[Senate Hearing 113-104]
[From the U.S. Government Publishing Office]
S. Hrg. 113-104
TRANSBOUNDARY HYDROCARBON RESERVOIRS
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
TO
CONSIDER THE FOLLOWING LEGISLATION: S. 812, A BILL TO AUTHORIZE THE
SECRETARY OF THE INTERIOR TO TAKE ACTIONS TO IMPLEMENT THE AGREEMENT
BETWEEN THE UNITED STATES OF AMERICA AND THE UNITED MEXICAN STATES
CONCERNING TRANSBOUNDARY HYDROCARBON RESERVOIRS IN THE GULF OF MEXICO;
AND H.R. 1613, A BILL TO AMEND THE OUTER CONTINENTAL SHELF LANDS ACT TO
PROVIDE FOR THE PROPER FEDERAL MANAGEMENT AND OVERSIGHT OF
TRANSBOUNDARY HYDROCARBON RESERVOIRS, AND FOR OTHER PURPOSES
__________
OCTOBER 1, 2013
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Printed for the use of the
Committee on Energy and Natural Resources
_____
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
RON WYDEN, Oregon, Chairman
TIM JOHNSON, South Dakota LISA MURKOWSKI, Alaska
MARY L. LANDRIEU, Louisiana JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont MIKE LEE, Utah
DEBBIE STABENOW, Michigan DEAN HELLER, Nevada
MARK UDALL, Colorado JEFF FLAKE, Arizona
AL FRANKEN, Minnesota TIM SCOTT, South Carolina
JOE MANCHIN, III, West Virginia LAMAR ALEXANDER, Tennessee
BRIAN SCHATZ, Hawaii ROB PORTMAN, Ohio
MARTIN HEINRICH, New Mexico JOHN HOEVEN, North Dakota
TAMMY BALDWIN, Wisconsin
Joshua Sheinkman, Staff Director
Sam E. Fowler, Chief Counsel
Karen K. Billups, Republican Staff Director
Patrick J. McCormick III, Republican Chief Counsel
C O N T E N T S
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STATEMENTS
Page
Beaudreau, Tommy P., Acting Assistant Secretary, Land and
Minerals Management, Department of the Interior................ 9
Landrieu, Hon. Mary L., U.S. Senator From Louisiana.............. 4
Milito, Erik, Group Director, Upstream and Industry Operations,
American Petroleum Institute................................... 27
Murkowski, Hon. Lisa, U.S. Senator From Alaska................... 3
Pascual, Carlos, Special Envoy and Coordinator, International
Energy Affairs, Department of State............................ 5
Savitz, Jacqueline, Vice President, U.S. Oceans, Oceana.......... 21
Schatz, Hon. Brian, U.S. Senator From Hawaii..................... 2
Wyden, Hon. Ron, U.S. Senator From Oregon........................ 1
APPENDIX
Responses to additional questions................................ 35
TRANSBOUNDARY HYDROCARBON RESERVOIRS
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TUESDAY, OCTOBER 1, 2013
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 9:57 a.m. in room
SD-366, Dirksen Senate Office Building, Hon. Ron Wyden,
chairman, presiding.
OPENING STATEMENT OF HON. RON WYDEN, U.S. SENATOR FROM OREGON
The Chairman. The committee will come to order.
The purpose of today's hearing is to consider legislation
to implement the U.S./Mexico Transboundary Hydrocarbon
Agreement. I want to thank our witnesses, first of all, for
appearing today.
For the first time in over half a century, the U.S. and
Mexico are entering into a robust energy partnership between
our 2 countries. Hopefully this momentum will extend to other
areas of trade, investment, and mutual cooperation, renewing
the North American Alliance and strengthening our economy.
The Transboundary Hydrocarbon Agreement will provide a way
for the United States and Mexico to pursue the joint
development of shared energy resources. This agreement resolves
claims to a dispute area in the Gulf of Mexico so that the
energy resources can be developed and the benefits can be
shared by both Nations.
On a recent visit to Mexico, our Vice President, Vice
President Biden, spoke of the need for a stronger Western
Hemisphere and the special role that North America is going to
play, particularly the partnership between the United States
and Mexico. Vice President Biden said and I quote, ``We are
grounded in a common border, common culture, common values,
common dreams and common potential.''
In that view that's why we're here today to review
legislation to implement the U.S./Mexico Transboundary
Agreement.
Our country and Mexico have been working since the 1970s to
provide a joint legal framework for shared resources. Such an
agreement will help to grow our domestic energy supplies,
ensure responsible resource management, strong environmental
protection; and mutual assurance of regulatory and safety
standards. I'm of the view that this agreement accomplishes
that.
The agreement encourages joint development of shared
reservoirs and individual development by U.S. and Mexican
companies. Further, the agreement gives legal certainty to U.S.
companies to explore joint ventures with Mexico's national oil
company, requires joint safety inspection teams. and calls for
the adoption of common safety and environmental standards.
The agreement is going to make nearly 1.5 million acres of
the Western Gap of the Outer Continental Shelf available. The
Bureau of Ocean Energy Management estimates that these areas
could contain up to 172 million barrels of oil and 304 billion
cubic feet of natural gas, making our country less dependent on
foreign sources of oil and gas.
The Mexican government has acted quickly to fulfill their
obligation to enact the agreement by ratifying it on April 12,
2012 and signing it into law that year. In addition to
approving the agreement the Mexican government, under the
leadership of President Pena Nieto, has gone a step further
undertaking domestic energy reform by proposing constitutional
changes for the first time since 1960. The proposed reforms
would work to strengthen Mexico's energy sector by boosting
investment and production.
It's the hope that through this agreement and the proposed
energy reforms in Mexico that the energy revolution in the
United States is now experiencing can be extended throughout
the Western Hemisphere. This would make our region more
competitive and less reliant on politically tumultuous States
for obtaining energy.
Before concluding I'd like to take a moment to thank the
Department of the Interior, the Department of State, the
Mexican Embassy and all staff for diligent work and
professionalism that made it possible for the committee to
write S. 812 and in putting together today's hearing. The
legislation that we're considering, if not signed into law
before mid January, the moratorium in the Western Gap of the
Gulf of Mexico expires. That could result in the damaging and
loss of shared resources. That is why the committee feels it's
important to move quickly.
It's also my hope that we will not only be able to quickly
move, but also pass clean legislation to approve this time
sensitive agreement and not get bogged down in matters that
simply are not relevant to the agreement. What's important to
keep in mind is the importance of the agreement and continue to
work with Mexico to ensure a strong partnership and then begin
the important work of integrating and creating a strong North
American energy economy.
What we're going to do is Senator Murkowski has some
remarks.
Senator Landrieu is on a tight schedule.
So with our witnesses? Indulgence we'll hear from Senator
Murkowski and Senator Landrieu and then we're very happy to
hear from our witnesses.
Senator Murkowski.
[The prepared statement of Senator Schatz follows:]
Prepared Statement of Hon. Brian Schatz, U.S. Senator From Hawaii
``Chairman Wyden and Ranking Member Murkowski, thank you for
holding this hearing. This agreement between the United States and
Mexico is an important one, and I am glad both the House and the Senate
are moving forward to act on it.
I would like to highlight one major difference between the bills
introduced by the House and the Senate. Included in the House bill, but
not the Senate bill, is an exemption for U.S. oil and gas companies
operating in trans-boundary areas from the requirement to disclose
payments made to foreign governments for the development of oil, gas or
other minerals. This requirement is also known as section 1504 of the
Dodd-Frank Act, and has strong support from transparency advocates and
the White House.
I have serious concerns about this exemption, which applies to all
trans-boundary areas in the world, not just the one in question today.
Other members share my reservations, and for good reason.
About two-thirds of the world's poorest people live in resource
rich countries. The agreements made between these governments and
companies, often extractive industries, suffer from a severe lack of
transparency, which has at times enabled large-scale government
corruption, and allowed companies to operate without proper public
oversight.
Simple reporting requirements, as required under Section 1504 of
Dodd-Frank, can help to increase transparency and decrease corruption.
Including an exemption from these common-sense rules in a trans-
boundary agreement such as the one before us today is unnecessary and
counterproductive.
I look forward to hearing the testimonies today and hope the
witnesses can shed some light on this issue.''
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
FROM ALASKA
Senator Murkowski. Thank you, Mr. Chairman and appreciate
you scheduling this hearing on legislation pending before the
committee to approve and implement the U.S./Mexico
Transboundary Agreement.
I also want to thank our very distinguished witnesses for
being here today. Look forward to the perspectives that you
will share.
I view this agreement as an important step toward greater
North American energy security. The Congressional Research
Service says that the U.S. and Canada are ``joined at the
well'' when it comes to energy. I believe that we should strive
for the same relationship with Mexico.
Though we are strong trading partners and tied
economically. More cooperation and integration is necessary to
reach this goal.
Energy is already flowing between our 2 countries. Though
crude oil production in Mexico continues to decline, Mexico
remains one of the top exporters of crude oil to the U.S. We
are Mexico's largest supplier of petroleum products. We're also
sending increasing volumes of natural gas by pipeline to
Mexico. So approval of the Transboundary Agreement will allow
this relationship to continue and to grow.
The agreement lifts the moratorium on oil and gas leasing
in the Western Gap and provides legal certainty for development
along the entire Transboundary area. This will open access to
over a million new acres on the Outer Continental Shelf,
hundreds of millions of barrels of oil, billions of cubic feet
of natural gas and lead to new jobs and new revenues.
The agreement also encourages the promotion of common
safety and environmental standards though each country retains
authority over activity within their respective waters.
Both of the bills authorize the Secretary of the Interior
to approve unitization agreements to develop oil and gas
resources in the Transboundary area, disclose information
necessary to implement the agreement and manage development and
to participate in and implement dispute settlements.
As the chairman has noted this agreement was signed by
Mexico and the U.S. on February 20, 2012 and ratified by the
Mexican Senate 2 months later. But yet more than a year later
we here in the Senate have yet to do our part. It's time we act
to approve the agreement and provide the Interior Department
the necessary authorities to implement it.
There are some differences between the bills before us
today, primarily related to scope beyond the U.S./Mexico
Transboundary Agreement. So I would welcome the witnesses?
thoughts on these provisions.
With that, I look forward to Senator Landrieu's comments
and to hear the testimony from our witnesses.
Thank you.
The Chairman. Senator Landrieu.
STATEMENT OF HON. MARY LANDRIEU, U.S. SENATOR
FROM LOUISIANA
Senator Landrieu. Thank you, Mr. Chairman. I really
appreciate the opportunity. I've got to slip out for another
meeting and then a press conference shortly on another subject.
But I wanted to be here to give my support to the concept
of this legislation and to acknowledge how important it is to
thank the chair and the ranking member for leading this effort
to implement the Transboundary Agreement between the U.S. and
Mexico. It's essential for a variety of reasons.
It will allow U.S. companies, for the first time, to
partner with Mexican interest and Mexican companies to maximize
production in the Gulf which will benefit not only the United
States, but Mexico as well, I believe.
It will give companies the assurance they require to
increase investments in deep water production near our
transboundary region which is a significant area and an
important area and a promising area.
The limiting factor to this point has been political,
namely the lack of a working agreement on how best to manage
the area claimed by both Mexico and the U.S.
Now we can understand, Mr. Chairman and ranking member, how
important this is to our country. But also to the Gulf Coast
which is why I'm here this morning because Louisiana is one of
the 4 most producers in deep water. Many of our companies,
Texas, Louisiana, are leading the effort not only in the Gulf,
but around the world producing oil and gas safely in very
difficult environments.
So we're very interested in this agreement.
But I want to say that one of the things that will make a
difference whether I can be supportive or not is testimony
today, Mr. Chairman, from our department. My question is would
these lands fall under the current GOMESA, Gulf of Mexico
Energy Security Act, which this committee passed which
dedicates a portion of the revenues produced from this
production back to the Gulf Coast States. Now that was an
agreement that was reached after many years of debate in the
United States. Our country said the right thing to do is to
share revenues with the coastal States that serve as a
production for these revenues.
So my one question, you can answer it now or submit the
answer to the chairman at the appropriate time. But my vote on
this bill will rest solely on the answer to that question.
If it's yes, then I will vote for the bill.
If it's no, I will not be able to because we have set a
very strong policy in the Gulf of Mexico on the U.S. side of
this border that we believe that it is fair as a Nation. I
would hope Mexico would look at our model and maybe adopt it.
That it's fair to share the revenues, not just with the Federal
Government of Mexico and the United States, but with the States
that serve as host to the production.
