[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


 
              CRUDE INTENTIONS: THE UNTOLD STORY OF 
              THE BAN, THE OIL INDUSTRY, AND AMERICA'S 
              SMALL BUSINESSES

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

                                HEARING
                               
                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             JUNE 17, 2015

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


              Small Business Committee Document Number 114-016
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                        TOM RICE, South Carolina
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                          MIKE BOST, Illinois
                         CRESENT HARDY, Nevada
               NYDIA VELAZQUEZ, New York, Ranking Member
                         YVETTE CLARK, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                       BRENDA LAWRENCE, Michigan
                       ALMA ADAMS, North Carolina
                      SETH MOULTON, Massachusetts
                           MARK TAKAI, Hawaii

                   Kevin Fitzpatrick, Staff Director
            Stephen Dennis, Deputy Staff Director for Policy
            Jan Oliver, Deputy Staff Director for Operation
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                            
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Steve Chabot................................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Dr. Kenneth B. Medlock III, James A. Baker, III, and Susan G. 
  Baker, Fellow in Energy and Resource Economics, Senior 
  Director, Center for Energy Studies, Rice University's Baker 
  Institute for Public Policy, Houston, TX.......................     4
Mr. Dale Leppo, Chairman, Leppo Group, Tallmadge, OH, testifying 
  on behalf of the Energy Equipment and Infrastructure Alliance..     6
Mr. Rory McMinn, President and Managing Director, Read & Stevens, 
  Inc., Roswell, NM..............................................     7
Mr. Tyson Slocum, Energy Program Director, Public Citizen, 
  Washington, DC.................................................     9

                                APPENDIX

Prepared Statements:
    Dr. Kenneth B. Medlock III, James A. Baker, III, and Susan G. 
      Baker, Fellow in Energy and Resource Economics, Senior 
      Director, Center for Energy Studies, Rice University's 
      Baker Institute for Public Policy, Houston, TX.............    29
    Mr. Dale Leppo, Chairman, Leppo Group, Tallmadge, OH, 
      testifying on behalf of the Energy Equipment and 
      Infrastructure Alliance....................................    36
    Mr. Rory McMinn, President and Managing Director, Read & 
      Stevens, Inc., Roswell, NM.................................    42
    Mr. Tyson Slocum, Energy Program Director, Public Citizen, 
      Washington, DC.............................................    48
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    Energy Equipment and Infrastructure Alliance.................    58
    Opening Statement of Hon. Radewagen..........................    63


