM BARBER
Mr. Barber. Good morning, Mr. Chairman and members. Thank
you for the introduction.
My comments here today are based on direct experience with
Wyoming BLM and I think there are two foundational problems
with how BLM is conducting itself that I believe you are
interested in.
Number one, BLM and Interior are daily adding unneeded and
duplicated regulation through policymaking, guidance documents,
instructional memorandum, and individual staff interpretation,
none of which go through a rulemaking process or are approved
by Congress but are treated as if they were actual rule or
regulation. I call this entrepreneurial regulation.
Number two, BLM is not following its foundational actual
rule and actual law that it is required to. Ironically, the
reason many times that they give for not following the
foundational regulation is that they are too busy working on
number one.
Let me provide some specifics. Onshore number one spells
out an orderly process for the approval of APDs, which we may
know as application for permit to drill that binds BLM and the
applicant to processing timelines. The onshore order process
should not take any more than 90 to 120 days for BLM to approve
an APD. At the BLM office in Buffalo, Wyoming, applicants
regularly wait two years after their application, and some
applications have been in that field office for five and six
years awaiting approval. Some of the lengthier APDs have been
hostage to the Resource Management Plan Amendment Process,
which has delayed the working of those APDs.
The Buffalo BLM office was interestingly funded with
additional monies by Congress to be able to be capable of
approving 3,000 APDS per year. I have included in your packet a
BLM spreadsheet of their APDs that they have approved this
fiscal year. They have approved only 80 wells since October 1,
2011, and during the period between December 7, 2011, and
February 29, 2012, though over 940 drilling permits were
awaiting approval, no APDs were approved.
Included in your handout information is an overview of the
timelines that are in the actual regulation for your review.
When an affected party has a problem with a BLM decision, their
only path available to pursue an appeal is to go through a
process called a State Director Review, and that is provided
for in Onshore Order No. 1. State Director Review decisions are
required by regulation to be issued in 10 days. In Wyoming,
these appeal decisions are taking nine months or more.
BLM's duplicated and conflicting efforts are very
concerning to me. Some examples are BLM's working currently on
a policy for hydraulic fracturing for federal mineral wells.
States all over the place, like Wyoming, already have an agency
that regulates all wells, not just federal mineral wells. There
is no need for BLM to embark on this effort. In Wyoming, BLM
has recently come up with an instructional memorandum on the
use of drilling pits for federal mineral wells. Same situation
exists here. There is a state agency that has regulation in
place that covers all wells. There is no need for BLM to add
another layer of regulation.
On a local level, BLM officers are coming up with their own
preferences on things like how to build roads, reclamation of
closed locations, requirements for well control, and even how
to apply for a drilling permit, even though actual regulation
already exists for each of these situations. The net effect of
these non-rule regulations is that the agency accomplishes less
at a higher cost to the agency, a higher cost to the taxpayers,
and the regulated community. Longer APD processing times,
arbitrary decisions not based on actual regulation, and less
viable oil and gas projects, and less potential for drilling
and production are the reality.
It is my opinion that there are two primary paths to
resolution here. (A) Congress should strongly consider auditing
offices like the Buffalo BLM office to find out what has been
accomplished with the additional budget resources that has been
provided to them. And I am sorry to say that I do not think
that you will like what you find. The audit process should be
ongoing with weekly or monthly updates provided as to things
like APD processing. I think the privilege of an increased
budget should come with a responsibility of demonstrating that
that budget is bearing fruit.
Secondly, Congress may want to provide direction to the
agency, its director, and Interior regarding what I have called
entrepreneurial regulation. The direction can come in several
forms, including defunding the agency when it heads in the
wrong direction. BLM's resources and strength is best focused
on managing lands for multiple use, not building layers of
personal interpretation dressed up to look like actual
regulation.
I wish to thank you for your time and for your attention,
and I would consider it a great opportunity to answer any
questions that you might have for me.
Chairman Coffman. Thank you, Mr. Barber.
Our next witness is Dave Ewing, president of Ewing
Exploration Company, a small prospecting company based in Sugar
Land, Texas. Mr. Ewing has been involved in the oil exploration
business for several decades working for both independent as
well as major oil production companies before starting his own
firm. He will testify today regarding the problems his company
has experienced in developing a project in Wyoming.
Mr. Ewing, you may deliver your testimony, please.
STATEMENT OF DAVE EWING
Mr. Ewing. Good morning, members of the Small Business
Committee.
My experience in North America spans better than a couple
of decades. I have been 60 years with emphasis on the Rocky
Mountain states, Gulf Coast, and Western Canada. I am here
today to discuss BLM's decisions which are causing the possible
loss or probable loss of a high quality, high reserve potential
oil prospect in the southwestern portion of the Bighorn Basin
in Northern Wyoming.
In 2005, our company initiated an exploration program to
locate drillable prospects in that southwestern Bighorn Basin,
looking for folded anticlinal structures which there in that
basin are critical to entrapment of oil. To date, in excess of
3 billion barrels of oil have been produced in the basin from
structures and every known structure has been drilled with
almost every one being productive. The only remaining area in
the basin where a structure could have eluded the drill is in
the area where my company is exploring. In the southwestern
portion of the basin you have geologic structures formed at the
same time as all the other productive structures were formed.
When Yellowstone Park erupted 800,000 years ago, ash in the air
moved to the east. There was a lake in the Bighorn Basin at
that point in time. That ash dropped out in horizontal layers,
sedimentary volcanic on top of those structures causing you not
to be able to map those structures like you had in the balance
of the basin just looking at surface data.
To develop a structural picture under those flat lying
sediments we first purchased 70 miles of existing seismic data
and then based on that interpretation we bought over 4,500
acres of federal, state, and fee lands and of the 28, almost
3,000 acres we purchased from the BLM, they evaluated them
under the old RMP using NEPA regulations.
In June 2008, we shot two new red seismic lines. They are--
that is me. Okay. Could we put that map up, please? I am going
to keep going.
We shot two additional red lines to develop a better
structural picture. Again, to do that seismic we had to go to
the BLM and get them to approve everything to do with those
lines, including all the NEPA analysis that was required. In
September of '09, the BLM issued to us a permit for a 6,500-
foot exploratory well. The permit approval took better than a
year to get but when we drilled the well we got a dry hole but
got information that said we should be considering additional
exploration in there.
Additional fee and state leases still not showing up on the
map in green and purple. The blue leases on the right are the
nominated leases that we put up for sale in 2010 November. I
flew into Cheyenne the day before the sale. They pulled those
parcels down; said they needed additional NEPA analysis.
Amongst that blue you will see a purple lease. That is a state
lease, five-year lease which is in its second year, close to
being in its third year. And we are going to get five years on
them. The red, the yellow, the buff to the west are leases that
we bought from 2006 through '07, '08, and '09, which put us in
a position to drill that first well I talked about. When we
drilled the well we tried to post against that one little 160
acres in purple and it turned out that they did not issue the
lease until after we drilled the well offset to the lease,
which fortunately I guess you would say, it was a dry hole.