Some of that production is done in Alaska, not in this
situation, but Alaska and their coastal communities should
benefit from that production and share with all the taxpayers
of the country, but also with the coastal communities. That
agreement has been in place for interior States since 1920,
that sharing of revenues.
So Mr. Beaudreau, should he answer that now or later, Mr.
Chairman?
The Chairman. Let's do this.
First of all the Senator from Louisiana knows I'm going to
work very closely with her on all these matters.
Let's do this. Let's have the witnesses make their
statements. But I would like it to be stated now for the record
that my first question is Senator Landrieu's question, so that
we will begin questioning, when I'm recognized for purposes of
that, to have an answer to Senator Landrieu's question.
Is that acceptable?
Senator Landrieu. That is very acceptable. Thank you for
your graciousness.
The Chairman. We'll be working together.
Alright. Gentlemen, welcome.
The Honorable Carlos Pascual and the Honorable Tommy
Beaudreau and we'll have your statements and you all know what
my first question will be. So you have a little time to prepare
for my first question as well.
Let's begin with you, Mr. Pascual. We thank you for the
cooperation, of course, that the State Department has shown.
Welcome.
STATEMENT OF CARLOS PASCUAL, SPECIAL ENVOY AND COORDINATOR,
INTERNATIONAL ENERGY AFFAIRS, DEPARTMENT OF STATE
Mr. Pascual. Thank you very much, Chairman Wyden and
Ranking Member Murkowski and Senator Landrieu as well for
participating in your sponsorship. These were excellent opening
statements that you made. I couldn't agree more with the way
that you framed the issue. Thank you for putting it in that
extremely constructive context and the opportunity to reinforce
the statements that you've already made.
The issues of energy security have been paramount concerns
of the State Department and of concerns for Secretary Kerry.
They obviously are for these committees. It's very appropriate
that you've put this whole issue in the context of energy
security because in the end that's fundamentally what we're
trying to support for the United States, a more secure energy
future.
The Administration supports the swift passage of
legislation to allow for the implementation of the
Transboundary Agreement signed by Mexico and the United States,
as you've indicated, in February 2012. As you've indicated it
was ratified by Mexico in April 2012.
So the positive thing is that with passage of legislation
here we are ready to move. What this would do is it could allow
Mexico and the United States to move immediately, to bring
immediate, the agreement into full force and facilitate
cooperation between U.S. companies and Mexico's national oil
company, PEMEX, to develop resources that would strengthen
North America's potential role as a hub for energy security.
Let me begin by stressing the importance that the State
Department assigns to a strong energy partnership with Mexico,
as you have said, Senator Wyden.
Our energy trading relationship with Mexico is essential to
securing stable flows to the United States' markets. That is
critical to sustained U.S. economic growth.
In fact in 2012 energy related trade with Mexico totaled
$65 billion. Mexico has, as was indicated, 10.2 billion barrels
in proven reserves. But its production has fallen by more than
30 percent from 2004 to 2012.
Still a more positive future for Mexican production is very
much within reach.
Mexican President Enrique Pena Nieto is making reform a
priority. His party submitted legislation for comprehensive
energy reform in August. With passage of the reform Mexico
could attract international investment to develop its
hydrocarbon resources and reverse the decline in oil
production. The implementation of the Transboundary Agreement
could provide a down payment on those prospects for investment.
The agreement itself would establish a framework that would
allow for the development of hydrocarbon reservoirs that cross
the maritime boundary with Mexico.
It would provide the legal certainty companies need to
invest in reservoirs along our maritime boundary. This would
allow U.S. companies to invest in lease blocks along the
boundary and where appropriate, jointly explore and develop
reservoirs in the boundary area with Mexico as units. The
benefits of managing a reservoir as a single unit, long
standing practice in the U.S. side of the Gulf, are well
developed and well known.
The agreement would extend these benefits to the management
of transboundary reserves allowing U.S. companies to partner
with PEMEX to minimize drilling, maximize recovery and achieve
the environmental benefits that arise from drilling fewer
wells.
Even as the agreement opens more acreage to drilling it
would do so in a responsible way. Mexico is already moving into
the deep water regions of the Gulf along our maritime boundary.
We can either drill competitively or we can work
collaboratively.
With the passage of the legislation, an entry in force of
the agreement, we would put in place a framework to not only
minimize the number of wells drilled along the boundary. But to
provide for joint safety and environmental inspections on all
activity that takes place under the agreement.
Both sides would gain from reciprocal arrangements.
Mexico would still apply and enforce laws in its
jurisdiction.
We would still apply and enforce laws in ours.
But the agreement would allow U.S. inspectors to join
Mexican inspectors on their rigs and vice versa.
In addition we would work together to review regulations to
make sure that each side has an appropriate framework.
We would review and approve all activity under the
agreement whether it occurs in areas under Mexican jurisdiction
or under ours giving us the ability to ensure that reservoirs
along our boundary conform to appropriate safety standards.
This is a business friendly arrangement that will
potentially increase revenues and energy security. It comes
with strong safety and environmental provisions.
We welcome S. 812 in the interest of both the Senate and
the House in passing legislation providing congressional
approval of and granting the Secretary of the Interior the
authority to implement the Transboundary Agreement. Our
continued engagement and progress is a promising step forward
to implementing the U.S./Mexico Transboundary Agreement.
As noted in the statement of Administration policy on H.R.
1613, we support passage of legislation focused specifically on
the agreement without the inclusion of provisions such as those
related to section 1504 of the Dodd-Frank Act that would
directly delude U.S. efforts to increase transparency and
accountability.
We look forward to working with the Department of the
Interior and the committee on expeditious approval of this
important piece of legislation.
In conclusion, we are encouraged by the accelerating pace
of movement on finalizing this agreement. As many congressional
members have stated, it is a win/win for the United States and
Mexico.
I appreciate the time you are devoting to this issue. Hope
that we have addressed your request for information on many
potential benefits for both the United States and Mexico. We
look forward to answering your specific questions. Thank you
for giving us, Assistant Secretary Beaudreau and myself, the
opportunity to appear before you.
[The prepared statement of Mr. Pascual follows:]
Prepared Statment of Carlos Pascual, Special Envoy and Coordinator,
Internation Energy Afairs, Department of State
Chairman Wyden, Ranking Member Murkowski, and other Members of the
Committee on Energy and Natural Resources, I appreciate the opportunity
to appear before you today.
I know that each and every Member of this Committee is concerned
about our nation`s energy security, and I can assure you that Secretary
Kerry and the Department of State share that concern. For that reason,
I am happy to be here today to discuss the Transboundary Agreement
between Mexico and the United States. The Administration supports the
swift passage of legislation to allow for the implementation of the
Transboundary Agreement signed by Mexico and the United States on
February 20, 2012 and we appreciate the Chair and Ranking Member for
their leadership in introducing legislation. We look forward to working
with Congress on Senate Bill 812 to accelerate the safe and effective
development of hydrocarbon resources that cross the maritime boundary
between Mexico and the United States in the Gulf of Mexico.
Let me begin by stressing the importance that the State Department
assigns to fostering a stable energy partnership with Mexico. Our
energy trading relationship with Mexico is an important component of
North American energy security. Mexico is our third largest supplier of
imported crude oil and the largest export market for U.S. refined
petroleum products; in fact, energy-related trade with Mexico totaled
$65 billion in 2012. Mexico is also a growing market for U.S. natural
gas exports. By establishing greater legal clarity for the development
of reserves that traverse the U.S.-Mexico maritime boundary in the Gulf
of Mexico, the Transboundary Agreement would bring significant benefits
to the United States and Mexico.
The United States and Canada have experienced an increase in energy
production as a result of private investment, entrepreneurial
ingenuity, technological innovation and strong commodity prices. In
2012, domestic oil production climbed to the highest level in 15 years.
In contrast, Mexico has 10.2 billion barrels in proven reserves, but
its production fell by over one third from 2004 to 2012, and
projections forecast Mexican production will continue to decline in the
short-term. This significant trend is often attributed to the
maturation of major fields and the challenges for the national oil
company, Petroeos Mexicanos (PEMEX), to maintain the necessary levels
of investment in the sector.
Mexican President Pena Nieto has made energy reform a priority. His
party submitted legislation for comprehensive energy reform in August
2013 and, with passage of the reform, Mexico could attract
international investment and expertise to help develop its hydrocarbon
resources and reverse the decline in oil production. The Transboundary
Agreement could be a down payment on the promise of more fundamental
reform. With entry into force of the Agreement, companies would have a
framework to develop resources crossing the U.S. maritime boundary with
Mexico as the current lack of a framework renders these resources too
risky to tap. The projects that would be enabled by the Agreement would
demonstrate that cooperation between PEMEX and international oil
companies, including those based in the U.S., has the potential to
produce significant resources and revenues to benefit the Mexican
people and economy.
Despite the challenges facing Mexico in the near term, the exciting
story here is that North American energy production as a whole could
boost our respective national and global energy security. North
American energy resources provide the prospect not only of assuring our
own energy supply, but of contributing to global market supplies and
helping promote the stability in global energy markets that we need to
support our domestic economic growth. Such opportunities, including the
Transboundary Agreement between the United States and Mexico, could
support increased Mexican and North American production capacity and
could be critical to world supplies and economic growth.
Background
The Transboundary Agreement between the United States and Mexico
addresses the development of oil and gas reservoirs that cross the
maritime boundary between our two countries in the Gulf of Mexico
(excluding submerged lands under Texas jurisdiction). The Mexican
Senate overwhelmingly approved the Agreement in April 2012. The
Administration previously proposed legislative language that would
provide the Secretary of the Interior the necessary authority to
implement the Agreement. S. 812 closely resembles this language, and
its passage would allow implementation to commence quickly.
Role of the Agreement
The Transboundary Agreement is an important step in our national
efforts to secure our energy future and, at the same time, promote a
stronger and long-term cooperative relationship with Mexico in meeting
each country's energy security goals. We believe the agreement would
help facilitate the safe and responsible management of offshore
petroleum reservoirs that straddle our maritime boundary and strengthen
overall our bilateral relations.
The Agreement would enable meaningful energy sector collaboration
between the United States and Mexico (and in particular between U.S.
operators and PEMEX), which we believe would provide U.S. operators the
opportunity to demonstrate the benefits of their participation in the
Mexican energy market, potentially leading to deeper and more
meaningful collaboration over time.
This Agreement will make nearly 1.5 million acres of the Outer
Continental Shelf more attractive to U.S. operators by unlocking areas
for exploration and development along our maritime boundary within U.S.
jurisdiction . The Agreement would eliminate the moratorium on drilling
along the boundary in the Western Gap, and provide legal certainty
needed for investment in the boundary region. It would allow American
companies to enter into unitization agreements with PEMEX for the joint
exploration and development of resources in the areas covered by the
Agreement. The development of a reservoir as a single unit allows
companies to agree how to manage the reservoir jointly in the most
efficient manner, generally reducing the amount of required drilling
and therefore reducing environmental impact. Each unitization agreement
would be required to comply with applicable safety standards. As a
package, these arrangements could increase revenues and provide greater
energy security, while mitigating safety and environmental risks that
could result from unilateral development along the boundary.
We are pleased that the Agreement would advance safety and
environmental protection in the Gulf. First, it provides for a system
of joint inspections for all activity that takes place under the
agreement. Though Mexican law would apply to operations under Mexican
jurisdiction and U.S. law would apply to operations under U.S.
jurisdiction, each side would have the ability to work with the other
to ensure that all activity that takes place under the Agreement--
wherever it occurs-meets all applicable laws and standards. In
addition, under the Agreement our two countries would continue to work
together to ensure that our respective standards and requirements are
compatible where appropriate for the safe, effective, and
environmentally responsible implementation of the Agreement.
In all aspects, the Transboundary Agreement offers the United
States and Mexico significant benefits. It would, for the first time,
establish a framework that would facilitate the development of
hydrocarbon reservoirs that cross our maritime boundary with Mexico.
This is a business friendly arrangement with strong safety and
environmental provisions.
S. 812-H.R. 1613
We welcome S.812 and the interest of both the Senate and the House
in passing legislation providing the Secretary of the Interior the
authority to implement the Transboundary Agreement. As noted in the
Statement of Administration Policy on H.R. 1613, we support passage of
legislation focused specifically on the Agreement, without the
inclusion of provisions such as those relating to Section 1504 of the
Dodd-Frank Act that would directly dilute U.S. efforts to increase
transparency and accountability. We look forward to working with the
Department of the Interior and the Committee on expeditious approval of
this important piece of legislation.