 CRUDE INTENTIONS: THE UNTOLD STORY OF THE BAN, THE OIL INDUSTRY, AND 
                       AMERICA'S SMALL BUSINESSES

                              ----------                              


                        WEDNESDAY, JUNE 17, 2015

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 11:00 a.m., in Room 
2360, Rayburn House Office Building. Hon. Steve Chabot 
[chairman of the Committee] presiding.
    Present: Representatives Chabot, King, Luetkemeyer, Hanna, 
Huelskamp, Rice, Gibson, Brat, Radewagen, Knight, Curbelo, 
Bost, Hardy, Kelly, Velazquez, Chu, Hahn, Payne, Meng, 
Lawrence, Clarke, Adams, and Moulton.
    Chairman CHABOT. The Committee will come to order. Before 
we get started, I wanted to thank Congressman Joe Barton for 
stopping in from Texas earlier. They certainly have an interest 
in oil. He was pleased we were holding this hearing today. I 
just wanted to acknowledge that and thank him.
    We want to thank everyone for joining us today in this very 
important discussion. There is no disputing it, America has 
entered into a new energy era. After years of decline, the 
United States is now the largest producer of oil and gas in the 
world.
    Over the last year alone, U.S. oil production has expanded 
by 1.6 million barrels a day. This production, which comes 
primarily from unconventional fields, is expected to increase 
by an average rate of 234,000 barrels per day, topping 10.6 
million barrels per day by 2020.
    What does all this mean to American families? What does it 
mean to American workers? What does it mean to those still 
looking for work?
    Increased American energy production means more jobs and a 
stronger economy. It is that simple. The only problem with 
increased production is that we cannot keep up with it. Our 
increase in production has not been met with an increase in 
capacity to refine this oil, which creates a bottleneck that 
forces producers to slow or halt production. When this happens, 
it does not hurt the big guys, it hurts the small producers and 
their tertiary partners most of all. That is why allowing the 
export of this resource is so important. It is the only 
realistic solution to the situation.
    Most of our recent conversations about energy have focused 
on the Keystone Pipeline. That is one project that would create 
roughly 40,000 American jobs. Lifting the decades-old ban on 
oil exports would create hundreds of thousands more. In fact, a 
recent study found that lifting the ban would help one million 
Americans find work by 2020, one million people finding jobs by 
2020. It would also increase GDP, narrow the trade deficit, 
attract new capital to the United States, and diversify and 
stabilize the global energy supply, which in turn protects the 
price of oil from major fluctuations.
    Some may falsely charge that this hearing and this policy 
are about big oil. They are not. This Committee is concerned 
with small businesses and the people they employ. The untold 
story about this export ban is the negative impact that it has 
on the American people and small businesses. Our witnesses 
today are testament to that, and I look forward to hearing from 
them.
    Those of us who lived through the 1970s know there are not 
many useful things from that decade still around today, so why 
are some clinging white knuckled to a 1970s energy policy? Just 
like bellbottoms, some things are better left in the past.
    If America is going to continue to lead the world in energy 
production in the 21st Century, let's not keep one hand tied 
behind our back. Let's replace outdated energy policies with 
ones that are forward thinking and realistic, ones that will 
produce economic growth, and most importantly, create new jobs.
    The American workforce stands ready. Washington must stop 
standing in their way.
    I want to thank the witnesses for joining us here this 
morning, and I will now yield to the ranking member.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman. Any decision to 
modify or repeal the long-standing ban on U.S. oil exports will 
profoundly affect our nation. More than 35 percent of small 
businesses say energy costs account for one of their top three 
expenses, and a range of sectors, from construction to 
agriculture to trucking to manufacturing, are sensitive to 
energy price changes, and would therefore be significantly 
affected should the U.S. begin exporting abroad.
    Small businesses are impacted by energy supply and price 
issues in a second way. The price of petroleum, gasoline, and 
home heating oil affect the expendable income of American 
households. When fuel prices drop, we usually see a concurrent 
rise in consumer spending and confidence.
    Reinforcing this point, it has been estimated that a 
sustained $30 decline in the price of a barrel of oil 
translates into more than $200 billion a year in savings for 
U.S. consumers. These resources can be spent on items sold by 
small business retailers and made by small manufacturers.
    With the latest data showing a surge in retail sales during 
May, it is clear that falling energy prices are contributing to 
consumer spending. This raises an important question about what 
effect lifting the export ban will have on small firms and the 
economy overall.
    At best, the available research seems mixed on whether such 
a move would reduce prices. The most empirical evidence 
suggests that sending the majority of U.S. produced fuel 
domestically helps keep gasoline prices low. Proponents made 
the claim that energy exploration efforts and technology have 
advanced to a point where the ban no longer makes sense.
    However, several analyses suggest that much of the recent 
rise in oil production may be temporary as oil reserves exist. 
Through fracking technology, I expect that to quickly level 
off.
    Moreover, although the U.S. has seen a dramatic production 
increase, we are far from achieving energy independence. Today, 
we import roughly the same percentage of oil from foreign 
sources as we did in 1975, when the export ban passed.
    It seems hasty to suggest this new found capacity justifies 
abandoning a 40 year old policy that has helped insulate our 
economy against dramatic changes in international energy 
markets.
    Mr. Chairman, just a few short years ago, this committee 
was holding hearings on how rising energy prices were 
inhibiting growth and harming our small businesses. None of us 
want to return to those old days. The recent increase in 
domestic oil production and the steady drop in oil and energy 
prices has been welcomed news for small businesses and American 
consumers.
    As Congress and the administration move forward with future 
changes to energy policy, it is vital they take into account 
small company needs and how entrepreneurs are affected by these 
changes.
    On that note, I thank the witnesses for testifying, and I 
yield back the balance of my time.
    Chairman CHABOT. Thank you very much. The gentlelady yields 
back. If Committee members have opening statements, we ask they 
submit them for the record.
    I will now take just a moment to explain our five minute 
rule here. Each of you get five minutes to testify. There is a 
lighting system to kind of help you in that effort.
    The green light will remain on for four minutes. The yellow 
light will let you know you have a minute to wrap up. When the 
red light comes up, we would ask you to complete your testimony 
as close to that as possible.
    We will let you go over a little bit but not too long. We 
restrict ourselves to that same five minute rule when we are 
asking questions.
    I would now like to introduce our very distinguished panel 
here this morning. Our first witness is Ken Medlock. He is the 
James A. Baker, III and Susan G. Baker Fellow in Energy and 
Resources Studies, as well as an adjunct professor and lecturer 
in the Department of Economics, and adjunct assistant professor 
of civil and environmental engineering at Rice University.
    In this role, Dr. Medlock teaches courses in energy 
economics and conducts research on a number of energy industry 
topics. Dr. Medlock received his Ph.D. in economics from Rice 
University. We appreciate you being here, Doctor.
    Our second witness is Dale Leppo, chairman of the Leppo 
Group in Tallmadge, Ohio. The Leppo Group is a full service 
power equipment sales and rental company operating two 
companies, Leppo Rents and Razor Rents. Razor Rents supplies 
equipment to operators in the energy industry.
    Mr. Leppo received his undergraduate degree in chemistry 
from Kent State University. He is testifying today on behalf of 
the Energy Equipment and Infrastructure Alliance. We also 
welcome you this morning.
    Our third witness today is Rory McMinn, president and 
managing director of Read and Stevens, Inc. He has created and 
operated a pipeline services company, an energy consulting 
company, an oil and gas production company, and has owned, 
drilled and operated oil wells.
    He received his undergraduate degree from West Texas A&M 
University, and we welcome you here as well.
    I would now like to yield to our ranking member for 
introducing our next witness.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman. It is my pleasure 
to introduce to the committee Mr. Tyson Slocum. He is the 
Energy Program Director at Public Citizen, covering climate 
change, coal, oil, fracking, nuclear energy, renewables and 
commodity market oversight.
    Public Citizen seeks to represent the general public on 
policy matters and does not endorse any candidates for elected 
office, and does not accept any government or corporate money.
    Mr. Slocum also serves on the Commodity Futures Trading 
Commission's Energy and Environmental Markets Advisory 
Committee and has authored numerous reports on energy matters.
    He appears regularly on television and radio shows, 
including PBS Newshour, The Colbert Report, MSNBC, Fox News, 
and CNBC.
    Welcome.
    Chairman CHABOT. Thank you very much. We will now turn to 
Dr. Medlock. You are recognized for five minutes.