After we did that then I posted--they told us that they
would post the acreage again in '12. They pulled it down a
month ago in February '12. At this point they have told me that
now those leases will not come up again until the earliest in
2014. That all is contingent on approval of the consolidation
of the RMPs currently underway in the Bighorn Basin.
To conclude, I would just simply say there are several
questions that need to be addressed by your Committee or to
your Committee. One, why did the partial withdrawals occur
without any regard for EEC's ongoing activities? Two, what was
the BLM's motive for obstructing EEC's opportunity to acquire
these leases? Three, was there a reasonable alternative
available to the BLM? Four, why was the RMP consolidation
undertaken in the first place? And five, why did the BLM not
consider or give any consideration to the county commissioners
who were part of the co-operators in the approval of the RMP
consolidation? They are frightfully mad and I am through, Your
Honor.
Chairman Coffman. Thank you very much.
Our next witness is Ms. Kim Rodell. She serves as senior
project manager for Banko Petroleum, a nine-person engineering
consulting firm headquartered in Englewood, Colorado. In her
capacity as senior project manager, Ms. Rodell assists small,
independent oil and gas producers with federal regulatory
compliance. She will be testifying regarding the inconsistent
limitation and policies she and her small firms' customers
experienced in complying with federal regulations.
Ms. Rodell, please deliver your testimony.
STATEMENT OF KIM RODELL
Ms. Rodell. Hello, Mr. Chairman and members.
Again, my name is Kim Rodell, and I am with Banko
Petroleum. We assist companies in navigating the federal
regulatory maze. The oil and natural gas development in the
west is critical to our economies and our growth. These
critical jobs branch out directly and indirectly in a variety
of different directions from those working directly from the
operators to those service companies to restaurants to retail.
The growth in the economies is from people who have stable,
well paying jobs, and who are willing to put money into their
communities.
Independent energy companies, often comprised of 12 or
less, develop 95 percent of the oil and gas wells within our
country. These businesses produce 54 percent of American oil
and 85 percent of American natural gas. Though oil and gas
developments occur on both federal, state, and fee surface--and
minerals, I apologize. However, because of the uncertainty of
operating on federal lands, many of those who are willing to
invest in these developments turn to the state and fee
minerals, cutting out any potential royalty payments to the
federal government.
We encounter a lot of challenges like everybody else. Our
biggest is the inability to plan and the uncertainty as to when
approvals may be issued. Along with approvals, conditions of
approvals are attached to these permits and sometimes, although
we may know what might be attached, these are never finalized
until the final permit is issued. Conditions of approval
oftentimes include timing limitations due to wildlife. These
timing limitations can place very tight drilling windows on
operators, sometimes as tight as 45 days.
In the Rocky Mountain region, we drill in complex geologic
zones with the average well taking 90 to 120 days to drill and
complete, if not longer, if the geologic structure is more
complex or down hole issues are encountered.
Our biggest concern right now is the sage grouse which is a
nonthreatened and endangered species. This bird has been
creating devastating uncertainty in the West. The protections
put in place on this bird resemble those close to a true
threatened and endangered species. The protections put on these
hunted birds give us, you know, it does not allow us to play
because there can be so many limitations along with areas that
we have to avoid completely--no surface occupancy and
restricted surface occupancy areas, sometimes never listed on
the initial leases. The birds live in sage brush habitat
throughout the West, basically everywhere where oil and natural
gas development occurs.
While BLM is trying to protect both the numbers and
contiguous habitat, those of us who operate understand the need
for those protections; however, getting restrictive limitations
with regards to the BLM and the Divisions of Wildlife make it
very cumbersome. While trying to plan a drilling schedule,
small operators are more limited than their larger cousins, who
sometimes have areas in different geographic areas and under
different timing limitations, so they can move rigs, staff, and
equipment while those smaller independents often area in one
geographic area and are often restricted to wading through
those timing limitations and the inability to plan in such an
uncertain regulatory environment.
Again, the small operators are affected. They have invested
money and time, equipment, and they are put on hold. Onshore
independents employ 2.1 million people, and this figure is
anticipated to rise to 2.6 by 2020. Approximately 63,000 man-
hours are needed for every individual well drilled. The federal
government receives $40 in royalty and leasing bonus payments
to the federal government for every one dollar invested in the
natural gas and oil onshore program.
Just to give you an example, I am currently working a
project in a federal unit that has 37,000 acres. We have been
working on an access issue for over two years now. This
basically locks up 37,000 acres of mostly federal minerals and
the inability for these companies to hire in these areas. After
several meetings with the BLM prior to the submission of the
permits, we were given one option. We did everything necessary,
including with the BLM and all the agencies who were involved
in the project, and approximately six months later the permit
was returned unapprovable and denied.
At this point there are 37,000 acres of federal minerals
locked up along with jobs and royalties. We work and live in
these communities. We pay our taxes and send our children to
school in these communities. We enjoy a healthy outdoor
environment and are proud of the West. We also strive to ensure
that future generations enjoy both the beauty and strong
economies that we have experienced.
We would like to do our part to promote the production of
responsible energy and build a secure energy future.
I appreciate your time and thank you.
Chairman Coffman. Thank you, Ms. Rodell.
Our next witness is Mark Squillace. Did I say it right?
Mr. Squillace. Correct.
Chairman Coffman. All right. I got it right. Mr. Squillace
is a professor of law and director of the National Resources
Law Center at the University of Colorado Law School.
Mr. Squillace, you may now deliver your testimony, please.
STATEMENT OF MARK SQUILLACE
Mr. Squillace. Thank you, Mr. Chairman. And good morning.
I am delighted to be here to offer my views about some of
the opportunities and some of the obstacles that are facing
small oil and gas operators on our public lands. As the
chairman noted, I am a professor of law at the University of
Colorado Law School. I want to emphasize, however, I appear
here today on my own behalf and not on behalf of the
university.
I want to note first that my written testimony emphasizes
five key points. Those are that planning and environmental
assessment are important to sound decision-making; that the
BLM's process for administering leasing is problematic to the
extent that it protects existing leases at the expense of
lessees, like small operators who might come on our public
lands. In the written statement I highlight some of the
innovations and best management practices that oil and gas
developers have used, and some of these developments have
really been spurred, I think, by some of the small operators
and they deserve praise for that.
There are, however, some concerns that some of the
innovations are expensive to implement and the agencies do need
to be careful to make sure that companies are not
undercapitalized and have the finances to complete the work on
their oil and gas leases. And finally, I do want to give a
shout out, if you will, to the Environmental Protection Agency
for what are likely to be forthcoming air emissions
regulations. I know they are somewhat controversial, but I
think they are long overdue and necessary to protect public
health and to protect our environment.
This morning I would like to emphasize the first two
points. I am happy, of course, to answer questions about any of
these five points. So let me turn first to the question about
the BLM's planning and environmental assessment procedures.