Conclusion
In conclusion, we are encouraged by the accelerating pace of
interest and movement on implementing this agreement, which provides a
much needed mechanism to facilitate the responsible and efficient
exploration and development of hydrocarbon resources along the U.S.-
Mexico maritime boundary. As many Congressional Members have stated, it
is a ``win-win'' for the United States and Mexico and a win for North
American energy security because it fosters stronger relationships in
the development of our shared energy resources.
I appreciate the time you and your staff are devoting to this issue
and hope that we addressed to your satisfaction your requests for
information on the many potential benefits for both the United States
and Mexico, should the Agreement be brought into force.
Thank you again for this opportunity to testify before this
Subcommittee and I would be pleased to answer any questions the
subcommittee might have.
The Chairman. Very helpful and again, commendations for the
good work of all the folks at State who have been on this.
Mr. Beaudreau, welcome.
STATEMENT OF TOMMY P. BEAUDREAU, ACTING ASSISTANT SECRETARY,
LAND AND MINERALS MANAGEMENT, DEPARTMENT OF THE INTERIOR
Mr. Beaudreau. Good morning, Chairman Wyden, Ranking Member
Murkowski. I'm pleased to appear before you today to discuss
legislation to implement the agreement between the United
States of America and the United Mexican States concerning
transboundary hydrocarbon reservoirs in the Gulf of Mexico. I'm
also very pleased to appear this morning before the committee
alongside Ambassador Pascual, who is one of the Nation's
foremost experts in diplomats with respect to our relationship
with Mexico as well as global energy issues.
I'd like to begin my testimony today by highlighting a
couple of central points about the benefits to the United
States and to the U.S. industry that implementation of the
U.S./Mexico Transboundary Reservoir Agreement offers.
Offshore oil and gas development in the Gulf of Mexico has
been and will remain one of the cornerstones of the United
States' energy portfolio. The offshore oil and gas industry
continues to invest tremendous amounts of capital and know how
into exploring and developing oil and gas resources in the
Gulf. This includes spurring the technical innovations
necessary to safely and responsibly develop emerging, world
class prospects in deep and ultra deep water.
During BOEM's offshore oil and gas lease sales in the Gulf
of Mexico over the last 2 years industry has invested more than
$3 billion in leases, the bulk of which was directed toward
promising emerging prospects in the deep water. Despite
industry's general enthusiasm for exploration and development
in the deep water Gulf of Mexico, leasing in the vicinity of
the U.S./Mexico maritime boundary has been muted. Areas in U.S.
waters within 1.4 miles of the maritime boundary currently are
under moratorium and cannot be leased.
More broadly, however, the entire Western Gap boundary
region is currently subject to legal uncertainty about how
potential transboundary reservoirs would be handled. Therefore,
in my view, industry has been reluctant to move aggressively
into those areas.
For example, there are currently 379 unleased blocks in the
Western and Central Gulf near the maritime boundary and only 14
of those blocks have been leased.
Implementation of the Transboundary Reservoir Agreement
would provide this much needed legal certainty to the region
and is in alignment with our goals to promote safe and
responsible development of our Nation's offshore oil and gas
resources.
The agreement also is, I believe, strongly supported by
industry. It is a pragmatic agreement designed to encourage
voluntary, commercial solutions between companies operating on
the U.S. side of the maritime boundary and their counterpart
PEMEX on the Mexican side. We worked with U.S. industry during
the negotiation of the agreement to ensure that the agreement,
not only provide the legal certainty necessary to justify
investment in this region, but also would be commercially
workable.
The central principle of the agreement is to encourage
voluntary unitization agreements between U.S. side companies
and PEMEX to equitably allocate production from any reservoir
spanning the maritime boundary. Unitization is a very familiar
concept that is applied daily by companies working in the U.S.
Gulf of Mexico. Ultimately if no voluntary unitization
agreement can be reached the company would be able to move
forward with development unilaterally.
Finally, the Transboundary Reservoir Agreement represents
an important step in promoting safe and responsible development
in a technically challenging operating environment on both
sides of the boundary. Under the heightened standards that
followed from Deepwater Horizon, U.S. industry is working more
safely and responsibly than ever before. This agreement would
not only--would not change U.S. laws or regulations that
industry works under, but does provide further opportunity for
cooperation between the United States and Mexico to promote
high standards for safety and environmental protection
applicable to all companies working in and near U.S. waters.
I appreciate, very much, S. 812 introduced in April by this
committee to implement the Transboundary Agreement. We support
this legislation and look forward to continuing to work with
Congress to improve this important agreement.
Thank you.
[The prepared statement of Mr. Beaudreau follows:]
Prepared Statement of Tommy P. Beaudreau, Acting Assistant Secretary,
Land and Minerals Management, Department of the Interior
Chairman Wyden, Ranking Member Murkowski, and members of the
Committee, I am pleased to appear before you today to discuss
legislation to implement the Agreement between the United States of
America and the United Mexican States Concerning Transboundary
Hydrocarbon Reservoirs in the Gulf of Mexico.
Background
On February 20, 2012, the United States and Mexico signed an
Agreement concerning the development of oil and gas reservoirs that
cross the international maritime boundary between the two countries in
the Gulf of Mexico (excluding submerged lands under Texas
jurisdiction). This Agreement would establish a framework for the
cooperative exploration and development of these hydrocarbon resources.
The Mexican Senate overwhelmingly approved the Agreement in April 2012.
The Administration wants to work with Congress to ensure implementing
legislation approving the Agreement and providing the necessary
authority to bring it into force is passed. The administration
appreciates the work done by Chairman Wyden and Ranking Member
Murkowski to introduce S. 812, legislation that provides for such
authority, and we support its swift passage. As the Administration has
previously stated, we do not support the extraneous provisions included
in H.R. 1613, The Outer Continental Shelf Transboundary Hydrocarbon
Agreements Authorization Act as passed in the House of Representatives.
The Agreement would allow, for the first time, leaseholders on the
U.S. side of the maritime boundary to cooperate with the Mexican
national oil company, Petr"leos Mexicanos (PEMEX), in the joint
exploration and safe and responsible development of hydrocarbon
resources. This agreement will make nearly 1.5 million acres of the
Outer Continental Shelf, currently affected by a moratorium under the
Western Gap Treaty, immediately available for leasing and also make the
entire transboundary region, which is currently subject to legal
uncertainty in the absence of an agreement, more attractive to U.S.-
qualified operators. For example, the Department of the Interior's
Bureau of Ocean Energy Management estimates that the transboundary area
contains as much as 172 million barrels of oil and 304 billion cubic
feet of natural gas.
Benefits of Implementing the Agreement
The Agreement provides a legal framework for cooperative offshore
oil and gas development along the maritime boundary, sets clear
guidelines and provides legal certainty for those operations, supports
the President's goal of ensuring domestic energy security and
demonstrates our shared duty to exercise responsible stewardship of the
natural resources in the Gulf of Mexico. It is built on a commitment to
the safe, efficient, environmentally sound, and equitable development
of transboundary reservoirs. The Agreement also offers the potential
for generating additional revenue for the United States and Gulf States
from the lease blocks located along the delimited U.S.-Mexico maritime
boundary in the Gulf of Mexico.
The Mexican market has long been closed to participation by U.S.
companies, but a 2008 energy reform law in Mexico opened a window for
joint hydrocarbon exploration and development with foreign entities as
long as it would take place pursuant to an international agreement on
transboundary reservoirs. The Agreement would take advantage of that
opening. It would also end the moratorium on development along the
boundary in the Western Gap and provide U.S.-qualified leaseholders
with legal certainty regarding the development of transboundary
reservoirs along the entire boundary so as to encourage investment. The
Agreement would remove legal and structural barriers that currently
impede exploration and safe and responsible development along our
maritime boundary with Mexico. A significant portion of the U.S.
maritime boundary with Mexico--the full length of the boundary in the
Western Gap--is affected by a moratorium on drilling and exploration
pursuant to the Western Gap Treaty. Upon entry into force the Agreement
would lift the moratorium and open up this area--nearly ten percent of
the U.S. portion of the Gap--to hydrocarbon development. Finally,
having the Agreement in place will mitigate the safety and
environmental risks that would result from unilateral exploration and
development along the boundary.
Implementing Legislation
The implementing legislation would provide the necessary domestic
legal authority to implement certain key terms of the Agreement,
including:
To authorize the Secretary of the Interior to approve
unitization agreements and other arrangements necessary for the
management of the transboundary reservoirs and geologic
structures subject to the Agreement;
To make available, in certain narrow circumstances necessary
for the functioning of the Agreement, information related to
the exploration, safe and responsible development, and
production of a transboundary reservoir that may be considered
confidential, privileged, or proprietary under law; and
To participate in the Agreement's dispute resolution
processes.
One of the fundamental components of the Agreement would allow
leaseholders on the U.S. side of the boundary and PEMEX to explore and
develop jointly as a ``unit'' a transboundary reservoir or geologic
structure, as leaseholders frequently do on the U.S. side of the
boundary. The Agreement is designed to provide incentives for PEMEX and
U.S.-qualified operators to enter into voluntary unitization agreements
governing the development of transboundary reservoirs. Unitization--
where two or more leaseholders manage the exploration and development
of a resource as a unit through a single operator--promotes the
rational, efficient production of a resource, reduces waste, and
minimizes the number of wells that must be drilled. Existing leases are
not covered by the Agreement; however, existing lessees may voluntarily
opt-in to the framework if they so choose.
In cases where a unitization agreement is not initially reached
between a U.S.-qualified operator and PEMEX, the Agreement provides a
process to determine whether the reservoir in question is, in fact, a
transboundary reservoir that should come under the Agreement, and a
carefully-calibrated process to determine the allocation of the
resource between the two countries and provide the U.S. operator and
PEMEX another opportunity to form a unitization agreement. If they
cannot reach an agreement, the Agreement would ultimately allow for
unilateral production by each side, up to the amount of hydrocarbons
that exists on its side of the boundary. In other words, in these
circumstances U.S.-qualified operators and PEMEX would individually
develop the resources on each side of the border while protecting each
nation's interests, resources and sovereignty. We anticipate, however,
that the same economic incentives that currently drive voluntary
unitization offshore the U.S. will similarly drive voluntary
unitization under the Agreement, and that this mechanism will be rarely
if ever used.
The Agreement encourages the United States and Mexico to promote
common safety and environmental standards. However, the U.S. is under
no obligation to alter its existing environmental laws or standards.
Mexico's standards will apply to operations under Mexican jurisdiction
and U.S. standards will apply to operations under U.S. jurisdiction.
The Agreement would also establish a system of joint inspections,
which would allow U.S. safety personnel to inspect PEMEX facilities
involved in a transboundary operation. Again, however, each
jurisdiction retains its authority and responsibility to regulate
activity on its side of the boundary. The DOI's Bureau of Safety and
Environmental Enforcement and the United States Coast Guard already
maintain a strong working relationship with the Mexican offshore
regulatory authority, the Comisi"n Nacional Hidrocarburos (CNH), and
this Agreement promotes further cooperation between the U.S. and Mexico
with respect to drilling safety and oil spill response standards and
practices.
S. 812
S. 812 introduced on April 25, 2013, authorizes the Secretary of
the Interior to take actions to implement the Agreement between the
United States of America and the United Mexican States Concerning
Transboundary Hydrocarbon Reservoirs in the Gulf of Mexico. We
appreciate the opportunity to provide the following preliminary views
at this time.
Generally, the bill would authorize the Secretary to approve
unitization agreements and related arrangements for the exploration of,
and development or production of oil or gas from, transboundary
reservoirs and geological structures; to disclose as necessary under
the Agreement information related to the exploration, development, and
production of a transboundary reservoir or geological structure that
may be considered confidential, privileged, or proprietary information
under law; and to accept and take action not inconsistent with an
expert determination under the Agreement.
We support this legislation and the Administration welcomes the
opportunity to work with Congress to approve this important agreement.
Conclusion
In sum, the Agreement provides a much needed mechanism to
facilitate the responsible and efficient exploration and development of
hydrocarbon resources along the U.S. Mexico maritime boundary and
provides new opportunities for U.S. companies. The Agreement provides
incentives for PEMEX and U.S.-qualified operators to enter into
voluntary commercial agreements to unitize transboundary reservoirs and
does not change the application of existing laws or alter existing
standards. Once the Agreement is in force, both the Bureau of Ocean
Energy Management and the Bureau of Safety and Environmental
Enforcement will assume their respective regulatory responsibilities to
implement the Agreement as authorized.
Mr. Chairman, we look forward to working with the committee to
enact legislation implementing this important Agreement with our
Mexican partners in Gulf of Mexico energy development.