STATEMENTS OF KENNETH B. MEDLOCK, III, SENIOR DIRECTOR, CENTER 
  FOR ENERGY STUDIES, JAMES A. BAKER, III AND SUSAN G. BAKER, 
FELLOW IN ENERGY AND RESOURCE ECONOMICS; DALE LEPPO, CHAIRMAN, 
LEPPO GROUP; RORY MCMINN, PRESIDENT AND MANAGING DIRECTOR, READ 
   AND STEVENS, INC.; TYSON SLOCUM, ENERGY PROGRAM DIRECTOR, 
                         PUBLIC CITIZEN

                STATEMENT OF KENNETH B. MEDLOCK

    Mr. MEDLOCK. Thank you, Chairman Chabot. Thank you, Ranking 
Member Velazquez and the rest of the Committee.
    I want to in my brief time focus my remarks on a couple of 
things that were mentioned in the opening comments, in 
particular, with regard to what we generally classify as energy 
security.
    Generally when we talk about energy security, we are really 
concerned with avoiding any economic malaise associated with 
the sudden increase in the price of energy or an increase in 
the volatility of the price of energy.
    Historically, we have tended to focus on oil. That is 
largely because there is a strong empirical relationship 
between the price of oil and macroeconomic performance in the 
United States.
    What we have done as a nation in terms of enacting policy 
to try to achieve energy security has been widely varied, and 
by some accounts, inaccurate. That is actually one of the 
things we try to address in a study that we released, ``To Lift 
or Not to Lift'' earlier this year.
    In particular, if you look at the global oil market from 
2008 to 2013 and you focus on the countries where production 
actually declined during that time and ultimately led to an 
increasing tightness in the market which drove price up north 
of $100 a barrel, you see that the majority of the decline are 
countries that were largely affected by internal strives for 
civil strives, the so-called ``Arab Spring,'' those nations, 
plus sanctions on countries such as Iran, accounted for roughly 
3.5 million barrels a day of oil going off line from 2008 to 
2013.
    To flip the ledger, when you sort of look to north of that 
to see where production increased, the U.S. led the charge. 
From 2008 to 2013, we actually saw increases in production 
close to three million barrels a day, but that was not the only 
place where production increased.
    This was very much a price driven phenomenon, higher prices 
brought a lot more interest in activity in places that we had 
not really drilled before.
    When you start to look at what that means going forward, 
you realize very quickly the U.S. first of all has really 
pushed out a lot of the lighter crude oils that we used to 
import. We have by nature of substitution substituted away from 
importing the lighter crudes and we are starting to move in the 
margins where the light crudes that are being produced 
domestically are pushing out medium grade and heavier crudes 
that we normally would import.
    That sounds on its face like a laudable thing to have 
happen. The trouble with it is for the domestic crudes that are 
lighter and sweeter typically to compete into the domestic 
refining space, and in particular, you actually see they have 
to be discounted.
    This is another thing we focused on, that discount. In 
particular, when you look at places like the Eagle Ford Shale, 
you can see discounts even in the $60 price environment that 
are north of $6 a barrel. That is actually quite substantial 
particularly given how much margins have been compressed in the 
upstream.
    When we start talking about the health of the upstream 
industry, and I think it is fairly well recognized that the job 
creation that has been fueled by this over the last decade has 
been quite substantial. As a matter of fact, there are a number 
of studies on this issue in terms of job creation, the upstream 
sector was for several years post-2008 the only sector that was 
providing any upward movement in terms of employment.
    When you look at that and you start to see these compressed 
margins plus the discounts that are being forced by current 
policy on the upstream could compromise that growth. That then 
begs the question what is the policy actually doing.
    In effect what it is doing is hindering the furtherance of 
what we have already seen, namely U.S. production providing 
stability to the global oil market.
    If the ban were to be lifted, that oil could actually flow 
into the international market. That would definitely lift the 
crude price domestically, but that does not translate into 
prices that are higher at the pump. This is a critical point.
    When we get back to the point of energy security and what 
small businesses and consumers actually purchase, what do we 
buy? We buy gasoline. We buy heating oil. We do not buy crude 
oil.
    When you look at the price of petroleum products in 
particular, those are unimpeded, that price is actually set in 
the international market. Petroleum product exports are 
unimpeded by policies. As a matter of fact, we export north of 
three million barrels a day of products today.
    The lack of a ban on petroleum exports, quite frankly, has 
actually lifted the refining sector quite substantially.
    When we look at what policy direction we ought to be 
thinking about, we ought to be thinking about how do we 
actually provide stability to the petroleum product price. 
Going back to energy security, it really is about stability at 
a reasonable level.
    One of the ways we can achieve that is by adding a stable 
source of supply to the global energy market which would help 
stabilize petroleum product prices, which is where the energy 
security benefit is actually conveyed to small businesses and 
consumers in North America.
    Thank you.
    Chairman CHABOT. Thank you very much. Mr. Leppo, you are 
recognized for five minutes.