I understand the concerns that have been expressed by some
of the witnesses, today, and I certainly do not defend
unreasonable delay on the part of the agencies in issuing
permits and giving approvals. But we should understand some of
the context here. I would note, for example, a recent reporter
noting that there are 7,000 approved APDs that have never been
drilled upon. It is also true that there are many leases,
thousands of leases that have been issued by the BLM that have
not been developed and there are no pending APDs on those
leases. Moreover, it is important to note that environmental
assessment cannot be blamed for all of the problems that we are
seeing with APDs as a result of the Energy Policy Act of 2005.
Many of the APDs are categorically excluded under NEPA, meaning
there is no NEPA analysis that is done. The GAO did a study at
the end of 2009 suggesting that many of these categorical
exclusions were unlawful, and I do not want to debate the
merits of the study on this but just to note that environmental
assessment cannot be blamed for many of these problems.
There is another important point to emphasize here
regarding drilling, which is that it is very difficult right
now to get a rig because of the demand for oil and gas
development, particularly oil development. There are just under
2,000 rigs operating in the United States today. My
understanding is it takes at least six months to get a rig onto
a site. In many cases it takes sometime longer than that.
I want to be clear that I do not think the process always
works as well as it should. It is one thing to say that
processes are good, and another thing to say that it works
well. I am not sure it works well; in particular I have been
critical of the agencies for their planning processes because I
think they are far too complex. They could be simplified. I
think one of the unfortunate consequences of complex planning
is that it takes resources away from site specific analysis and
oftentimes that site specific analysis becomes very rote. It is
boilerplate; it does not really help promote better decisions.
And so I think that is problematic.
Nonetheless, there are, I think, good things to be learned
from the environmental assessment process, and I want to
respond, I think, to the comment that Ms. Rodell made about the
sage grouse which is, I think, a really critical issue and she
rightly points out the controversy regarding the sage grouse.
It is true that the sage grouse has not been listed under the
Endangered Species Act. It is also true that in 2010 the U.S.
Fish and Wildlife Service issued a ruling that said that the
sage grouse listing was warranted but precluded. Kind of a
technical, legal term that suggested that indeed there was
evidence to list the sage grouse; it is just that there are
other priorities that are of a higher priority for the agency.
And the important point here is that it is in no one's
interest to see the sage grouse listed, and if we are to avoid
listing of the sage grouse we have to engage in robust planning
to ensure that proper controls are put into place. This is
particularly true today where we have horizontal drilling and
multiple well development on pads where you can move the pad
around to avoid some of the conflicts that exist.
I see I am running out of time but I would like to just
briefly address the second issue regarding overprotection of
existing leases by the BLM. This is a huge problem, and to
understand it you have to understand some things about the
Mineral Leasing Act. Its purpose was to discourage speculation,
to avoid monopolization of federal resources, and to assure a
fair return to the government for its resources. And a lot of
that has been undermined by the government's policy of allowing
existing lessees to get into units. This allows them to avoid
the 10-year primary term that exists under the Mineral Leasing
Act. Under the law you get 10 years, and if you are not
developing at the end of that 10 years, the lease is supposed
to expire. The problem is you can avoid that expiration if you
go into a unit.
The other, I think, significant problem here is that there
are acreage limitations under the Mineral Leasing Act. No
individual company can own more than 246,080 acres in a single
state, and that is to avoid the monopoly problem. But if you go
into a unit as a result of the Energy Policy Act of 2005 it
does not count against your state limit. I think it is somewhat
shocking to note that in January of 2011 there was a story in
the oil and gas journal about Encana Energy Company and the
fact that Encana was bragging about the fact that it holds
869,000 acres of leases in the Piceance Basin in Colorado. Now,
that is more than three times the federal limit. I want to note
that those are not necessarily all federal leases but the
Piceance is 80 percent federally owned. And the only way they
can do that is if many of these leases are in the units so that
they can avoid the acreage limitations. They brag that they
owned the basin, and this is one of the most productive basins
in the country.
Something really needs to be done here. I would urge the
Committee to get the General Accounting Office to do a study of
some of the problems that exist with this practice. This really
harms small operators because if those leases had terminated,
they would go back into the pool and small operators would have
a chance to bid on them and they would be developed. They are
now languishing. They are not being developed. The article in
the Oil and Gas Journal suggested that it would take 35 years
or more for Encana to develop all of its oil and gas resources.
This is a real problem and I want to encourage the Committee to
look at ways in which we can increase transparency, and have
BLM rules that promote unitization in ways that are better for
the small oil and gas operators.
I am sorry for going over my time but thanks for your
indulgence.
Chairman Coffman. Thank you so much.
Let me ask the first question and then I am going to defer
to Congressman Allen West of Florida and then we will probably,
obviously since there are two of us we will do a second round
if necessary.
In Colorado, and this is maybe anecdotal, but in talking to
the oil and gas companies it seems that there is very limited
interest in public lands at this point in time and I think
across this country. And I think the movement is to fee lands.
And so when we see reports of increased drilling or development
in the United States it seems to be off of public lands onto
fee lands. And I wonder if, number one, is that true? And
number two, how do you account for that? I mean, I do not see
any appetite whatsoever right now in terms of new development
on public lands. Mr. Barber.
Mr. Barber. That is a very good question, Mr. Chairman.
Certainly there is more quick opportunities and a smoother
planning ability when state and fee lands minerals are pursued.
In some areas like the Powder River Basin where I work, two-
thirds of the minerals are owned by the federal government, so
you really have to be in the federal mineral game in order to
develop. One of the things that worries me is that in basins,
in formations where porosity is high and minerals can flow,
whether it is natural gas or oil, the federal mineral estate,
because it is not being developed as quickly as the state and
fee minerals can actually change ownership by moving from one
leasehold area across through a well bore that is actually
producing.
So if I am here in section one with a federal lease that I
am waiting for a permit on and surrounding me there are
privately owned or state owned minerals, those minerals under
the right geologic circumstances can actually change hands. And
so those minerals that could have been produced and paid
royalties to the federal government and ultimately to the state
are not producing. That is very concerning. I wonder if the
public in the U.S. knows that potentially their minerals may be
produced up somebody else's well bore.
Chairman Coffman. Any other comments on that? Yes, Ms.
Rodell.
Ms. Rodell. I often see the overarching regulatory agencies
and the uncertainties in which the smaller operators, the
environment which the smaller operators are looking at and
operating in definitely turns them away from operating on
federal lands. And although some of these federal lands are,
you know, they are 10-year terms, sometimes it takes us eight
years to get to even the process of submitting some APDs.
Leases can be nominated, they can be paid for, and they cannot
be issued. So there are times when we are waiting for leases to
be issued or we are going through some environmental--and again
I stress, the environment is important to all of us but we can
have so many different layers. And currently we have got 11
federal agencies that are trying to take aim at the oil and gas
companies. These oil and gas companies cannot--they cannot plan
in such an uncertain environment and so they do; they move to
fee and state minerals because the process takes a fraction of
the time. Although, oftentimes the same parts of the operations
are put in place, the permitting can take, you know, it usually
can take less than 30 to 60 days.
Chairman Coffman. Mr. Squillace.