The Chairman. Thank you very much, Mr. Beaudreau.
The question that I indicated I would ask first is Senator
Landrieu's. So let's note that for the record.
The question to restate it in terms of Senator Landrieu's
concern is do the lands affected by the U.S./Mexico
Transboundary Agreement fall under the Gulf of Mexico Energy
Security Act, known as GOMESA, for purposes of revenue sharing?
Mr. Beaudreau. Yes. Any production----
The Chairman. The answer is yes?
Mr. Beaudreau. Yes. Any production coming from these areas
would be covered under existing royalty sharing arrangements
with the States. I think quite wisely the legislation doesn't
attempt to modify the royalty sharing program in any respect.
I understand there's ongoing discussions about whether it
would be appropriate to modify royalty sharing relative to the
State. We're happy to continue participating in those
discussions as they move forward.
The Chairman. OK.
Ambassador Pascual, in my opening statement I spoke of an
emerging energy economy. The United States and Mexico are
embarking on an agreement that provides an opportunity for our
partnership to continue to grow and extend to other areas of
commerce and trade.
I am interested in hearing from you regarding any thoughts
that you may have with respect to what would be the
consequences if the Congress does not move quickly to implement
the agreement. What are the consequences and what might be the
effects, not just in terms of energy, but in terms of our
overall dialog between the United States and Mexico in the
effort to create more jobs?
Mr. Pascual. Senator, thank you for focusing attention on
that question.
I think the first issue is to look at the positive side of
it, of what the potential would be because that helps us
understand the consequences.
North America is going through an energy revolution. We've
gone through it in the United States where we've increased oil
production by more than 30 percent in 5 years, gas production
by 25 percent in the last 5 years. Canada has major increases
in both oil and gas production. Mexico has gone in the other
direction.
Mexico has recognized that what it needs to do is to create
the incentives to bring in private investment. That's one of
the reasons that they've passed or have proposed a major energy
reform which is under consideration right now.
So the intent, the objective is to be able to create a hub
in North America for energy security which is going to be
beneficial for the United States in terms of its access to
energy resources, but also as a stabilizing force in global
markets. The Transboundary Agreement is the first down payment
of the potential that we could see between, in cooperation
between the United States and Mexico. That cooperation in the
past was previously prohibited by law.
By having this Transboundary Agreement it allows, in the
interim, the ability to create a framework where American
companies and Mexican companies can begin to work together to
demonstrate the impact that those American companies can have
on greater productivity in transboundary areas. In doing that
we set the foundation for something which is even bigger that
can come, how North America together, and Mexico and the United
States, can be a foundation for energy supplies that are going
to be beneficial to our supplies at home and increase our
competitiveness by having even more access to natural gas at
prices that are affordable and are lower than what we've seen
in other parts of the world.
So this is a huge opportunity to be able to advance
competitiveness. It's a huge opportunity to demonstrate that
American investments in international investment is a tool to
productivity and that it can be done in a way that retains the
confidence of Mexican industry and the Mexican people.
The Chairman. Mr. Beaudreau, a question for you, again,
about the consequences of inaction.
We heard testimony with respect to efforts with the United
States and Mexico in terms of resource management, the safety
inspection teams moving to adopt common safety and
environmental standards. What's the result of Congressional
inaction in terms of safety and environmental oversight if this
does not go forward?
Mr. Beaudreau. Thank you for that.
Following the spill we, at the Interior Department through
BOEM and BSEE redoubled our efforts to support the fledgling
oil and gas regulator in Mexico, CNH, their national
hydrocarbon commission. As everyone here appreciates a spill in
the Gulf of Mexico will not respect the boundaries of the
Nation that authorized the drilling activity. So it only makes
sense that we have a common approach to safety and to our
ability to respond in the event of an accident.
We will continue working with CNH to provide support
regardless of whether there's an agreement. But frankly, having
this agreement in place, having formal relationships between
U.S. operators and PEMEX, relative to these areas, goes very
far in supporting and strengthening those relationships both
with PEMEX and with CNH. So it would be a major lost
opportunity if we were to let this go by.
The Chairman. Very good.
Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman.
Gentlemen, thank you for your testimony this morning.
Ambassador Pascual, you mentioned the benefits to North
American energy independence, energy security, all of which I
absolutely agree with. You've also referred to or you've
outlined it this way that we can either drill competitively or
collaboratively and focus jointly on the environmental
considerations, the safety considerations, looking at this
agreement that we have in front of us. I certainly view it as
an opportunity, a positive opportunity, on a lot of different
fronts.
The Chairman has asked you a little bit about, you know,
the benefits then that flow from this. I'd ask you to speak to
what the downside is, again, if we fail to advance this
Transboundary Agreement and more from the diplomatic
perspective. You've mentioned that this is kind of a down
payment on a relationship with Mexico and helping them in other
ways.
But we're dealing with the situation with our neighbors on
our northern border, with Canada. We're trying to figure out
how we would be able to advance a Keystone XL pipeline. I look
at this on the southern side and would suggest that it's
important that we have good relationships, good diplomatic
relationships, with our neighbors.
I guess I would ask you to detail what you think the
response would be if the United States fails to engage on this
Transboundary Agreement before such time, before the end of the
year here. It's been noted that Mexico has already acted. We
have been sitting on it now for a year.
How will we be viewed by our neighbors to the south if we
fail to act?
Mr. Pascual. There we go.
Thank you, Senator for putting it so sharply and in focus.
The issues of hydrocarbons development have been hugely
sensitive in Mexico since 1938 with the nationalization of oil.
After that period of time the ability for Mexico to cooperate
with any outside entity on the development of hydrocarbon
resources has been virtually non-existent, except for some form
of service contracts.
Mexico took on, as a matter of good faith, that because of
the transboundary nature of these reserves that it should find
a way to work together with the United States in the
development of these resources. It was, what some might
consider, I think, a courageous political act because of the
sensitivity of these issues.
For Mexico it took on in good faith the willingness to pass
this, recognizing that the United States was going to take
longer in moving forward. It has been a long period of time.
There's a risk that if we do not pass this before the
moratorium that it would be seen that the United States has
reneged on a commitment to cooperate on the development of
international energy resources. That will not only have a
negative impact on the seriousness and the commitment of the
United States, but particularly in an area that has been one of
tremendous sensitivity.
The timing, in many ways, is also particularly critical
because of Mexico's energy reform. In that energy reform that
President Pena Nieto has proposed, Mexico would since 1938 for
the first time allow for the development of private contracts
with international companies that would foresee the possibility
of joint ventures between American companies and PEMEX. So at
the very time that Mexico is looking at the potential for much
deeper reform the United States would be sending a message that
on the areas that we have agreed to cooperate and follow up
that we have pulled back and reneged.
That's not only negative to our diplomatic relationship.
Frankly it's negative for American companies that eventually
will have a significant interest in investment in Mexican
energy resources. If one looks at developments in the Gulf of
Mexico, if you look at a map that is shot from overhead, the
U.S. side of the border is filled with investment
opportunities. The south of that is almost blank.
It's not because the resources aren't there. It's because
the conditions haven't been there. The opportunities may
finally be created where those resources could actually be
exploited.
So from both the diplomatic perspective and a commercial
perspective, not to move forward is sending exactly the wrong
signal to Mexico at a critical time when we have real positive
opportunity since 1938 to demonstrate the cooperation with
American companies on the development of hydrocarbons resources
is good for Mexico's economy, good for the Mexican people and
can be done in a way that's environmentally sound.
Senator Murkowski. Thank you. I appreciate the very
thorough explanation. I think it's important to have all of
that out on the record.
Mr. Beaudreau, you mentioned the fact that the unitization
agreements are voluntary. What happens if there is no
unitization agreement that can be reached?
Now you have suggested that you--a lessee could move
forward unilaterally. How would that actually operate? How long
do you try to work something out until such time as somebody
decides that they might be able to move unilaterally?
Mr. Beaudreau. The entire agreement, as I mentioned in my
opening statement, really takes a pragmatic approach to
encourage voluntary unitization between a U.S. side operator
and PEMEX and provides time in which to do that. So at the
first stage--there's phases under the agreement.
At the first stage the companies have about 6 months to see
if they can, without any encouragement from the outside, work
out an agreement. Frankly the U.S. industry has already begun
working on model unitization agreements that could be used.
If that's not successful the companies have an opportunity
to bring an outside expert, a third party expert, to help
resolve any technical issues around the reservoir.
In total neither side can move forward with the
Transboundary Reservoir, bring it into production for a 16
month period.
If after 16 months no voluntary unitization agreement can
be reached the operator would be allowed to move forward
unilaterally.
All that said, we believe and I think industry believes
there are such strong commercial incentives to do this. This is
why there hasn't been unilateral development in the area
already. There's such strong incentives to have an agreement
for orderly development that we actually think cases of
unilateral development would be pretty rare.
Senator Murkowski. I've just got one more quick question.
The Chairman. Yes, sure.
Senator Murkowski. If I may, Mr. Chairman.
The Chairman. Of course.
Senator Murkowski. Should the Transboundary Agreement be
approved and the legislation to implement it be approved, does
the Department have plans to hold any lease sales within the
Transboundary area?
Mr. Beaudreau. Yes.
In fact in our recent sales we have annual sales in both
the Western and Central Gulf. Both planning areas implicate
this transboundary area. Up until now we have offered those
areas, interest in the areas have been muted because of the
uncertainty.
We've also held any bids that we've received in those
areas. There have been a few, not many. There have been a few.
We've held those bids with the understanding with the
bidder that unless the agreement is put into effect, we
wouldn't award the leases. This removes all of that uncertainty
and would allow us not only to receive bids, but make the
awards as well.
Senator Murkowski. So just so that I understand that.
If--assuming that this agreement is put in place. We've got
the legislation to implement it. You would already have
interested applicants for those lease sales that have been
received prior to that time of implementation.
So you would act on those. Then there would be subsequent
lease sales following that?
Mr. Beaudreau. No. We would be able to offer those--there
are companies interested in the area.
Senator Murkowski. Right.
Mr. Beaudreau. Assuming this uncertainty can be removed.
We would continue to offer the areas, but be in a better
position to actually award the leases.
Senator Murkowski. OK.
Mr. Beaudreau. So these areas in the Central Gulf would be
offered in our upcoming sale next spring, for example.
Senator Murkowski. So these have already been identified in
terms of where they are and in the interest shown them?
Mr. Beaudreau. Correct.
Senator Murkowski. OK. Great.
I appreciate that clarification.
Thank you, Mr. Chairman.
The Chairman. Senator Manchin.
Senator Manchin. Thank you, Chairman and Senator Murkowski.
You know I stated many times before achieving energy
independence is the most critical thing we can do as a country.
I've felt that way. I come from a little State of West
Virginia, who is a tremendous energy producer and has
contributed quite a bit and wants to continue to contribute.
Working with our neighbors, North American neighbors, we
think is essential to achieving this priority. I've continued
to support an all in energy policy which basically would be in
consideration of the XL pipeline, Keystone XL pipeline, which I
wholeheartedly support. I think that anything we can do to
develop what we have here in North America is going to be great
for all of us.
We know there's significant oil and natural gas reserves in
the areas covered by these bills that we're talking about.
Developing the reserves would not only reduce our energy
dependence on countries outside of North America, but it will
also create good paying jobs which is a win/win for our country
right now. So we appreciate this opportunity that we can find
some common ground that we can move forward.
What I would like to ask, I think, is that to the
Ambassador.
How do you see the agreement affecting the North America's
role in the global energy market and I mean an entire market
making us less dependent, be more secure? Do you believe that
that can happen? This is something that we should be moving
forward on?
Mr. Pascual. Senator, yes, absolutely. Indeed both Senator
Wyden and Senator Murkowski have been reinforcing this point.
I've been trying to reinforce it as well. We agree with you
completely on the importance of trying to bring forward the
North American energy resources that can help reinforce
Americans, North Americans self reliance.
I think a couple of critical factors to put into account,
to take into account, is that the United States already has
vastly increased its energy production, as you well know,
coming from a heavy energy producing State both in oil and gas.
Canada is increasing its production of oil and gas. Mexico
has gone in the opposite direction.
One of the things that Mexico needs in order to be able to
join that more North American trend is the kind of technology
and investment that's necessary, particularly in deep water and
unconventional oil and gas development.
So for that reason Mexico has undertaken a couple of
initiatives.
One is this Transboundary Agreement because it recognizes
that for transboundary reserves it needs cooperation between
PEMEX, the Mexican oil company and international companies,
U.S. companies, to be able to develop those resources and the
legal framework that allows that capital to be able to come in
place.