                    STATEMENT OF DALE LEPPO

    Mr. LEPPO. Thank you, Chairman Chabot, Ranking Member 
Velazquez, and Small Business Committee members for inviting me 
to testify about the impact of lifting the ban on crude oil 
exports on our small family owned business, which employs 127 
people in Ohio and was founded by my grandparents in 1945.
    Leppo Group rents and sells construction equipment at seven 
locations throughout Northeast and East Central Ohio. In 2013, 
we opened Razor Rents in Carrollton to serve the needs of the 
emerging Utica shale energy play. Fifteen percent of our 
employees are involved in some way in supporting our energy 
related business.
    In the second half of 2014, Razor Rents' business doubled 
versus the first half of that year as the Utica shale activity 
ramped up. At one point, Ohio had 48 drill rigs operating by 
the end of 2014. We added 14 new jobs, many of which went into 
supporting our energy sector, our Razor Rents' fleet grew by 
130 percent, from 154 to 355 units, creating jobs for our 
suppliers.
    For example, last year we purchased 45 new pieces of 
equipment from JLG Industries, almost all of which are 
manufactured either in Ohio or Pennsylvania. Each machine 
represents an investment of between $80,000 and $140,000.
    We also created three internships for students from Ohio 
State University ATI, who then joined us full time after they 
graduated.
    When the price of oil and natural gas fell, so did that 
increased activity. The number of drill rigs working Ohio has 
fallen from 48 to 22. The number of machines that we have on 
rent in the energy sector has fallen by 42 percent since the 
peak in late 2014.
    As a result, in 2015, we have put an aggressive hiring plan 
on hold. We have transferred some of our co-workers from the 
energy sector back to our normal construction and industrial 
activities. That means the six positions we had planned to fill 
this year are going to remain open.
    We have ordered minimum new equipment for our energy 
markets, and we currently have two interns from Ohio State ATI 
but only time will tell if we are able to bring them on full 
time after they graduate.
    What can Congress do to help our small business create jobs 
both in our company and for our customers and suppliers? 
Congress can help increase markets for American produced crude 
oil by lifting the ban on crude oil exports. Why would that 
help? IHS Economics estimates that lifting the ban would 
increase U.S. crude oil production by up to 2.3 million barrels 
per day average between 2016 and 2030.
    This would create up to 440,000 new supply chain jobs 
nationally and up to 13,600 in Ohio alone by 2018. These export 
dependent jobs and GDP growth are widely spread throughout the 
American economy and exists in all 50 states.
    The Energy Equipment and Infrastructure Alliance, of which 
my company is a member, estimates there are currently 120,000 
supply chain businesses supporting American oil and natural gas 
production, of which at least 100,000 are small businesses.
    The U.S. energy sector has been a leader in developing new 
technologies for energy exploration and extraction. Lifting the 
ban would give the U.S. energy industry incentives to innovate 
and become even better at finding and extracting oil and 
natural gas in an efficient and safe manner.
    During the energy boom in Ohio, we have seen significantly 
increased activity in the energy supply chain, such as the 
manufacturing of steel pipe, the manufacturing, distribution 
and support of equipment used in energy markets such as 
forklifts, man lifts, pumps, compressors, generators, and earth 
moving equipment.
    Investment in infrastructure to get oil and gas to the 
market, such as well site production, pipelines, separation 
plants, rail lines, roads, and bridges.
    We have also seen investment in gas fired electric 
generation plants to replace older, less efficient coal fired 
plants. We have seen investment for energy sector workers to 
sleep, eat, and shop, places like hotels, restaurants, et 
cetera.
    At a time when the United States continues to see sluggish 
growth in the kind of good jobs the energy sector provides, 
lifting the ban on crude oil exports is a step that could yield 
almost immediate results.
    I hope we can move forward on expanding the markets for 
U.S. exports of energy that I believe will be a good source of 
jobs for Ohio and much of the rest of the country.
    Thank you again, Mr. Chairman, for inviting me to address 
your Committee.
    Chairman CHABOT. Thank you very much. Mr. McMinn, you are 
recognized for five minutes.