Mr. Squillace. Yes. I do not want to dismiss certainly the
points that have been made about the problems with
overregulation and the difficulties that some of the companies
have been having, but it is important to keep in mind that
natural gas is at a historically low price right now. The
general counsel for one of the major companies told me recently
that they are not even looking at gas plays at this point in
time because of that low price. She told me that they cannot
make a profit on gas plays. And I think that is certainly
having an effect on lower demand.
Again, it is not the only thing that is going on. If you
look in Wyoming, most of the plays are gas plays. There is
interest up in the Niobrara because those are liquid
hydrocarbon plays and I think there is a lot more profit to be
made in the liquid sector.
Chairman Coffman. Mr. Ewing.
Mr. Ewing. I would like to comment on those remarks. My
experience with Amoco for 15 years, I, number one, I would like
to comment about the unitization. I thought that the entire
time I was with Amoco. We spent millions and millions of
dollars. We had a huge staff. We explored everywhere in Wyoming
and other states. Whenever you find a prospect area you have to
get seismic, you have to spend a lot of money putting the
leases together and everything, and you get to a point where
very quickly you are up to the 246,000 acres and the only way
that you are going to, once you buy that acreage, the only way
you are going to get it off your books and make yourself legal
is to form a unit. Now, when you form that unit you are told
you will drill wells by such and such a point in time, and if
you do not, the unit will be terminated. So that is the manner
in which people will go in. And Professor says they are
bragging about how much acreage they hold. They have got
obligations in every one of those units down there that you are
talking about.
As far as fee versus federal, I ran smack into that. Fifty
percent of the well we drilled up in the Bighorn was people
down in the Houston area that I brought into the prospect, and
when they were still with me, when we nominated those lands to
drill a second well, when they found out that the BLM had
pulled down those leases they just all called and said, sorry,
we are out. So in effect I lost half of my investors at that
point. And a small operator lives on what he has and the
investors that he can bring in because there are not many small
operators who have the production wherewithal that will allow
them to go out and take all the risk of the drilling
themselves. So I wanted to make that point.
I have a question myself. Will I have an opportunity to
give you any testimony after the questioning is completed? I
would like to.
Chairman Coffman. Sure. Absolutely.
Mr. Squillace. Thank you.
Chairman Coffman. Let me do one more question and then I
will defer to Congressman West for some questions. And that is
on the deadlines that BLM has, and I think that Mr. Barber, you
mentioned one specific deadline that was ignored. What are the
most salient examples of deadlines that BLM has that they
ignore and that hurt small operators?
Mr. Barber. I am referring to this printout slide that says
``APD processing: What does the regulation say?''
When an operator comes into BLM with an application for
permit to drill, the first thing they have to do is provide a
$6,500 application fee. Keep in mind this is an application
fee. It is not refundable and it does not guarantee a
processing time or a permit. BLM is required by Onshore Order
No. 1 to follow these steps.
Number one, they have to post the APD for 30 days prior to
a decision. I think that is typically met by most field
offices. BLM has 10 days to notify the operator if the
application is complete. Some offices meet that and some
offices do not but it is specifically required in the
regulation. BLM then has 10 days to schedule an onsite
inspection. That is rarely met in the offices I work with. If
deficiencies are identified, the operator has 45 days to
respond to those deficiencies. Typically those are met because
the operator wants to keep the project going. And then once the
deficiencies are addressed, if there are any, BLM has 30 days
to reach a decision. That, in my experience, is almost never
met currently. And when BLM does not meet these timeframes
stretches out the process.
I talked earlier about when an operator has an issue with a
BLM decision they go to an appeal at a state director review
and that process was set up to deliver a quick answer from the
state office of BLM to the field office as to whether that
field office's decision was correct or incorrect. Those are
regularly now in Wyoming taking 90 days or far more, many times
close to nine months. And when an operator does not get an
answer on that, not only (a) are they sort of robbed of their
due process, but (b) BLM keeps making that decision over and
over and over and it causes actually more of those appeals to
happen.
Chairman Coffman. Ms. Rodell.
Ms. Rodell. I agree with Mr. Barber. We understand that
onsites cannot be scheduled until there is no snow on the
ground, so in the West--that is my primary area of operation--
sometimes we do have to wait. However, I have seen the onsite
process take over a year just to schedule an onsite. In
addition, with regards to the 45-day deficiency response, I
recently have run into that area where you do receive an
official letter from the BLM, you respond to the deficiencies.
However, I had three additional e-mail deficiency responses
come, all with very different deficiencies. These are not
because the original deficiencies were not addressed; these
were different deficiencies. And, you know, the consensus of
the industry, of the oil and natural gas industry, are these
are just obstructionist moves to keep these permits locked up
for years.
Chairman Coffman. Any other comments?
Mr. West from Florida.
Mr. West. Thank you, Mr. Chairman, and thanks to the panel
for the long distances that you traveled to be here. And this
is obviously one of the most important conversations we could
be having in our country right now.
Dr. Squillace, you made a comment about the 7,000 approved
APDs that have not yet been drilled upon. Out of those 7,000,
is it proven that all of them have resources that are there? I
mean, these are not dry holes?
Mr. Squillace. The point is that they have not been drilled
upon at all so we do not know whether they might find something
or not. I mean, I do not want to suggest that because the APDs
were not drilled upon that there is necessarily a problem. The
industry needs to make choices and decisions about timing of
development. If the price of gas, for example, goes down and it
is not profitable for them to develop at that particular point
in time, it may be a perfectly rational decision not to develop
that particular well even if they have an approved APD.
The point is that from the agency's perspective there is a
lot of work that they are doing that essentially does not go
into helping companies like these that we have heard from today
get the permits that they need. And I do not know what the
answer to this is. I mean, it would be nice if we could figure
out a way to make sure that the agency's resources are used for
those permits where development is actually going to take
place. It does not always happen and maybe there is no simple
solution to it, but I do want to point out that from the
agency's perspective there are these sort of dislocations in
terms of their allocation of resources as well.
Mr. West. Mr. Barber.
Mr. Barber. Thank you, Mr. West.
I think it is important to understand that when an oil and
gas operator shows up at a BLM office with an application for
permit to drill that they have to be very serious about that
prospect at least as they know it at that time. They might
bring a 50 well project in and they would need to cut a check
for over $300,000 in order to just apply for those. They
conduct archaeological surveys, wildlife work, many processes
to help the NEPA process move forward. What they sometimes do
not know that I referred to a little bit in my testimony is
what that project will look like when it comes back from BLM
finally approved. And many times those projects can come back
so regulated and so gutted, if you will, that it is difficult
to make an economical project out of them. We also have to look
at the market conditions that were referred to earlier. Things
like pricing at that point in time, rig availability, et
cetera.
Mr. West. Yes, Ms. Rodell.
Ms. Rodell. Due to the uncertainty that these smaller
operators try to operate in with the overarching regulatory
structure there is no planning. And sometimes a smaller
operator--and these fees are $6,500--sometimse a small operator
might have to put in 20 APDs hoping that they can get two
through the permit process to the time when they need to look
at scheduling rigs. No rig company will sign a contract with an
operator that does not have an approved permit. So sometimes
these operators put in multiple permit applications hoping to
pull a handful of permits that have a drilling window that they
can reasonably drill in and outside of timing limitations.