The second thing that Mexico is doing is it's proposed a
very significant energy reform that would completely change the
perspectives for private investment in conjunction or in joint
ventures with PEMEX.
So if these things can begin to move forward and we see
that there's a change in the legal environment with Mexico we
have a North American hub that is contributor to energy
supplies within our region. But frankly that's also a
contributor to broader global energy security.
The reason I would underscore that as particularly
important is that in the United States, particularly for oil,
we pay global prices. We have a concern about what happens in
global markets. If there isn't adequate supply to satisfy those
international markets it has an impact on us in the United
States of what we pay at the pump and for American economic
productivity as well.
So for all of these reasons the kind of measure that's
specifically addressed here in the Transboundary Agreement is
reinforcing and supporting of that idea of American energy
security. But it also is a foreshadowment of something which is
even bigger of the potential for resurgence of North America as
a whole to----
Senator Manchin. Let me ask this question.
Now basically with the area that we're talking about right
now and I think they're estimating, Mr. Beaudreau, as that
there's 172 million barrels of oil and 304 billion cubic feet
of natural gas that you all have estimated. How did you come to
that assessment?
Mr. Beaudreau. That assessment is based on analysis of the
geology and the resource potential within that narrow
transboundary strip. I honestly believe that the potential
impacts of this agreement in terms of opening that area up and
providing legal certainty will be broader than those
statistics.
Senator Manchin. Let me ask this. Has Mexico been able to
develop the deep drilling in the areas that they have control
of?
Mr. Beaudreau. No.
Senator Manchin. I know we're talking about this area here
mostly because for North America, for us the United States to
be in there and work on agreements since it's kind of in no
man's land, if you will. But has Mexico really developed to the
potential they have?
Mr. Beaudreau. No. Ambassador Pascual should feel free to
expand on it.
There is no production on the Mexican side of the
transboundary, the maritime boundary. There is existing
production in this geologic formation, the Perdido Fold Belt,
in the Western Gulf on the U.S. side out of the Perdido hub.
But the geology, as Ambassador Pascual described in his
opening, is the same. There's lots of reason to think that it's
highly perspective.
There have been 2 exploration wells drilled on the Mexican
side by PEMEX. So they are in the area. They're interested in
the area.
The question is whether we'll be there with them.
Senator Manchin. Let me just ask one more question, if I
may?
The Chairman. Of course.
Senator Manchin. The average American at the pump has not
seen relief every time that we do have this energy
independence. We're finding more and more oil. We're finding
shale gas. They have not seen the relief.
I know in my State of West Virginia we are not seeing the
pump prices that are relative to what we're finding more energy
in our country. I'm understanding that could be because of the
refinery capacities that we have in our country.
Don't you think that maybe we could have a better
relationship or kind of a joint relationship with Mexico, who
probably is able to permit and build refineries that would help
us have the supply we need in our country? Has that ever been
explored to that extent, some kind of relationship there?
Mr. Pascual. Sir, the issue of how global markets and those
global markets intersect back with our markets back in the
United States are, as you say, a concern to Americans broadly
and a concern to American productivity. So one of the realities
is that the United States has supported generally free trade
and free markets and as a result of that we pay international
prices for oil.
So when the price of oil goes up to very high levels and
it's been consistently at over $100 a barrel over the last 2
years and at times has gone to about $125 a barrel. It's now
down to a little bit less than $110.
That has a direct impact.
Senator Manchin. Are there any options from pricing
standpoint? If we're doing more and doing the heavy lift, if
you will, more discovery, more technology, more of everything.
We're not going to benefit because we're in this global
pricing. Other countries haven't picked up the load or haven't
done the heavy lifting or created new technologies.
Is there any chance for any relief for the United States of
America and the people of this country to have the benefits of
this?
Mr. Pascual. The critical thing to benefit the American
people has been to get sufficient and adequate supplies on
global markets to be able to balance those markets. The
alternative would be to have to subsidize energy prices.
The United States has not supported that. It has not
supported the subsidies for fossil fuels. So it obviously would
be another impact on the budget to be able to do that.
So the approach that has been taken is to encourage as much
private investment as possible, the conditions for private
investment, so companies from the United States, from around
the world, can develop those energy resources.
Fortunately the American companies have been in a
leadership role and being able to do that. It's created
significant jobs as a result of that for those companies for
the American service industries.
Senator Manchin. But little relief.
Mr. Pascual. Then brought that back to the United States.
Senator Manchin. But very little relief, wouldn't you
agree?
Mr. Pascual. Pardon me?
Senator Manchin. Very little relief.
Mr. Pascual. In terms of broader impact on energy prices.
Senator Manchin. To the consumer.
Mr. Pascual. It has not changed those.
Senator Manchin. So someone is doing extremely well.
Mr. Pascual. Pardon me?
Senator Manchin. Someone is doing financially extremely
well?
Mr. Pascual. There are certainly many companies that have
benefited financially from----
Senator Manchin. I don't--I'm not faulting that.
I'm just saying sooner or later the consumer has got to win
one. Just one. Right now they're not.
You're going to open this up and open that up and all these
things are going to be great and helpful. But if it's not going
to give this relief how do you go home and sell it to the
people to get support?
That's the problem we have, sir.
I'm so sorry. I went over my time, sir. I'm sorry.
The Chairman. I thank my colleague. This discussion of how
the relief is actually going to make its way to people at the
pump is something that is going to be continued and focused on
very aggressively by this committee in the months ahead because
certainly as people talk about production and then people pull
up to the neighborhood station and still feel like they're
getting mugged trying to afford to fill their tank is an
increasingly important question.
Now, here's where we are.
I'm going to do everything I can to pass this agreement
quickly and cleanly. I think you all have done a very good job.
I appreciate the answer that you gave to Senator Landrieu's
question so that the agreement will in fact apply to the
important statute she authored, the GOMESA Act.
We'll probably be talking to you about additional
questions. But we're going to do everything we can to move this
quickly and cleanly. We appreciate your good work and we'll
excuse you at this time.
Mr. Beaudreau. Thank you.
The Chairman. Let's now bring forward Ms. Jacqueline
Savitz, Vice President, U.S. Oceans, Oceana.
Mr. Erik Milito, Director, Upstream and Industry
Operations, the American Petroleum Institute.
Alright. We welcome both of you.
We have Ms. Jacqueline Savitz, Vice President, U.S. Oceans,
Oceana. We've worked with you all often.
Ms. Savitz. Yes, sir.
The Chairman. Not in the years past. Appreciate the good
work you're doing.
Mr. Erik Milito, Director Upstream and Industry Operations,
American Petroleum Institute. Often ask for your views on
issues.
So we'll make your prepared remarks a part of the record in
their entirety. I know there's always a compulsion to almost
just read every word. If you can just summarize your views that
would be great.
Let's begin with you, Ms. Savitz.
STATEMENT OF JACQUELINE SAVITZ, VICE PRESIDENT, U.S. OCEANS,
OCEANA
Ms. Savitz. Thank you, Chairman Wyden, good morning.
Morning, Ranking Member Murkowski. Thank you for the
opportunity to testify here today.
My name is Jacqueline Savitz and I'm the Vice President for
U.S. Oceans for Oceana. We're a global ocean conservation
organization and we're dedicated to restoring and protecting
the world's oceans.
Oceana believes that offshore drilling should not be
expanded. For that reason we oppose S. 812 and H.R. 1613. There
are 3 primary reasons which I'll summarize for you today.
First, the presumption that more oil and gas is better
should not drive our energy policy. Instead we should embrace
and promote the needed shift away from fossil fuels and toward
clean energy which will benefit Americans today and also future
generations. This means making more strategic investments to
move away from dirty and dangerous fuels that present major
risks both in terms of their current production practices and
their long term impacts on climate.
The science shows clearly that fossil fuels like oil and
gas are driving climate change which threatens to bring us
famine, drought, increased storm frequency and intensity, sea
level rise and ocean acidification. Thus scientific bodies like
the International Energy Agency have recommended that much of
our oil reserves ultimately must be left in the ground to avert
the worst impacts of climate change.
Our second concern is that the agreement fails to satisfy a
basic cost benefit analysis as it brings a tremendous amount of
risk of devastating spills and climate impacting results with
little benefit. The agreement does not adequately address the
safety risks associated with oil and gas development and
current Federal requirements do not provide an effective
backstop. Both bills are silent on environmental protections
and the agreements suggest protections where appropriate or
where necessary which is a recipe for disaster.
A spill from one rig, like the Deepwater Horizon, would be
devastating to fisheries and tourism economies both in the U.S.
and in Mexico, not to mention the ecosystem itself. The
revenues don't come close to making up for it.
The oil that we will produce as a result of this agreement
would supply us for about 4 and a half days. The natural gas
would supply only about 2 days of our natural gas demands. In
exchange we risk another major oil spill like Ixtoc or the more
recent Deepwater Horizon disaster.
Since that accident Congress has not passed a single new
safety requirement. The new rules that have come out of the
Department of the Interior are not sufficient.
They fail to require sufficient technology.
They rely on technology with design flaws like blow out
preventers which third parties have found to have design flaws.
They're undercut by minimal penalties and willfully
inadequate inspections and enforcement.
Liability limits also remain inadequate with no fix in
sight.
So the risk that would result from production in
transboundary area are not justified by the benefits.
Our third concern is that the continued emphasis on
expanded offshore drilling is slowing the necessary investment
in clean energy, clean energy development, which would
stimulize the economy, I'm sorry, which would stimulate the
economy without the intended risks and would also help to
alleviate the worst impacts of climate change. Alternative
energy sources like solar and offshore wind promise to mitigate
climate change impacts while providing jobs and stimulating the
economy as much, if not more, than fossil fuels would.
According to the Department of Energy the U.S. has more
than 4,000 gigawatts of offshore wind energy potential. This is
enough energy to power the U.S. 4 times over. This abundant
domestic resource could support up to 200,000 manufacturing,
construction and operation jobs across the country and drive
over 70 billion in annual investments by 2030.
Developing even 10 percent of this clean energy resource
for just 1 year, 10 percent, would produce at least 25 times
more energy than developing all of the oil and gas in the
transboundary area and unlike that oil the wind will continue
to produce clean energy year after year.
The choice is clear for our children and our grandchildren.
We need to shift away from fossil fuels and toward clean
energy. This bill takes us in the wrong direction.
Expanding drilling to areas that are hard to reach or
difficult to negotiate like the U.S./Mexico Transboundary areas
will leave us with a continued dependence on dirty and
dangerous energy sources and severe climate impacts in exchange
for very little actual energy. There's a better energy strategy
and Congress should lead us in a new direction.
Thank you.
[The prepared statement of Ms. Savitz follows:]
Prepared Statement of Jacqueline Savitz, Vice President,
US. Oceans, Oceana
Introduction
Good morning Mr. Chairman and members of the committee. Thank you
for the opportunity to testify today. My name is Jacqueline Savitz, and
I am Vice President for U.S. Oceans for Oceana, a global ocean
conservation organization based here in Washington, D.C., that works to
restore and protect the world's oceans. Besides our headquarters in
Washington D.C., Oceana has international operations in Belgium,
Denmark, Spain, Belize and Chile. Here in the U.S. beyond our D.C.
operations, we have staff located in Alaska, Oregon, California, Maine,
New York, Virginia, South Carolina and Florida. We have 750,000 members
and supporters from all 50 states and from countries around the globe.
Our mission is to protect our oceans and the fish and wildlife that
depend on them.
Oceana opposes S.812, and its counterpart in the House, H.R.1613,
for three reasons.
First, we do not believe that drilling operations should be
expanded. Expanding offshore drilling is unnecessary and dangerous,
especially when we haven't yet fully addressed the risks. Besides the
obvious impacts of oil exploration, production, refining, and
transportation, the use of oil and gas is also problematic as these
fossil fuels are contributing to climate change. Our continued
expansion of their use is unnecessary and wrong-headed. In order to
combat global climate change, we should be transitioning off of fossil
fuels in favor of clean, renewable energy development.
Second, our continued emphasis on expanding offshore drilling is
slowing the necessary investment in clean energy projects that will
stimulate the economy without the attendant risks, and help to
alleviate the worst impacts of climate change.