                    STATEMENT OF RORY McMINN

    Mr. MCMINN. Thank you, Mr. Chairman. Mr. Chairman and 
members of the Committee, my name is Rory McMinn and I am the 
president and managing director of a small family owned oil and 
gas operating company based in Roswell, New Mexico by the name 
of Read and Stevens, Inc.
    I am pleased to testify today in regards to the adverse 
effect that the depressed oil price market is having on small 
oil companies such as Read and Stevens, and to convey to you 
the enormous value to small operators such as ourselves, our 
employees, and our communities which would be attainable from 
lifting the antiquated and destructive 1970s ban on the export 
of domestic crude oil.
    The issue of eliminating the ban on crude oil exports is 
important to the livelihood of thousands of people in my state 
and hundreds of thousands of people throughout the United 
States that do not live in the oil patch area, but whose work 
and family welfare depends on making the goods and providing 
the services used by the oil production industry.
    Read and Stevens was founded in 1972 and has drilled for 
and produced oil and natural gas within New Mexico and West 
Texas since that time. We operate approximately 150 wells 
ourselves, and we have interest in an equal number of wells 
that are operated by other companies.
    Many of our wells in our inventory are considered 
strippers. Stripper wells are wells that have 15 barrels of oil 
per day or equivalent or less. Like other small producers, the 
Read family finances its operation through cash flow and bank 
debt. We have no access to selling shares of stock. We have no 
access to private equity.
    Any constriction on our cash flow or any devaluation of our 
oil reserves that we are experiencing now with the depressed 
price affects our bank credit line and affects our ability to 
move forward.
    We had a 26 well drilling program that we had designed on 
some Legacy property within Southeastern New Mexico Delaware 
Basin in 2014. We have 24 wells remaining to be drilled. We 
have lost revenue as a result of having to cancel that drilling 
program, and in fact, if we had not already signed the 
contracts on the two wells we have drilled, we would have 
cancelled those.
    The 2014 estimated well cost is $6.325 million per well. 
The current 2015 estimated well cost is $4.5 million per well. 
That is an one-third reduction in cost made possible simply by 
the fact that our vendors, who are facing a steep decline in 
the demand for their goods and services in the reduction of new 
drilling, are eliminating jobs, they are mothballing equipment, 
they are deferring maintenance, they are eliminating 
advertising, they are cutting offices, and they are cutting 
back their support for a wide range of civic and public 
organizations in a desperate attempt on their part to maintain 
their businesses rather than have their contracts simply 
cancelled. I would emphasize that a lot of those vendor 
contracts have indeed simply already been cancelled.
    While that one-third drop in well costs in and of itself 
would be enough incentive to drill, the simultaneous 50 percent 
drop in oil commodity prices causes this to still be a negative 
marketplace for us.
    With small operators and our vendors and suppliers all 
cutting back on our activity, the collective adverse impact on 
those small businesses, their employees and their communities, 
is widespread and immense. Every community where small 
producers operate has felt the drilling down turn by the loss 
of economic activity.
    Our offices are flooded with applicants, people from the 
very unskilled workers to the most highly skilled. The 
operators that have reported to me are receiving resumes from 
newly graduated petroleum engineers that are requesting jobs 
that are on the lowest level within the industry, and merely to 
get into the industry.
    New Mexico is on the list of the poorest recovering states 
as a result of the recent severe recession. The only bright 
spot within our state has been the oil and gas industry, which 
is the largest private employer in the state, and one of the 
few that was growing jobs until the last six months.
    In the first quarter of 2015 alone, we lost 2,000 jobs. Now 
our industry is continuing to lay off people and more and more 
folks are losing their jobs.
    One New Mexico state agency has stated that in addition to 
the 2,000 jobs that were lost, we have lost $220 million in 
revenue for the state. That particular loss of revenue affects 
hospitals, schools, and communities.
    In closing, I would strongly urge the Committee to lift the 
oil export ban, thereby sending the signal that Congress cares 
about the smaller producers, and I appreciate being able to 
speak to you today.
    Committee.
    Chairman CHABOT. Thank you very much. Mr. Slocum, you are 
recognized for five minutes.