Mr. West. Next question, and I am a pretty simple, I am
sorry, Mr. Ewing.
Mr. Ewing. In discussing this situation with these APDs,
because of the recent bust in the price of gas, that also has
had an influence on some of the attempts to go ahead and
develop acreage. You know, you went from four in the last
year--you went from $4 down to what, $2.25, whatever it is now.
And when that shale gas play got going, many small operators,
many small land people even jumped in, grabbed leases, sold
those leases to small companies. Small companies ultimately
found out they had bitten off way more than they could chew
because of the BLM restrictions on regulations and the ultimate
cost of drilling and deviating a hole outward. So a lot of the
APDs that are still sitting there undoubtedly are not only
related to what Mr. Barber said but are people that got stuck
with a situation that was not economic any further.
Mr. West. Mr. Chairman, if you would be so kind if I could.
Chairman Coffman. Go ahead.
Mr. West. The second question I would like to ask and I am
a very simple guy, on inauguration day in the United States of
America, the average price of gasoline was $1.84. I spent 22
years in the military. When I hear people talk about there is
nothing you can do about it, in the military the maximum
effective range of an excuse is zero meters. So in that time
from inauguration day to now where we have gasoline prices at
$3.77 almost per gallon across the country, I would like to get
from each one of you what is the one golden nugget thing that
you think can be done from Washington, DC's perspective, from a
federal perspective? Let us not talk about Iran. I mean, that
will take care of itself in due time. And speculators, because
we have horrible monetary policy that is devaluating our dollar
as opposed to the rising cost per barrel of oil. But from your
perspective in the domestic energy production side, what is the
one thing that we can do to rectify this situation? Mr. Barber,
starting with you.
Mr. Barber. Thank you, Mr. West. I am a simple guy, too.
What I think happens out there, and I do not want to
represent myself as an oil and gas marketer; I am not. But
markets seem to respond to nervousness and our markets are
nervous about oil. They are. Things happen. The price of oil
goes up. Other things happen. The price of oil goes down. From
my simple perspective what we need to do is put companies in a
position so that they can explore for oil and gas on the leases
that they have acquired so that that nervousness is reduced. I
think right now with a tremendous supply of natural gas on
hand, something could happen and I do not picture the price of
natural gas tripling or going in half. I think there is plenty
of supply out there. I think there is reasonable presumption
that we can drill for more gas and acquire that. We need to be
in that position on oil on liquids.
Mr. Ewing. Insofar as oil is concerned, I avoid gas plays
like the plague. I am not big enough to be involved in that.
But the thing that needs to be done is to cut loose, get rid of
some of the regulation so that people can explore for oil on
these western lands. And there are still things to find but
they are very difficult to find.
And I was wanting to get into this historical perspective
if I could a little bit on this. In 1946, the Grazing Service
was merged with the General Land Office to form the Bureau of
Land Management. They did not really have any teeth to work
with until the Federal Land Policy and Management Act--FLPMA
that I always forget what it stands for unless I read it--came
about in 1976. The State of Wyoming set up the Wyoming Loan Gas
Commission in 1951 and until 1971, just after in the Nixon
administration when NEPA had been authorized, they administered
all of the drilling. Ninety percent of the three billion
barrels of oil that has been found in the Bighorn Basin came
out of fields discovered before the BLM even got in the
picture. The state administered all of these lands. The state
had 45 people on staff and not only did they approve any well,
whether it is federal, state, or fee in the state of Wyoming,
they had to do all the work. Suddenly, in '71, after the horses
had gone out of the barn so to speak, the BLM comes in and
immediately had to start setting up an agency with a tremendous
number of people with all sorts of regulations and it happened
at a time when instead of doing that it should have just gone
the other direction because in the case of the Bighorn which is
all I am really talking about today and I have had experience
on all the basins, but that area in the southwest that I
described where you have flat lying beds obscuring the
structure that still may lie--we know there is some structure
there; we just do not know the definition of it well enough.
But there is probably some more production there. Other than
that, I have no interest in looking for a structure elsewhere
in the Bighorn Basin because they are all exposed on the
surface. They have all been surface mapped. They have all had
seismic work done on them. They have all been drilled. And 98,
99 percent of them have been productive. So what has happened
is the BLM has come in and developed into a real monster after
all of the major drilling in the Bighorn Basin took place. So
if you look at that objectively, the rational mind would say
let us make it easier with what little bit we have got left.
Now, I have given you letters from my congressmen, Pete
Olson and Rob Bishop, who strongly are objecting to what the
BLM did to me. I also have letters from all the commissioners
in your packet, most of them in there. They are jumping up and
down. They are, as I mentioned earlier, co-operators with the
BLM in the RMP consolidation.
And I want to say even further, that consolidation is one
of the biggest rip-offs that has taken off in the United States
in years. They are doing this after all the drilling basically
has been done and there is hardly any exploration still to be
done. There was an 18,000 foot hole drilled right out in the
flat, deepest part of the Bighorn Basin by Barrett Energy. They
got 100 MCF a day. That is not a keeper. They have abandoned
thousands of acres they took out there. I am probably the only
company I know of other than development that some people are
going around old fields just plunking little development wells
they can still find. I am the only one that I know of up in
that basin that is actually trying to explore for a virgin
field, and I thought I had the opportunity to come up with a
field that could be 5 million to 10 million barrel potential
but they are just stopping me dead and actually they are
putting my company out of business in the Bighorn Basin. I
operate on a low cash flow myself and I have to have outside
investors. And when I lose people like I told you about a
minute ago, I am going to have a terrible time now.
On top of that, because they told me those leases----
Mr. West. I need to move on.
Mr. Ewing. Time out?
Mr. West. I need to move.
Mr. Ewing. Keep going.
Mr. West. All right. Ms. Rodell.
Ms. Rodell. Unfortunately, I am not a world economist.
Mr. West. Me either.
Ms. Rodell. Shoot, and there are two of us in the room.
However, oil is traded as a commodity on the worldwide
market. A resolution to that, I am not sure I have one. I agree
with Mr. Barber that so much of this is based on fear and
worldwide unrest. However, I do think that if we can
responsibly produce energy domestically it might take some of
the pressure off of those imports that we get from those
countries that are maybe not our best friends. In addition
though, we can import or we can domestically produce as much,
to an extent, a whole lot of oil. However, then we get into a
refining process.
So it is a much broader problem than just what can we as
small producers do. The answer is I am not sure we can do
anything.
Mr. Squillace. So I am also not a world economist but this
is an important question that we all care about as citizens and
as consumers of oil and gas. And so I appreciate the
opportunity to weigh in on this important issue.
I would like to point out a couple things, and I agree with
much of what Ms. Rodell just said. But it is also true that
domestic oil production is actually up in the United States
over the past several years and consumption is down. And one
would think that under basic economic rules that if the supply
goes up and the consumption goes down that the price would come
down. But as was pointed out, I mean, we are dealing with some
global kinds of issues that are difficult to reconcile with
what is happening with prices.