Lastly, the ``Agreement between the United States and Mexico
Concerning Transboundary Hydrocarbon Reservoirs in Gulf of Mexico''
(``Agreement'') fails to satisfy a basic cost-benefit analysis, as it
brings a tremendous amount of risk of devastating spills, and climate
impacting results, with little concomitant benefit. The Agreement
itself does not adequately address the safety risks associated with oil
and gas development, and current federal requirements do not provide an
effective backstop. The agreement also fails to provide significant
benefits to the United States, beyond what we can be getting from clean
energy. The risks of the expanded drilling called for in the Agreement
far outweigh the rewards. Rather than opening this area to new and
expanded oil and gas production, we believe that the moratorium on
drilling in the transboundary area should be continued, and that the
U.S. should invest further in stimulating the development of offshore
wind and other clean energy opportunities.
WE SHOULD NOT EXPAND OFFSHORE DRILLING
The proposed expansion of offshore drilling is unnecessary and
dangerous, and we haven't yet fully addressed the risks. The federal
government's most recent Five-Year Plan allows access to more than 75
percent of estimated undiscovered technically recoverable oil and gas
resources on the U.S. Outer Continental Shelf. At the same time, the
oil and gas industry is sitting on a large number of non-producing
leases in federal waters. According to a July 2013 U.S. Department of
the Interior report, oil and gas companies hold almost 6,000 active
leases in the Gulf, 82 percent of which are non-producing leases. This
represents more than ample opportunity for exploration and development
and certainly more than we would get by expanding drilling to the
transboundary area. Additionally, even if all of the oil available in
the transboundary area were to be extracted and the U.S. recovered the
entirety of the reserve, this amount would be less than one-half
percent of the total amount of technically recoverable oil currently
available in the Gulf of Mexico (specifically, 0.37 percent). Couple
this with the fact that our continued reliance on fossil fuels is
exacerbating global climate change and it is hard to find the logic in
expanding offshore drilling to the transboundary area when there is so
little benefit for us in return.
DRILLING IS NOT SAFE
Following the Deepwater Horizon disaster, the newly created Bureau
of Offshore Energy Management, Regulation and Enforcement ("BOEMRE")
issued three sets of new safety regulations in an effort to increase
offshore drilling safety and to prevent a similar disaster from
happening again. Following the initial release of the new safety
regulations, Oceana conducted an exhaustive review which looked at
every new requirement to assess the degree to which they would improve
safety. We found that these new rules simply did not take necessary
steps to minimize risks, and further, would not prevent us from having
another catastrophic spill.
The new rules suffer from their own shortcomings, and any positive
benefit new safety regulations might offer are undermined by systemic
problems that have yet to be corrected. These include an inadequate
inspection capacity and an insufficient penalty structure which leads
to continued economic incentives to cut corners and ignore
requirements.
SAFETY MEASURES PUT IN PLACE SINCE DEEPWATER HORIZON FAIL TO MAKE
DRILLING SAFE
The Final Drilling Safety Rule
The provisions of the Final Drilling Safety Rule can be divided
into three categories: training and maintenance, equipment testing, and
well design and equipment. While many of these regulations represent
positive reforms that are an improvement over the regulations in place
during Deepwater Horizon, the Final Drilling Safety Rule's effort to
increase safety is undermined by systemic problems in offshore
regulation and by serious shortcomings in the rule itself.
Training Maintenance
Improved maintenance and training are both positive reforms that
can reduce chances of equipment failure and operator error and thus
increase safety. Yet of all the provisions in the Final Drilling Safety
Rule, training and maintenance regulations are the most dependent on
the robustness of BSEE's oversight and inspection capabilities.
Maintenance is an ongoing concern that necessitates being frequently
checked and inspected and training is only valuable if it translates
into appropriate actions, which also requires continuous oversight to
ensure safety regulations are properly met. Unfortunately, BSEE's
oversight and inspection programs are woefully inadequate and civil
penalties are far too small to ensure compliance and deter risk- taking
by the industry. These systemic problems undermine the Final Drilling
Safety Rule's efforts to increase offshore safety through new training
and maintenance requirements. Ensuring the efficacy of many of the new
rules would require a much stronger inspection and oversight program
than what currently exists.
Equipment Testing
BSEE has implemented numerous new equipment testing requirements
that apply to various stages in offshore drilling. These testing
requirements might seem to improve the safety of offshore drilling;
however, they are also undermined by BSEE's inadequate inspection
program and by insufficient civil penalties that create a perverse
economic incentive to skip or ignore tests to save time.
Well Design and Equipment
The Final Drilling Safety Rule requires drilling wells to be
equipped with two independent barriers to flow. If correctly installed,
these barriers could in fact protect against blowouts. However, the
requirements for two barriers to flow can easily be undermined by
operator error. This problem is illustrated by the Deepwater Horizon
disaster, where a cement job, a common barrier to flow, was compromised
by numerous operator errors. With limited funds for inspection and
oversight, and perverse economics that incentivize project speed over
safety, it is likely that not all barriers will be properly installed.
No New Blowout Preventer Rule
BSEE still has yet to implement its new safety rule on blowout
preventer technology. Blowout preventers are used to seal a well in the
case of a blowout or a loss of well control. They provide the last line
of defense against offshore drilling blowouts. Both the National
Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling
and the National Academy of Engineering have recommended that blowout
preventers be redesigned in light of flaws uncovered by the Deepwater
Horizon oil spill. Unfortunately, this has not been done. While some
new testing and maintenance regulations for blowout preventers have
been enacted, these neither address nor fix the underlying design
flaws. Furthermore, simple requirements that would improve the odds
that a blowout preventer functions correctly and seals the well--such
as requiring redundancy in its shearing rams or testing blowout
preventers under real-life conditions--have not been required. As a
result of the government's inaction in this area, blowout preventers
being used throughout the Gulf of Mexico and elsewhere are at risk of
failing just as the Deepwater Horizon's did. Failure by the government
and the industry to ensure the effectiveness of blowout prevention
technology is problematic, but continuing to allow and even expand
drilling, especially in deep water, in spite of this failure is
absolutely unacceptable.
Oversight and Inspection Levels are Paltry Relative to the Scale of
Drilling Operations
Since the Deepwater Horizon disaster there has not been a
sufficient increase in the number of federal inspectors or the size of
penalties. While the Bureau of Safety and Environmental Enforcement
("BSEE") has attempted to strengthen its inspection and oversight
capabilities, funding levels remain far below what would be needed for
frequent and thorough inspections that would reduce instances of
equipment failure and operator error. Low inspection rates not only
undermine regulatory compliance by reducing the odds that violations
will be observed, but also limit real-time monitoring of operations by
inspectors, a necessary prerequisite to avert disasters as problems are
difficult to foresee even a few days before they occur. This creates a
perverse incentive for operators to risk violations when doing so can
save them time and/or money, rather than properly following the new
safety regulations, because they are unlikely to be caught.
The United States is far behind the rest of the developed world
when it comes to inspectors available and trained to inspect the oil
and gas rigs off our coasts. The number of inspectors per offshore oil
rig in other developed countries is as follows: in the U.K., the
inspector to rig ratio is 1: 2.78; in Norway, the inspector to rig
ratio is 1:1.05; in the U.S., the inspector to rig ratio is 1:29. We
are playing Russian roulette with our offshore drilling operations by
not having a sufficient inspection program and thus, even BSEE's new
safety requirements cannot make offshore drilling significantly safer
or decrease the chances of an oil spill.
Violating Rules Can be Lucrative Because Penalties Remain Small
BSEE's civil penalties are too small to ensure compliance and deter
risk taken by the oil and gas industry. The maximum penalty BOEM can
assess for civil violations is $40,000 per day per violation. In
comparison, BP was paying over $500,000 per day to use the Deepwater
Horizon rig, and total estimated daily operating costs of the operation
were approximately $1 million. This disparity between penalties for
violating regulations and operating costs creates a perverse incentive
for drillers to cut corners and complete operations in a timely rather
than safe manner. Indeed, Former Director of BOEMRE Michael Bromwich
expressed a similar sentiment in testimony delivered to the House
Natural Resources Committee, stating that ``the current enforcement
framework, which permits maximum fines of only $40,000 per day, per
incident, is patently inadequate to deter violations in an environment
where drilling operations can cost more than a million dollars a day.''
The driller can risk a violation in part because they are unlikely
to be caught and penalized, in part due to BSEE's inadequate inspection
capabilities, and also because even if they are caught, the penalty is
so low that it may pay to break the rules. Raising the maximum fine
BSEE can assess for civil penalties to a level comparable with
operational costs would eliminate the perverse financial incentive for
corner-cutting and increase the likelihood offshore operators comply
with the new safety regulations. Raising the penalty would have to be
done by Congress, as BSEE is legally constrained in how many times and
to what extent it can raise penalty sizes. As long as rule-breaking
pays, new rules cannot protect us from a spill.
At the time of the disaster, the Administration stated that it
would not allow drilling to resume unless safety concerns were
addressed. Yet drilling was allowed to resume in spite of the lack of
sufficient safety regulations. We believe this was a mistake in itself.
However, further expansion of oil and gas development, as is envisioned
by H.R.1613 and S.812, is clearly wrong-headed, and is a set up for
another drilling disaster like the Deepwater Horizon or IXTOC events.
CLIMATE CONSIDERATIONS
In May, for the first time in history, the Earth's atmospheric
carbon dioxide levels reached 400 parts per million (ppm). This ominous
milestone is a stark reminder of what our continued dependence on
fossil fuels is doing to our planet. Such dangerous levels of carbon
dioxide in the atmosphere are bringing us ever closer to the point of
no return and we are already witnessing its disastrous effects.
Hurricanes, tornados, tropical storms, and ``superstorms'' have
increased in both severity and frequency. Not only have these storms
resulted in the loss of human life and irrevocable property damage, but
they have also gotten increasingly expensive, costing billions of
dollars in taxpayer money to clean up devastated towns and cities in
the U.S. and elsewhere.
These storms are the alarm bells of climate change. We need to act
swiftly and immediately to drastically reduce the level of carbon
dioxide we are pumping into the Earth's atmosphere. A 2012 report from
the International Energy Agency (IEA) held that extreme consequences of
climate change would be associated with a 2 degree Celsius warming. As
the world's authority on global energy trends, the IEA concluded that
in order to achieve a goal of keeping warming under 2 degrees Celsius,
two-thirds of our fossil fuel reserves--oil, natural gas and coal--need
to stay in the ground as opposed to being released into our atmosphere
through production and use as fuel. Instead of doubling down on
drilling which will push us past these climatic tipping points, we
should heed the warnings of these experts and begin the swift
transition from fossil fuels to clean, renewable energy.
Offshore wind can be a big part of this transition, as the scale of
America's offshore wind energy resource is truly staggering, with
literally thousands of gigawatts (GW) of clean energy available off our
shores. For over 20 years, Europe has been generating clean energy and
jobs from its offshore wind resource. In fact, there are 1,700 offshore
turbines spinning at 55 offshore wind farms overseas, generating
approximately 5 GW of electricity. Yet, the U.S. remains stalled with
no wind farms in the water at all to date.
According to the DOE's 2011 report, ``A National Offshore Wind
Strategy: Creating an Offshore Wind Energy Industry in the United
States,'' the U.S. has over 4,000 GW of gross offshore wind energy
potential off its coasts. As former Secretary of the Interior Ken
Salazar has repeatedly noted, that is enough energy to power the U.S.
four times over.
Also according to the DOE, a U.S. offshore wind industry that takes
advantage of this abundant domestic resource could support up to
200,000 manufacturing, construction, operation and supply chain jobs
across the country and drive over $70 billion in annual investments by
2030. Offshore wind represents an economic and energy opportunity that
could mirror, and even surpass, the success of land-based wind
development. If the U.S. develops even 10 percent of this clean energy
resource for one year, we would produce about 25 times more energy than
we would if we developed all of the oil and gas in the transboundary
area, and unlike oil, offshore wind will continue to produce clean
energy year after year after year.
WE MUST MAKE A SWIFT TRANSITION FROM FOSSIL FUELS TO CLEAN ENERGY
Our continued emphasis on expanding drilling is preventing us from
the needed investment in clean energy that would stimulate the economy
without the risks associated with drilling and would also help to
alleviate the worst impacts of climate change. As I said earlier, in
order to combat global climate change, we need to focus on
transitioning off of fossil fuels in favor of clean, renewable energy
development. Offshore wind can be a big part of this transition, though
as with all burgeoning industries, one of the biggest impediments to
this clean energy development is financing. In order for a domestic
offshore wind industry to get up and running, a long-term extension of
the Investment Tax Credit (ITC) is needed. To that end, Senators Tom
Carper and Susan Collins have introduced S.401, the Incentivizing
Offshore Wind Power Act, bipartisan legislation that will extend the
ITC to the first 3,000 MW of offshore wind installed. This extension
will provide much-needed certainty to investors, which will make
offshore wind an affordable, viable investment and will ultimately help
to catapult this burgeoning industry into the mainstream. This is the
type of legislation that can help solve our energy and environmental
challenges, without risking lives and livelihoods, as well as marine
ecosystems. A focus on promoting clean energy could get us all the
benefits of the Agreement and more, without the risks.