                   STATEMENT OF TYSON SLOCUM

    Mr. SLOCUM. Mr. Chairman, Ranking Member Velazquez, members 
of the Committee, thank you so much for having me here today. 
It is an honor to be part of such an esteemed panel.
    At core, the debate around whether or not to lift the oil 
export ban pits two big industries against each other, those 
that are directly producing oil and the associated small 
businesses that support them in those communities and 
elsewhere, and the oil refining industry that is taking that 
crude oil and turning it into useful end products like 
gasoline, diesel, and so forth, and the associated small 
businesses that support the refining industry and the 
communities where those refineries are located.
    What is clear is the oil export ban limits the ability of 
U.S. oil producers to sell that oil outside of the United 
States, and a direct result of that is they have to sell to 
U.S. refiners, and what we have seen is that stockpiles of 
crude oil in the United States are at record highs.
    Anyone who knows supply/demand fundamentals understands 
that when supplies are very high, that is going to have a 
downward pressure on prices, and as Dr. Medlock testified, that 
results in a significant price discount for U.S. refiners to 
buy crude oil.
    The question is what are U.S. refiners doing with that 
discount. Are they pocketing it to their shareholders or are 
they sharing it with end users of the products that they are 
refining.
    The data clearly shows that U.S. consumers and small 
businesses and anyone else that purchases gasoline or refined 
products has enjoyed significant savings at the pump as a 
result of lower gasoline prices.
    An analysis by Deutsche Bank not based on speculation of 
what lifting the ban would do but on actual comparative 
gasoline price data in the United States versus the Brent 
benchmark gasoline price in Europe shows that we have seen 
significant reductions in gasoline prices available to the U.S. 
economy. The prices from 2008 to 2010, U.S. gasoline prices 
were about $4.73 a barrel higher than the European benchmark. 
By the 2011 to 2014 time period, that had reduced to $1.62, and 
in 2014 alone, it was down to $1.20.
    What we have seen since the 2008 to 2010 time period is 
U.S. gasoline prices have reduced $3.50 per barrel compared to 
the key European benchmark. That translated to $11.4 billion in 
lower gasoline prices for U.S. consumers in 2014.
    The oil industry has funded a number of studies, and there 
have been a number of other independent studies as well that 
speculates that removing the crude oil export ban will allow a 
tide of U.S. crude oil exports that will influence the price 
and push that price down.
    The problem with that theory is that it runs into the hard 
realities of the inherent volatility of global oil prices and 
the sheer number of variables that influence crude oil prices.
    The United States' ability to unilaterally influence a 
global benchmark price like Brent is going to be countered 
potentially with moves by other oil producing nations, say the 
OPEC member nations cartel, or Russia, who could do unilateral 
actions to try to offset the increase of U.S. crude supplies.
    There are other variables that could not be political or 
intentional in nature. There are always fluctuations in demand. 
There could be supply or other types of disruptions due to 
natural disasters or conflict.
    The fact of the matter is anyone who studies the crude oil 
markets and who pretends to think they can safely predict what 
one variable is going to influence a complicated thing like 
global oil markets, they are not going to be able to accurately 
do that.
    I think for the purposes of this Committee, it is very 
important to understand that the 40 year old ban on crude oil 
exports has actually delivered value and benefits to the U.S. 
consumer, to small businesses, and the economy.
    Thank you very much.
    Chairman CHABOT. Thank you. I appreciate all the witnesses 
staying within, for the most part, the five minute rule as 
well.
    Dr. Medlock, I will begin with you, if I can. I will 
recognize myself for five minutes. You heard Mr. Slocum's 
testimony relative to what lifting the export ban potentially 
could do to oil prices. Could you respond to that and give us 
your point of view?
    Mr. MEDLOCK. Sure. Thank you. The first thing I will note, 
and we actually note this in our study that was released in 
March, it is difficult at best to try to predict what lifting 
the export ban would do to the benchmark global crude price. As 
a matter of fact, we shy away from doing that because if you 
look at the studies that have been done that make those 
predictions, they largely hold OPEC market response fixed or 
assume something without really modeling what cartel behavior 
would mean in a different sort of market environment. No 
argument there.
    However, the comment that domestic gasoline prices have 
been lower because of the export ban, I will take issue with. A 
simple sort of casual analysis, if you will, of the data, can 
lead one to that conclusion.
    Here is the trouble. The biggest driver of the reduction in 
gasoline price relative to global benchmarks in the United 
States has been the reduction in demand in the United States 
that we have seen 2008. As a matter of fact, back in 2006, end 
of 2006 plus the recession in the U.S. really beginning, that 
is where you begin to see imports of petroleum products in the 
U.S. begin to turn around, begin to decline.
    Then we became a net exporter of petroleum products around 
the end of 2010. This is important because what that does is it 
actually shifts the arbitrage point between domestically 
produced petroleum products and international petroleum 
products offshore.
    Think about it this way, if the point where the trade is 
actually occurring is say in Europe, then you actually have to 
net back the transportation costs to the U.S. Gulf Coast, which 
means the U.S. price will be less than the European price by at 
least that amount. That has nothing to do with the export ban. 
Nothing. It has to do with domestic demand for petroleum 
products, and it is very important that one disentangle those 