There is one interesting data point that I would like to
share with the Committee regarding this and that is a chart--I
believe it has been published by the Energy Information
Administration--that shows the price of oil along with the
price of natural gas. And it shows sort of a trend of the two
commodities. And it is very interesting to see how they have
diverged radically in the past several years. I mean, it
emphasizes what Mr. Ewing said a moment ago about why he is not
interested in gas plays. The price is so low you cannot do it.
And what is interesting about that divergence is that the
price of natural gas is really much more controlled by domestic
forces than is the price of oil. The price of oil is much more
of a global kind of commodity. If we produce a lot more there
is at least a danger that it will be sold internationally if
that is where the better price can be had because it is more
easily transportable than gas. But gas is much more problematic
in terms of that. And because of all these significant shale
plays, the supply of domestic gas locally has gone up fairly
dramatically. And I think that is why we are seeing this
significant decrease in the price.
So I do not think there is any silver bullet here to deal
with the problem. The one thing I would say that is critically
important is that we continue the trend towards reduced
consumption. And I think one of the best things we have done in
recent years was to increase the miles per gallon of our
vehicle fleets. I think that is a really important step toward
achieving energy and dependence. It is the one thing we really
can, I think, do to affect global prices.
Mr. West. Thank you, Mr. Chairman. I will not have a second
round.
Mr. Ewing. Mr. West, I did not answer your question as a
matter of fact.
Mr. West. I do not think the chairman is going to give me
any more time.
Mr. Ewing. Just give me two seconds to answer his question.
There is probably not a real silver bullet but the truth is
that if we were exploring up in Alaska where we will
undoubtedly find some billion barrel fields. If we pushed
exploration for oil in the United States, all over the United
States, we would soon dispel all the nervousness that these
folks have all referred to. And that nervousness is what the
speculators thrive on. And I do not know what the Congress
could do in terms of any regulation for the speculation but
that is the name of the game as far as I am concerned. Thank
you.
Chairman Coffman. Thank you, Mr. Ewing.
Mr. Tipton in Colorado.
Mr. Tipton. Thank you, Mr. Chairman. I apologize to you and
to our panel members for being late coming in.
Just listening to you, Ms. Rodell, when you were talking
about a little bit of the international component when we are
looking over into the Middle East, the threat of Iran
developing a nuclear weapon, the threat obviously that concerns
many of us that that place is to Israel and then to world
stability in terms of oil supply. You are commenting accurately
that this is a world market, the commodity for oil. Is it your
estimation, given the challenges we see in the Middle East,
that even if the price is driven by an international market,
that it is in the best interest of the United States of America
to be developing our own energy resources right here rather
than relying on foreign markets to be able to delivery our oil?
And part of the reason I say that is I was a little disturbed
when the president, through the World Import-Export Bank
guaranteed a $2 billion loan to Brazil to be able to drill off
of their shores and say we want to be one of their best
customers. Would it be more sensible for us to be drilling on
American soil, creating American jobs and developing American
energy certainty?
Ms. Rodell. I absolutely agree that domestic energy
production is a huge component to not only our national
security but also our jobs. As Mr. Squillace said, the natural
gas production is more of a domestic commodity. I do think that
there is a lot of opportunity to make that transfer, that
transition from such an oil-dependent nation to start moving
into different areas, i.e., natural gas, where we have
trillions of cubic feet of undeveloped natural gas in this
country. Unfortunately, when the divergence of the oil and gas
prices happened, not a lot of folks--you cannot drill
economically. So unless oil companies would like to volunteer
their time and money, you are not going to see as much natural
gas production. However, I think there is a huge opportunity
for us to transition a lot of our base load power to natural
gas. Some of our fleets to natural gas. And eventually, maybe
some of our own cars to natural gas. But every time you do that
transition, you do fight higher prices. And for the average
American, buying a car is expensive enough, but if you have to
make a decision as to buy an oil-based car or a natural gas-
based car and the price difference is $15,000, it is not a hard
decision for most Americans to make.
So I do absolutely think it is important. I think we can
make a huge transition. I also think we can start to ensure
more of our security if we responsibly develop these resources
domestically.
Mr. Tipton. I appreciate that. And I think one thing we
need to keep a focus on is American jobs. In your testimony you
were talking about over in Garfield County. And this past
weekend I happened to be in Rifle, Silt, and Glenwood, an area
that has lower unemployment typically, but if you drive a
little bit further west into Mesa County we see effectively
double digit unemployment that is there. So when we are talking
about creating American energy certainty for our future and our
security, and all of you may want to chime in on this, when it
gets down to actually being able to create jobs, good paying
jobs.
And I can speak with confidence. I have dealt with and had
folks that I have talked to that actually have dirt under their
fingernails that love the area. They want to make sure that it
is done responsibly. But what kind of a role can this positive
development actually play in terms of getting America back to
work?
Mr. Barber.
Mr. Barber. Mr. Tipton, thank you. It is a great question
that sets up a thought, I think. There are some that think that
the market for oil will be what it will be regardless of what
we produce here in these United States. And although I do not
know that that is true, let us say for a moment that it is. We
have an opportunity to produce federally-owned minerals that,
by the way, one dollar out of every eight that is produced, the
value of those minerals goes back to the federal government. So
right away there is a one-eighth partner in those wells, if you
will, that is the federal government. They split those
royalties with the states that it is produced in; 52-48 percent
I think is the split.
But if we are going to get $100 a barrel for oil, we are
going to pay $100 a barrel for oil regardless of who we buy it
from if that is the situation. It seems tremendously valuable
to me to do it in a fashion that, first of all, one-eighth of
those dollars go back to the federal government. If we buy it
somewhere else none of those dollars go to the federal
government. And then we can look at what does the rest of that
$100 come from? Well, it comes from things like the money that
goes to the local drilling company, the local roustabout crew,
the local permitting company, the roustabout employees, hotels,
retail. Just a vast, vast group of folks that when $9 or $10
million is spent drilling a horizontal shale well that share in
those prices that are out there for those services. If we give
that up, all of those monies that are paid for those services
go elsewhere. And I also worry that the other thing that can go
elsewhere is the investment dollars of the companies that are
willing to drill here but cannot.
Mr. Tipton. Thank you. Mr. Chairman, were you going to have
a second round? Okay.
You know, one thing I think that would be a little
interesting here, and Mr. Squillace, sorry on that, that I
would kind of like to have you comment on, the Colorado state
legislature recently passed a resolution--it was 12-10-04--that
they passed onto the Bureau--to the BLM. In the resolution, it
called on the BLM to revise its current restrictive resource
plan in Colorado in order to increase oil and natural gas
production in Colorado. Was state legislature wrong to be able
to put that sort of a resolution forward with bipartisan
support?