THE AGREEMENT FAILS TO ADDRESS ENVIRONMENTAL CONCERNS
The Agreement fails to adequately address the safety risks of
drilling and is effectively silent on environmental protection. As
such, this agreement provides little to no additional benefit to the
U.S., especially compared to what we could be getting from clean
energy. In a recent Congressional Research Service (CRS) report done on
this topic, entitled, ``Proposed U.S.-Mexico Transboundary Hydrocarbons
Agreement: Background and Issues for Congress,'' BOEM estimates that
there are 172 million barrels of oil and 304 billion cubic feet of
natural gas in the transboundary area. As this is the total amount of
oil and gas in the transboundary area, the U.S. would only be entitled
to half. According to the EIA, the U.S. consumed 18.83 million barrels
of oil per day in 2011 and consumed 25.46 trillion cubic feet of
natural gas per day in 2012. Therefore, at maximum extraction and
assuming the U.S. and Mexico split these reserves evenly, the oil that
the U.S. would get as a result of this agreement would supply only
about 4 + days of our total oil demands and the natural gas that the
U.S. would get would supply only about 2 days of our natural gas
demands. Additionally, the same CRS report states that the U.S. would
only bring in $50 million from energy activities projected to take
place in the transboundary area, as compared to $6.9 billion in revenue
the U.S. got from offshore energy production in 2012 alone. To put this
in perspective, this paltry sum would represent less than 1 percent
(0.72 percent, to be exact) of the total offshore revenues of the U.S.
Lastly, there seems to be little to no thought put into what kind
of environmental protections would be required in the transboundary
area. For instance, both H.R.1613 and S.812 are silent on environmental
protections for the area and the Agreement merely suggests protections
``where appropriate'' or ``where necessary,'' which provides absolutely
no mandate and is totally open to interpretation. Expanding the risky
and dangerous practice of offshore drilling to an area where no thought
or consideration is given to environmental protections is a recipe for
disaster. It is unacceptable to move forward with such an endeavor when
even the safety regulations we currently have in place would not
adequately prevent another Deepwater Horizon oil spill disaster.
CONCLUSION
Oceana opposes implementation of the Agreement because: (1) we do
not believe that drilling operations should be expanded; (2) the
continued emphasis on expanded offshore drilling is slowing the
necessary investment in clean energy projects that would stimulate the
economy and help to alleviate the worst impacts of climate change; and
(3) the Agreement fails to satisfy a basic risk/benefit analysis, as it
brings a tremendous amount of risk of devastating spills and climate
impacting results, with relatively little concomitant benefit.
The risks of the expanded drilling called for in the Agreement far
outweigh the rewards. Rather than opening this area to new and expanded
oil and gas production, we believe that the moratorium on drilling in
the transboundary area should be extended, and that the U.S. should
invest further in stimulating the development of offshore wind and
other clean energy opportunities.
Thank you for your time. I'm happy to answer any questions you may
have.
The Chairman. Very good. Thank you.
Mr. Milito.
STATEMENT OF ERIK MILITO, GROUP DIRECTOR, UPSTREAM AND INDUSTRY
OPERATIONS, AMERICAN PETROLEUM INSTITUTE
Mr. Milito. Good morning, Chairman Wyden, Senator
Murkowski. I'm Erik Milito, Upstream Director of the American
Petroleum Institute. Thank you for the opportunity to appear
today for you as a witness.
API has more than 500 member companies which represent all
sectors of America's oil and natural industry. Our industry
supports 9.8 million American jobs and 8 percent of the U.S.
economy.
The industry also provides most of the energy we need to
power our economy and way of life and delivers more than $85
million a day in revenue to the Federal Government.
Our Nation can and should be producing more of the oil and
natural gas Americans need here at home. This would strengthen
our energy security and help put downward pressure on prices
while also providing many thousands of new jobs for Americans
and billions of dollars in additional revenue for our
government.
According to Energy Information Administration statistics
we produced a little more than 5 million barrels of oil a day
in 2009 and are projected to produce nearly 9 million barrels a
day by the end of 2014. We are simultaneously reducing the
amount of oil that we import. But we can and should do more.
The Gulf of Mexico oil and gas development supports
approximately 400 thousand jobs throughout the U.S. economy
with one-fourth of those jobs in States outside the Gulf
region. I'd like to point out that a recent study that Quest
Offshore Drilling conducted shows that these jobs that support
the Gulf reach all through the country. There are companies.
There are vendors in Oregon and places as far as Alaska when it
comes to supporting Gulf production. So it's significant that
it's not just Gulf States that benefit.
The Transboundary Hydrocarbon Agreement with Mexico is
important as it could help create additional revenue
opportunities for U.S. oil and natural gas companies in the
Gulf of Mexico. In turn create more jobs and enhance our energy
security. The Agreement establishes a cooperative process for
managing oil and gas reservoirs along the boundary region in
the Gulf of Mexico and encourages cooperative agreements with
U.S. independent oil companies and Mexico's State owned oil
company to jointly develop energy resources along the boundary
areas.
Importantly this agreement will provide legal certainty to
U.S. companies which will encourage them to invest in new
energy development creating jobs and spurring economic growth.
Implementing legislation authorizing this important
agreement should be approved as quickly as possible. S. 812
takes that pivotal step. Swift implementation of the
Transboundary Hydrocarbon Agreement is important to providing
regulatory certainty and will allow companies to make
investments in these boundary areas with the knowledge that
there is a framework in place to allow for orderly extraction
of these resources.
Given that industry investments in the offshore are largely
limited to the Gulf of Mexico, this will serve to enhance our
Nation's energy security and long term economic growth and
highlight the importance of national leadership in promoting a
positive forward looking energy policy.
The last thing I'd like to add is that the oil and natural
gas industry is comprised of energy companies, that our focus
is on oil and natural gas. That's what they're good at. That's
what they've been doing for this country for a long time.
From 2012--from 2007 to 2012 according to EIA the
extraction side, the exploration and production side actually
increased jobs by 40 percent. So it's a significant driver of
employment here in this country.
But I would add to that that they are energy companies. A
recent study by T2 and Associates found that from 2000 to 2012
the oil and gas industry invested approximately $81 billion
into GHG mitigating technologies. Whereas other industries
combined invested an estimated $91 million--$91 billion and the
Federal Government invested an estimated $79 billion.
In that same timeframe the oil and natural gas industry was
responsible for approximately 17 percent or $11.4 billion of
all investments in non hydrocarbon resources including wind,
solar, geothermal and biomass technologies. So these are energy
companies. These are companies that have done a great job of
finding oil and gas resources so that we have them here in the
United States and we can drive economic recovery and economic
growth but at the same time I don't think you can ignore the
fact that the energy companies have been doing their fair share
to try to drive investment in non hydrocarbon resources. Just
want to put that out there.
Appreciate the opportunity once again to appear before you
and be able to provide my testimony. I'm happy to answer any
questions.
[The prepared statement of Mr. Milito follows:]
Prepared Statement of Erik Milito, Group Director, Upstream and
Industry Operations, American Petroleum Institute
Good morning Chairman Wyden, Senator Murkowski, and members of the
committee. I am Erik Milito, Upstream Director at the American
Petroleum Institute.
API has more than 500 member companies, which represent all sectors
of America's oil and natural gas industry. Our industry supports 9.8
million American jobs and 8.0 percent of the U.S. economy. The industry
also provides most of the energy we need to power our economy and way
of life and delivers more than $85 million a day in revenue to the
federal government.
Our nation can and should be producing more of the oil and natural
gas Americans need here at home. This would strengthen our energy
security and help put downward pressure on prices while also providing
many thousands of new jobs for Americans and billions of dollars in
additional revenue for our government. According to Energy Information
Administration statistics, we produced a little more than 5 million
barrels of oil a day in 2009 and are projected to produce nearly 9
million barrels a day by the end of 2014. We are simultaneously
reducing the amount of oil that we import. But we can and should do
more.
Gulf of Mexico oil and gas development supports approximately
400,000 jobs throughout the U.S. economy, with one-fourth of those jobs
in states outside the Gulf region. The Transboundary Hydrocarbon
Agreement with Mexico is important as it could help create additional
resource opportunities for U.S. oil and natural gas companies in the
Gulf of Mexico and in turn create more jobs and enhance our energy
security. The agreement establishes a cooperative process for managing
oil and gas reservoirs along the boundary region in the Gulf of Mexico
and encourages cooperative agreements between U.S. independent oil
companies (IOCs) and Mexico's state-owned oil company (Pemex) to
jointly develop energy resources along boundary areas in the Gulf of
Mexico. Importantly, this agreement will provide legal certainty to
U.S. companies, which will encourage them to invest in new energy
development, creating jobs and spurring economic growth.
The importance of this agreement is magnified by the fact that the
administration has chosen a status quo approach to offshore oil and
natural gas development that restricts oil and gas development to
portions of the Gulf of Mexico and Alaska and leaves approximately 87
percent of Outer Continental Shelf areas off limits. We continue to
hear about an ``all-of-the above'' energy approach and the
administration's projections show that oil and natural gas will supply
most of the nation's energy for decades to come. However, we need to
see real action in order to ensure that we are effectively meeting the
nation's need for continued oil and gas resources to fuel our economy.
Approval of the U.S.--Mexico Transboundary Agreement is one way that we
can create and encourage additional opportunities for safe and
environmentally responsible domestic energy production on federal land.
Implementing legislation authorizing this important agreement
should be approved as quickly as possible, and S. 812 takes that
pivotal step. Swift implementation of the Transboundary Hydrocarbon
Agreement is important to providing regulatory certainty and will allow
companies to make investments in these boundary areas with the
knowledge that there is a framework in place to allow for orderly
extraction of these resources. Given that industry investments in the
offshore are largely limited to the Gulf of Mexico, this will serve to
enhance our nation's energy security and long-term economic growth and
highlight the importance of national leadership in promoting a
positive, forward-looking energy policy.
Thank you again to the Chairman and the Committee and I look
forward to your questions.
The Chairman. Thank you both. Very helpful.
Let me begin with you, if I could, Ms. Savitz. As you know
we've worked with your organization many times. I have enormous
respect for Mr. Danzig, who we worked with you on over fishing.
Certainly when you talk about climate change you've got me
at hello. I mean this 400 parts per million finding recently--
that ought to be a wakeup call to everybody.
So we're going to be focused very specifically on ways to
promote a lower carbon economy. There are a whole host of ways
to do it.
The question that I really have is how is having no
agreement better than having an agreement/ Let me kind of be
specific about this.
My understanding is without an agreement Mexico can proceed
on their own. Should they do it and they're talking about
changing their Constitution and the like. You could have, you
know, ultra deep drilling and you could have a whole host of
areas that wouldn't be subject to the kind of government
standards we're talking about here in terms of safety and
environmental protection, so fewer platforms, that sort of
thing.
Tell me your view about why no agreement is in effect
better than this agreement.
Ms. Savitz. Thank you, sir. Let me start by saying thank
you back to you. Likewise we've enjoyed very much working with
you and with the Ranking Member on a variety of different
issues. We'll continue to do so.
Thank you for your sentiments on climate change. It's a
huge problem for the oceans. It's leading to ocean
acidification. Scientists are predicting that by mid century
we'll start to see mass extinctions of coral reefs around the
world. Mid century, really, unfortunately, is not that far away
which is why we've been pushing so hard to try to get a shift
in the way we think about energy and shifting away from fossil
fuels and toward clean energy which provides us a solution to
those problems.
From our perspective the best case scenario in the U.S./
Mexico Agreement would be for the United States to lead Mexico
in that direction rather than facilitating or enabling the
development of this area by both the United States and Mexico.
I think there's some questions about what, you know, what
Mexico will do in the absence of the agreement. But it's also
not clear that Mexico will develop this area and that we
couldn't be facilitating that development without necessarily
opening up additional areas to offshore drilling.
The Chairman. Alright.
One question for you, if I might, Mr. Milito.
Part of the reason there's been a moratorium in the Western
Gap has been due to concern of drainage of resources from one
side of the transboundary from the other. This concern, of
course, is dealt with in the agreement by the implementation of
unitization agreements. Senator Murkowski has already referred
to them.