two things because if you do not, you can get to an erroneous 
place, quite frankly.
    I think we are going to see this, we are going to see a 
summer driving season in the United States. We have not had one 
since 2006. You are going to see the inventory situation that 
Mr. Slocum referred to again correct itself, and you are going 
to see some upward lift in terms of domestic petroleum product 
prices because quite frankly we will be exporting less because 
domestic demand will be higher.
    There is a really critical point to reconcile with or 
differentiate from the effect of lifting the export ban.
    Chairman CHABOT. Thank you. Just to clarify, you disagree 
with Mr. Slocum's point that in his opinion, if we lifted the 
ban, it would cause gasoline prices at the pump to go up?
    Mr. MEDLOCK. Absolutely. As a matter of fact, in the study 
that we published we actually discuss the relationship between 
Brent and domestic market crude. We used WTI because it is a 
broadly accepted domestic marker, in the Gulf Coast wholesale 
gasoline price.
    You actually see the kind of relationships that Mr. Slocum 
refers to with regard to Brent and the domestic wholesale 
gasoline price, but you also have to take a step back and 
understand how that relationship actually changed between 
domestic wholesale gasoline and WTI. It has been dramatic.
    To claim that discount has been passed through to 
consumers, it does not hold up against data, it just does not.
    Chairman CHABOT. Thank you. Mr. Leppo, let me turn to you. 
What impact has the crude oil export ban had on small 
businesses in the oil and gas industry, and in particular, on 
the U.S. economy overall?
    Mr. LEPPO. In our business in particular, it has led to the 
non-hiring of six people. We had job descriptions. We had them 
lined up ready to hire. That lack of demand for the output from 
the oil and gas producers in Ohio has led us to move people out 
of our energy sector business back into the other portion of 
our business that rents equipment to construction and 
industrial companies.
    As I mentioned we have two interns that we have on board 
this summer. We may or may not be able to offer them employment 
at the end of their internship. Basically, it kills jobs.
    Chairman CHABOT. Thank you. Mr. McMinn, let me turn to you 
now, and I only have a short period of time left. You stated 
that although small producers such as yourself will probably 
never contract with international buyers, producers that do 
engage in international transactions will have a favorable 
impact for all United States producers. Would you expound upon 
that a bit?
    Mr. MCMINN. Yes, sir. Mr. Chairman and members, what I was 
referring to was the fact that we are land locked, and our 
production is within the Southeastern part of New Mexico. What 
we are looking for with the lifting of the export ban is the 
allowance of export trade on crude oil because that improves 
the marketplace.
    Ours will fill the empty void that is left in the domestic 
area when those larger companies that contract directly with 
international companies or international marketplaces are 
allowed to export their crude.
    Our refiners are within 40 miles of where we produce or 100 
miles or where we produce typically, and we do not expect to 
ever deal in the international market. We would just like to 
see the marketplace open up to allow others to do that so we 
can fill the void.
    Chairman CHABOT. Thank you very much. My time has expired. 
The ranking member is recognized for five minutes.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman. Mr. Slocum, I would 
like to hear your reaction to the statement made by Dr. 
Medlock.
    Mr. SLOCUM. Sure. I think what is interesting here and as 
Dr. Medlock pointed out, we are now exporting over three 
million barrels of refined petroleum product every day, 75 
percent of that out of the Gulf Coast. That is because what the 
refining industry has done, which is a major center of 
manufacturing in the United States, is take these crude oil 
supplies and turn it into products that are important and 
necessary for the American economy.
    As Dr. Medlock said, consumers cannot use raw crude oil 
that is pulled out of the Bakken or Eagle Ford. We can only use 
those products that have been refined.
    Essentially what we are presented with is a decision, do we 
want to change a 40 year old statute to allow the U.S. oil 
industry to bypass the U.S. refining industry and export raw 
materials directly out of the United States, and therefore 
export that discount, that U.S. crude oil discount overseas to 
foreign markets, or do we retain that discount for domestic 
purposes.
    We are using about nine million barrels of gasoline every 
day. The industry is exporting about three million. The U.S. 
consumers are benefitting from that discount that refiners are 
currently getting from producers. That, I think, is the big 
issue here, does that discount remain in the United States' 
economy or is it exported out in the form of the discounted raw 
crude oil to be processed in foreign markets for foreign 
consumption.
    I would like that discount to remain within the United 
States' economy.
    Ms. VELAZQUEZ. As you discussed, given the fact there are 
many calls to lift the ban on exports, you just said we import 
nine million barrels of oil a day. That might not always be the 
case given threats such as Isis that currently exist in the 
Middle East. What would happen if the ban was lifted but we 
experienced a disruption in our oil supply?
    Mr. SLOCUM. What we have seen is that a result of the crude 
oil ban has been that we have replaced certain imports with 
U.S. production. For example, in the summer of 2010, we were 
importing 1.1 million barrels of oil every day from Nigeria. In 
March 2015, the latest import numbers show we are importing 
98,000 barrels of oil a day from Nigeria. That is a million 
barrel of oil a day decline that we are not getting from a 
country that has significant political and economic turmoil. 
There is a lot of connections to terrorism in that part of 
Africa. That has been replaced with U.S. produced oil.
    Any time that you are going to expedite the export of U.S. 