Mr. Squillace. You know, of course, the nature of the
resolution is such that it is a question of degree and what is
too restrictive or what is not restrictive enough I think is a
matter that people can have differing opinions about. I think
it is certainly true that we need to encourage domestic energy
development. I am not opposed to doing that. The concern I
think, and one of the concerns relating to your earlier
question, is just that we not get into a situation which we
have seen so often in the western United States of boom and
bust kind of development cycles. We need a steady kind of
process for development, and too often the exuberance of higher
prices at one moment leads us to go beyond perhaps where we
should go with development and that leads to a bust cycle which
is, I think, more detrimental than if we are able to do these
things in a steady way. So I think that is the sort of
difficult balance to try to find here. How can we have sort of
steady development that achieves growth in jobs, that employs
people, that is good for our local economy, and for our
national economy as well, without overdoing it? And that is the
temptation. It is a very difficult thing. There is a lot of
pressure to move towards overdevelopment, but I think if we
learn from the past we will know that there are limits to how
far we ought to go in this direction.
Mr. Tipton. You know, I am concerned about that very thing
as well, and when we are looking at--you are a Coloradoan as
well.
Mr. Squillace. Yes.
Mr. Tipton. When we look in Colorado, federal leases
dropped, which I find shocking because the president is talking
about putting Americans back to work and we are not creating
the opportunity. We turned down the Keystone Pipeline, 20-plus
thousand jobs directly, 100,000 indirectly that we could have
created here in America. We look at our state. My congressional
district, we have people that are suffering right now, not only
with high gas prices but just worried about being able to keep
a roof over their head right now. Colorado federal leases
dropped, contrary to what the president is trying to purport
right now that we are increasing production, but leases dropped
from 320 in 2008 to 11 in 2011.
So are we seeing restrictive policies out of this
administration when it comes to some of our public lands? And
again, let us underscore, we want to be able to do it
responsibly. But we also want to be able to feed our children.
We want our people to be able to work.
Mr. Squillace. I think that is a very fair question. And we
have discussed this a little bit before about how the drop in
the price of natural gas has really affected interest in
federal leasing. Now, it is not the only factor and I do not
want to suggest to you that that is the only thing that is
going on here, but there is no doubt that when natural gas
drops below $3 a thousand cubic feet, there are significant
economic reasons why the industry is not particularly
interested in developing those leases and bidding on them. It
is a very cyclical kind of thing. Natural gas in the United
States is actually up significantly, largely because of some of
the domestic supplies that are being found in the eastern part
of the United States from the big shale plays out there.
So I am not suggesting that there is nothing to the point
that you are making. I would note that I believe the director
of the BLM recently testified that about a quarter of the
leases that the BLM has offered in the past few years have gone
without any bids on them. So parcels have been nominated by
industry and they are offered for lease and they are not bid
upon. And so it may just be what is happening with the market.
I do not think we should read too much into the fact that the
current level of leasing is down.
Mr. Tipton. Okay. And I will be happy--we ought to
certainly talk about this because I am talking to companies
that are having leases held up. You know, it is up to 10 years.
Well nine years, I think, is the high mark to be able to
actually develop and be able to go to production, which I think
greatly creates that boom and bust cycle that you are talking
about because time is money when it gets down to business and
development and the tremendous capital investment that it takes
to be able to develop some of these resources that are out
there.
I would just kind of like to open this up a little bit. I
do not want to overstretch, Mr. Chairman, in terms of time
here.
Chairman Coffman. Mr. West, do you have any additional
questions?
Mr. West. I am good. Go ahead.
Mr. Tipton. Great. Well, I will just kind of wrap it up.
Can you give us any examples, and this may be open to the
whole panel here, where the president's domestic or foreign
policies have contributed to really what we are seeing at the
pump? You know, we are seeing increased costs that are going
on. The president talks about an ``all of the above'' energy
policy but it is a matter really in terms of the tax code of
picking winners and losers which he abhors on one hand and
embraces on the other. I think our colleagues at least on the
republican side, we need to have tax reform. It needs to be
flatter, fairer, and simpler, but right now we are seeing an
administration policy that seems to be pretty convoluted in
terms of the real impacts on the American people. Just give me
some of your comments, if you would, in terms of the
administration policies.
Yes, sir. Mr. Barber.
Mr. Barber. Thank you, Mr. Tipton.
When one considers the size of the companies that are sort
of represented and being discussed here, they are generally
smaller production companies. And we, like someone else who
sells their product on a market, we could be just like a wheat
farmer. The individual wheat farmer does not get to determine
what it is that they receive for their commodity. They grow it
and choose to sell it or put it in a grainery and sell it maybe
when markets are different.
So one of the things that maybe we do not have the ability
to do in our positions is to determine what it is we get for
that product because if we could I am sure we would want to get
more for the price of natural gas right now. Natural gas is
being--there is certainly plenty of supply and in some cases
operators are out there shutting in wells to not produce at the
current pricing. I think in terms of liquids there may be
situations where it would be better to have a predictable price
of some number that is survivable for companies but certainly
that type of marketing is beyond the scope of smaller
companies.
Mr. Ewing. I would just like to make a comment on that. I
think, as I said, I do not get involved in the gas play but I
am certainly conversant with it. I watched the oil plays in
Texas in similar types of environments and it turned out that
many of those, the operator was the guy that owned, controlled
the acreage initially and turned it to somebody was the only
guy that made a lot of money on it. In the Austin Chalk plate
down there you were lucky if you were getting a two-to-one
return on the investment. If you had a dry hole on the way,
your investors were very fortunate if they ever got their money
back. What I think is going to happen in the gas play is that
there is so--it is a similar type of play in that the return on
investment is not very big. Yes, you can get a well every time,
so from a promoter standpoint it is great. But what is going to
happen is that all of these little guys that jumped in, and I
mentioned a while ago they got burned, they will turn their
acreage. It is all going to be bought up by the majors, at
which point the majors will have the option of slowing down
drilling so that they can get the price back up.
Now, why would they do that? Right now when you bring in
one of those wells they look great on initial potential. But
very quickly those things dive. And in order to keep the
investors happy you have to start drilling another well very
quickly to get another good well that will also dive. It is
what I have called the black hole of drilling. I know that is
putting a bad slant on it because I am not interested in it in
the first place. I cannot afford it but that is what is going
to happen at the point in time when the majors get sufficient
control of all of those acres, they will then just gradually
slow down on their drilling and the price of gas--they will get
the price of gas to edge up again. Prediction.
Ms. Rodell. Thank you, Mr. Tipton. I think for most of us
we are looking forward to simpler tax reform. However, I do
know that the president is currently talking about removing the
intangible drilling cost deduction that the oil and natural gas
industry can take in addition to not allowing the deduction on
depletion rates. And these are very frightening to smaller
independents. These are not give-mes. These are standard
manufacturing deductions that any manufacturing company would
be able to get. These are costs. This is the cost of doing
business. If he takes away these deductions from the oil and
natural gas industry it could cause a 25 percent loss in
capital reinvestment which then just basically turns around
into loss of jobs and loss of domestic energy production
because smaller companies will not be able to operate under
these stipulations.
In addition, we hear a lot about the billion dollars that
the majors make, and although these profits may sound
excessive, sometimes these are only a 6 percent rate of return
for even the larger companies. So these are not--what needs to
be looked at is not the overall figure because these are large
international companies but what really needs to be looked at
is the individual rate of return, sometimes as low as 6
percent. So some of the proposed tax reforms will and can put a
lot of the smaller independents just completely out of
business.