These are agreements among lessees to develop a common
reservoir and allocate production jointly. Are you satisfied
that this provision deals adequately with this issue? Again,
what are the consequences if there's no agreement?
Mr. Milito. Yes, we are. In the way it works out currently
for even U.S. producers in the Gulf of Mexico is that if you
have a reservoir that crosses leases companies have to enter
and normally do enter into unitization agreements so that there
is an agreement in place to ensure that production is being
allocated and that the reservoir is being managed according to
an underlying agreement.
So that history in practice is there. Then when going
forward to develop the cross boundary reservoirs that overlap
between the U.S. and Mexico boundary, we now have the certainty
in place to allow companies to do a similar, enter into similar
agreements, when it comes to dealing with PEMEX and making sure
that there is the certainty in place from a legal standpoint to
move forward and have that production allocated and have those
royalties and revenues divided up as outlined in the underlying
unitization agreements.
So that certainty is provided through this Transboundary
Agreement.
The Chairman. Very good.
Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman.
To both of you, thank you for your testimony here this
morning. Appreciate it.
Ms. Savitz, you, in answer to the chairman's question,
you've indicated that the concern is a bigger picture just
trying to move away from fossil fuel. I think he tried to
indicate that if this agreement does move forward what we do is
we set in place a framework for joint development, making sure
that that footprint is smaller, promoting common safety,
environmental standards.
Is there anything that you can think of that would, I
guess, enhance the terms of the agreement so that Oceana would
actually support this agreement or are you opposed under all
circumstances? I guess I'm trying to understand if there are
areas that could be enhanced that would cause you to revisit
this?
Ms. Savitz. Thank you for that question. I think it's a
very thoughtful question.
One of the big concerns we have with the agreement is it's
very unclear to us from the agreement where the, you know, what
safety standards would be required for offshore drilling of
Mexico. We kind of know what safety standards are required in
the United States. It's not clear to us that our safety
standards necessarily would be recognized and respected or that
we would have any authority to guarantee them.
But in addition to that we're also very concerned with the
status of the existing safety requirements for offshore
drilling.
We don't think they're sufficient.
They don't require sufficient technology.
There's a serious lack of funding for inspections.
They're very low penalties that even former head of BOEMRE,
Michael Bromwich, you know, was very concerned about the low
penalties. So essentially what we get is even though we have
some standards they're not necessarily being met and that the
standards aren't strong enough.
We have a liability cap in place. It hasn't been lifted
since Deepwater Horizon. So there's a variety of things that a,
we're not sure that the Mexican drilling company would
recognize our standards. Even if they did we're not satisfied
with the strength of our standards.
Senator Murkowski. Let me ask you, Mr. Milito, whether or
not your members, the folks that are affiliated or associated
with API are currently working with Mexico on oil and gas
safety technology, environmental issues. Do you have a level of
collaboration that is ongoing related to oil and gas
development in the Gulf right now?
Mr. Milito. Thank you, Senator. That's an interesting
question considering that just a few weeks ago we had hosted a
delegation of Senators from Mexico who came to API to learn
about what we're doing here in the United States. So we took
that opportunity in conjunction with that State Department,
being able to line that meeting up to kind of go through what
we were doing as an industry here in the United States and
outlining a lot of the work we've done in terms of raising and
enhancing the level of performance in offshore operations in
terms of preventing an accident, containing one and responding
to one.
It appeared very clear from that discussion that there is a
strong desire from the Mexican government to be able to move
forward and get its production increased back up. But it's
important to make sure that we're doing it in a safe and
environmentally responsible way.
Our industry also has been working closely with BSEE and
BOEM and then also speaking before forums like the
International Regulators Forum to make sure that we are
disseminating and spreading the information about robust
regulatory frameworks and high level standards that should be
employed throughout the world. Our companies on a one on one
basis also work with Mexico and Mexican authorities to make
sure that all this information and the technologies and
standards are being communicated across borders.
So I think we're doing what we can. I think a lot of that
is also being handled through both the BOEM, BSEE and the State
Department.
Thank you.
Senator Murkowski. You know, you can't help but think about
or I can't help but think coming from Alaska that when we talk
about development in our oceans it--the issues are different.
When you're on land and you know where your State boundaries
are it's just a little bit different dynamic. What we're trying
to do up North in a very evolving part of the world, is a
recognition that in the Arctic Nations there is greater efforts
of collaboration whether it is with environmental issues,
whether it's in search and rescue, whether it is oil spill
prevention and just the whole preparedness.
But it's one thing when it's the U.S. talking to our
neighbors just to the south in Mexico. It's another thing when
you've got multiple countries that you are dealing with where
standards might be a little bit different.
So appreciate your response to that.
Can you speak and this is to you, Mr. Milito again, to the
level of interest within the membership of API in developing
these oil and gas resources that are along the transboundary
area? Mr. Beaudreau mentioned that there have been applicants
or perspective lease holders that have stepped forward but his
suggestion was that once this uncertainty is resolved or excuse
me, once this moratorium is resolved that there will be a
greater interest in activity in that area.
Can you speak to that?
Mr. Milito. Yes. That's our understanding as well is that
given the inability to move forward with legal certainty that
companies No. 1, have not been able to move forward and apply
for permits and actually go out there and engage in initial
exploratory activities. But, you know, they haven't been able
to also put forward a strong forward looking program to tap
into these opportunities from a broader standpoint.
I do think that when you look at the map which shows you
where the lease blocks are, you will see a production platform
like Perdido which has capacity for 100 thousand barrels a day.
Not far from this area and you see selectively companies who
have bid on and purchases leases right along that border that
there is interest there. Not given that we're a trade
association and this is a lot of confidential business
information. We're not privy to a lot of that information.
But it's clear that the industry as a whole would like to
look at these perspective areas and determine what's there and
whether there are opportunities to then move into the
production stage. So it's step by step by step, but given that
the Gulf of Mexico is a very mature area it's areas like this
that would allow this Nation to enhance its own energy
security.
Senator Murkowski. Appreciate it. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Murkowski.
You know, what I'm struck by particularly as we wrap up,
and I know we were very pleased to get the helium legislation
passed last week because there would have been real
consequences, essentially starting this week, in terms of
millions of jobs being affected, 700,000 MRIs each week that
need that liquid helium to be able to cool those super
conducting magnets. Back when everybody started talking about
helium I think I mentioned to you I thought that helium was
about balloons.
We really under--we've learned a lot. Thank you for your
cooperation. I think we've got to bring the same kind of
urgency to this agreement as well.
What I'm struck by is January 17th, basically means that
the moratorium expires. It's kind of first come, first serve.
It's open season.
As I was really touching on with you, Ms. Savitz, and this
is recognizing all the good work that you all do at your
organization, if the moratorium expires and first come, first
serve and we don't have the rules that strike that kind of
responsible approach we've been talking about here today,
basically you can go your own way with respect to drilling in
the Western Gap.
I think that's something we want to avoid. So I intend to
work very closely with you and our committee. I think we got on
the record what we needed to today.
I particularly wanted to close and let you all at least
have the last word. But January 17th is coming up here. To in
effect say, alright, we're not going to act. It's going to be
open season there. First come, first serve. That would not be
in the interest of the American people.
So last word from my friend, Senator Murkowski.
Senator Murkowski. I like having the last word. What I will
remind our colleagues is that once again while things seem to
be stalled out in other parts of this building, as a committee,
we're trying to move through some good stuff. Last week while
all eyes were focused upon a few key individuals and quite
honestly we weren't getting a lot of governing done, you and I
and our very able staffs worked with our colleagues on the
House side to move through the Helium bill.
There wasn't front page news that I could find about it and
that was just fine because, quite honestly, we got an important
provision moved through both bodies and around the road blocks
and to the President for his signature. We're just kind of
quietly doing our work here. I think with the frustration that
the public feels right now about what is happening in the
Congress or perhaps the lack of anything happening in the
Congress right now as they see their government shutting down.
I think it's important to know that on this first morning
of the government shut down we're talking about how we, as a
Nation, move forward toward energy independence, North American
energy independence, energy security, working to make sure that
we've got environmental frameworks in place, safety frameworks
in place. I just appreciate the fact that we're continuing to
do what I think people sent us to do which is get to work.
So I appreciate your leadership here this morning.
Appreciate those of you that took the time to be with us and to
speak up on what I think is a pretty important issue for our
country.
So, thank you.
[Whereupon, at 11:10 a.m., the hearing was adjourned.]
APPENDIX
Responses to Additional Questions
----------
Responses of Carlos Pascual to Questions From Senator Johnson
Question 1. I am a strong supporter of section 1504 of the Dodd-
Frank legislation requiring expanded transparency for extractive
industries, and oppose the House attempt to incorporate an exemption
into legislation on this agreement. In your view, is the agreement, as
it was negotiated, implementable--where U.S. companies can participate
in these transboundary projects--without undermining Section 1504, as
the provision in H.R. 1613 has sought to do?
Answer. The Department of State strongly supports Dodd-Frank
Section 1504, which set an important new standard for transparency in
the extractive industries. As I noted in my testimony, we look forward
to working with the Congress to enact implementing legislation that
would focus on the U.S.-Mexico Transboundary Agreement, without the
inclusion of extraneous and unnecessary provisions such as those
relating to Dodd-Frank Section 1504. Such inclusions would directly and
negatively affect U.S. efforts to increase transparency and
accountability. The provisions are unnecessary and unrelated to
implementing the U.S.-Mexico Transboundary Hydrocarbon Agreement and
seriously detract from the bill.
Question 2. The Mexican government has indicated its intent to
implement the Extractive Industries Transparency Initiative (EITI) and
is a founding member of the Open Government Partnership with the United
States. Has the State Department or the U.S. Embassy in Mexico received
any indication that the Mexican government is preparing legislation to
prevent disclosure in transboundary waters?
Answer. We are not aware of any plans by the Government of Mexico
to introduce legislation preventing disclosure of payments for
commercial development of oil, gas, or minerals in transboundary
waters. We welcome the Government of Mexico's strong engagement on the
Open Government Partnership (OGP) and we look forward to their
implementation of the EITI. The United States also strongly supports
the EITI by participating actively on its international governing
board, funding technical assistance, and promoting the initiative in
bilateral discussions as well as multilateral groups such as the G8 and
G20. The State Department collaborates closely with colleagues at the
U.S. Department of the Interior as they work with civil society,
industry, and Federal and state government representatives toward
implementing the EITI domestically in the United States, which is one
of our commitments in the U.S. Open Government Partnership National
Action Plan.
Response of Carlos Pascual to Question From Senator Schatz
Question 1. Ambassador Pascual, I wonder if you could discuss the
benefits of reporting requirements under Section 1504 of the Dodd-Frank
Act, the initiatives in place at the State Department, and how the
exemption in the House bill would affect your agency's efforts at
achieving transparency.
Answer. The U.S. Department of State strongly supports Dodd-Frank
Section 1504, which sets an important new standard for transparency in
the extractive industries. As I noted in my testimony, we look forward
to working with the Congress to enact implementing legislation that
would focus on the U.S.-Mexico Transboundary Agreement, without the
inclusion of extraneous provisions such as those relating to Dodd-Frank
Section 1504. Not only are the provisions unnecessary and unrelated to
implementing the U.S.-Mexico Transboundary Hydrocarbon Agreement; they
would directly and negatively affect U.S. efforts to increase
transparency and accountability in the extractives sector globally.
Dodd-Frank Section 1504 set a new global standard for revenue
transparency, one that is being emulated by others. Since the
provision's passage into law in the United States, the European Union
adopted similar rules and Canada is working actively to do so. This
year, the G-8 Leaders encouraged other countries that host major
multinational or state-owned enterprises that invest abroad to
implement equivalent mandatory reporting rules. The addition of
exemptions to Dodd-Frank Section 1504 as in H.R. 1613 would undermine
United States and international efforts to arrive at clear and
consistent reporting requirements across jurisdictions that would
minimize duplicate reporting burdens, and ensure this reporting is
complete.
The extractive sectors are notoriously difficult for countries to
manage effectively and transparently. While these resources are key to
the global economy and can be a tremendous asset for a country's
economic growth, too often countries have been unable to manage the
development of these resources effectively, with the result that the
returns on this wealth are not leveraged into sustained economic
growth. The Department supports transparency in the payments that
extractive companies make to governments as a key component of a
broader strategy to support effective and accountable government
management of the extractive sectors. The company reporting
requirements contained in Dodd-Frank Section 1504 complement voluntary
initiatives like the Extractive Industries Transparency Initiative
(EITI) by giving people in countries around the world the information
they need to hold their own governments accountable.