Mr. Squillace. I think we can all agree that a simpler tax
code would be a good thing. I doubt that many people, many
Americans would disagree with that point. The devil, of course,
is in the details. But I would like to focus more specifically
on the relevance of your comment to energy policy. And here I
hope that we can agree that we need to take the long view. Now,
where our energy policy will be or where our mix of energy will
be in 2050 may be a subject of disagreement, but the key point
here is that we ought not try to have an energy policy just for
the moment. I mean, we know that the economy is down right now,
people need jobs, and in the short term we need to deal with
those kinds of issues. But we also need, as a matter of
planning, to think about where we want our energy policy to go.
And I hope as the Congress is thinking about these broad issues
about energy policy that they will look at the big picture and
look at the long term and try to adopt policies that will get
us where we need to be in 30, 40, and even 50 years from now. I
think that is really key. And if we can reach some kind of
agreement about where we need to go, I think we can see a
clearer path for us to get there.
Mr. Tipton. Thank you. And thank you, Mr. Chairman.
Chairman Coffman. Thank you, Mr. Tipton.
I would like to ask one more question of all of you
individually and that is to the smaller producers, if you were
going to look at a single regulatory burden that would make the
biggest difference in terms of reform, and I know some of you
just talked about deadlines and deadlines passing but yet
having to pay permitting fees anyway irrespective of whether
BLM does its role, but if you are going to look at one simple
thing or one specific thing, what would it be? And we will
start with you, Mr. Barber, and we will go to the left then.
Mr. Barber. Thank you, Mr. Coffman.
The singular issue that I would say from my perspective
that we could do is actually fortunately already in place in
regulation. If we could get BLM back to the point where federal
mineral wells, APDs are processed in the timeline that is
called for in the regulation and is handled that way by some
good BLM offices, if we could do that one single thing, that
would make more APDs available for drilling and we would have
better drilling prospects because they are directly following
their own regulations rather than individual, personal
entrepreneurial interpretation regulation.
Chairman Coffman. Mr. Ewing.
Mr. Ewing. Mr. Coffman, my whole pitch today relative to
Ewing Exploration has been applied to the Bighorn Basin so my
comment is going to be related to that.
The BLM changed the rules that we were using to determine
whether or not leases should be issued. They were, for the
first five years, using the old RMP to do their adjudication as
far as environmental NEPA examinations were concerned. Then
suddenly, in 2010, when they pulled those parcels that I had on
that map down from the sale, they pulled them down because a
new information memorandum had been issued by Director Salazar
back in the middle of 2010, well before that sale, telling his
people that they had to start looking at wild lands
characteristics up there in the Bighorn and throughout, I
think, throughout the system. Once they did that it put them in
a position to simply use the stroke of the pen they have to go
ahead, and in spite of the fact that I had acquired all those
acres under the old rules, in spite of the fact I drilled a
well under those old rules, in spite of the fact we spent
$250,000 getting new seismic under those rules and $70,000 to
buy old seismic, they suddenly said you have got to operate
under the new rules and we are going to pull these down. And
since they will not have them up again, based on the letter I
got less than two months ago, until the earliest in 2014, that
will be 51 months from the time I first nominated those blue
parcels for sale. And it will be after they have rejected them.
They had them on the first sale and I flew into Cheyenne and
found out the next day they had all been removed from the sale.
So my complaint is that they changed the rules. If we could
get them to go back to the original RMP rules, which are what
Congressman Olson recommended they do along with Bishop, along
with the Western Energy Alliance, and just use those rules
because that IM that they changed allowed them to change the
way they dealt with me, was simply called to be illegal by
Judge Freudenthal's decision. So everybody says let us go back
and use those. They just will not do it.
Chairman Coffman. Ms. Rodell, if there were one thing that
you could change in terms of regulatory reform for smaller
operators, what would it be?
Ms. Rodell. Because the BLM offices, although they all
operate under the Department of the Interior, they often
operate as very individual entities. You know, I do think
consolidating some of those processes in a single office within
a single group might not be a bad idea and allowing the BLM
representatives in the field to do their part to supply those
common offices with maybe some of the information to get these
approvals through in a timely manner or to write the NEPA
documents that are necessary for the approvals of the rights of
ways and the ABDs.
So I agree with Mr. Barber that there needs to be some
timelines that need to be followed, and I think maybe a
consolidation rather than individuals and individual offices
might be a start to the solution.
Chairman Coffman. Okay. Mr. Squillace.
Mr. Squillace. Sure. And again here, I think that there are
no simple answers to the question. There is no simple rule
change that will relieve some of the burdens. But I agree that
if we can provide more certainty to the industry, particularly
the small operators, that would be a good thing and we ought to
try to find ways to do that.
One issue that I focused on over the past few years is my
concern about the complexity of the land use planning process,
both with the Forest Service and with the BLM.
As an example, in the resource management planning process
that the BLM uses, they get into sufficient detail that they
are actually deciding on stipulations that belong in oil and
gas leases that might be issued on particular lands. But that
is not the end of the matter because then when they go through
the APD process they may be imposing more restrictions and
additions. It seems to me that while you can make an argument
for that, we ought to simplify land use planning and avoid
getting into the details when we have not studied the
particular lands where the operations are going in anyway. Let
us use land use planning as kind of a zoning exercise. Decide
what we are going to do on particular lands and what we are not
going to do on particular lands. And that creates a kind of
certainty about where opportunities for the oil and gas
industry are available. And then when development is going to
take place we can look at it comprehensively. Hopefully we have
saved some resources that are now being employed in the
planning process and we can use them to help meet the deadlines
that some of the folk are talking about here and then receive a
quicker action and more certainty for the industry.
Mr. Ewing. Can I make one more comment? One of the items,
exhibits that I put in your packet up there looks like this. It
is a comparison between the number of employees that the WOGCC,
Wyoming Oil and Gas Commission has in Wyoming, and the
employees that the BLM has. And if you look at that it tells
you, I think, pretty much the story of why we are
overregulated. As I pointed out earlier, I think before Mr.
Tipton came in, the WOGCC had 44 employees. The BLM has 898
employees adjudicating just the BLM lands in the state of
Wyoming, not all of those lands that the state deals with. The
annual budget for the WOGCC is $2,640,000. The budget for the
BLM is estimated to be $54 million a year. I mean, what you all
have to start to do if you are going to change the way this
exploration goes on BLM lands, you have got to get into their
budget and cut their funding and cut them down to size because
we do not need all of their help. All they do is hold back
exploration; they do not help it proceed forward.
Mr. West. Mr. Ewing, that is what we call up here a jobs
program.
Chairman Coffman. Mr. Tipton, any other comments?
Well, I want to thank you all so much for your testimony
today and I think, Mr. Ewing, you raised the question about
submitting additional testimony. And you and the other
witnesses, all of the witnesses will have 14 legislative days
to submit additional comments and materials into the record.
Thank you very much for your testimony today.
[Whereupon, at 11:35 a.m., the Subcommittee was adjourned.]
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