crude oil at a time when our economy still is not energy 
independent, we still require millions and millions of barrels 
of foreign oil to be imported to meet U.S. domestic demand, I 
would rather that demand be met with crude oil pulled out by 
U.S. workers in the Bakken and Eagle Ford than in countries 
with unstable political situations and unknown how they spend 
their money on crude oil.
    Ms. VELAZQUEZ. Thank you. Dr. Medlock, to what degree do 
you think market speculation is responsible for spiking or 
lowering gas prices?
    Mr. MEDLOCK. We actually did a study on this issue that we 
released in the summer of 2010. At that time, there was a lot 
of concern that speculation really had a big influence on 
commodity price formation.
    The core finding in that analysis was that speculative 
pressures can lead to short term pressures on price but not 
long term pressures because inventories adjust and ultimately 
the physical market will be self correcting.
    When you start to think about the role that speculation can 
play, it begs the question of if it can influence things in the 
short run, how severe can the spikes be and what might that 
mean. Those are very, very good questions.
    At the end of the day, it really boils down to how tight 
the market is. If the market is tight, speculative pressures 
matter.
    Ms. VELAZQUEZ. How much market regulation is necessary to 
prevent companies from manipulating commodities prices?
    Mr. MEDLOCK. The ultimate corrector is our open markets. 
Fungibility is ultimately what will eliminate any single entity 
from manipulating the markets. The more fungible the market is, 
the more movement there is by multiple different trading 
entities to come into the market.
    Ms. VELAZQUEZ. Mr. Slocum, how much is speculation playing 
a role when we discuss what will happen if the export ban is 
lifted?
    Chairman CHABOT. The gentlelady's time has expired but you 
can answer the question.
    Mr. SLOCUM. Thank you, Mr. Chairman. I cannot predict what 
level of speculation is going to be involved if we lift the 
export ban, but there has been a number of academic studies, 
some of them by some of the big banks that are involved in 
these markets, like Goldman Sachs and Citi and others, that 
have shown that when oil prices are around $100 a barrel, that 
speculators play a significant role influencing the price of 
oil by as much as $20.
    Like I said, I serve on an advisory committee to the 
Commodity Futures Trading Commission, and the former chairman, 
Gary Gensler, had testified about how a decade ago 15 percent 
of the crude oil market participants were speculators, and 
today it is 85 percent. You have seen a huge transition where 
speculators are often driving the volume in markets like crude 
oil.
    Chairman CHABOT. The gentlelady's time has expired. The 
gentleman from Nevada, Mr. Hardy, who is chairman of the 
Subcommittee on Investigations, Oversight, and Regulations, 
will be recognized for five minutes.
    Mr. HARDY. Thank you, Mr. Chairman. Dr. Medlock, while I 
support lifting the export ban, it was discussed here about 
refineries and the lack of ability to refine light crude.
    I guess my question first of all is why would we not 
domestically be trying to increase or build new refineries that 
would help create jobs in this country, help support and 
sustain and probably better economic viability? Do you agree or 
disagree with that at all?
    Mr. MEDLOCK. No, it is a great question. It is one that 
often comes up in the context of this issue. When you see the 
discounts that have emerged, and there have been a couple of 
studies looking at what the domestic refining industry can do, 
and in fact, it can handle the volumes that are being produced, 
it is just an issue about what price.
    Take the existing refining infrastructure. If I built 
something back in the mid-1990s that was really built to 
process heavier to medium grade crudes, then I have already 
sunk capital so I can access that crude oil from the 
international market, which is typically sold at a lower price.
    In order for me to be incentivized to buy the lighter, 
sweeter crudes and effectively idle portions of my facility, 
what I am going to have to do is actually see that price 
discounted to a level where it is competitive with my 
alternative, which is the heavier grade of crude that sells 
internationally.
    This is precisely what is driving the discounts that we 
have actually seen for domestic crudes. Some of the work we did 
actually indicates that Louisiana light sweet is really the 
crude that sits right at the margin at the moment, so this has 
sort of stimulated a lot of interest in understanding if 
domestic production were to continue to increase, what would 
happen to LLS. It would likely see sustained discounts.
    We have actually seen periodic discounts, for example, 
during periods of refinery turn around for LLS, and that is 
because there just was no capacity to handle all the light 
sweet we were producing domestically.
    Mr. HARDY. Thank you. I owned a construction company for 
years, over 20 years, 350 employees at our peak with the three 
businesses I held. Over that time, I have always found that 
when I did larger projects, higher volume, that the price was 
always more effective for the end user that was purchasing, 
whether it be asphalt paving.
    It was amazing. The bigger the project, percentages began 
to come down, and sometimes as low as seven percent.
    Is this not the same thing we are talking about here, it 
actually creates more jobs, leaves more money to do other 
projects when you can decrease the cost of the materials, is 
this not the same thing we are talking about here? Mr. McMinn 
or Mr. Leppo?
    Mr. MCMINN. I agree. It is exactly what we are talking 
about here. Mr. Leppo has 100 plus employees and you were just 
talking about 350. Read and Stevens has 25. We are a small 
business. We are clearly defined as a small business.
    Your premise is exactly what we are looking for, that 
opportunity to have that price set, and even though it may be a 
discounted price, as you just described, it is a stable playing 
field. It gives us the opportunity to have long term ability to 
contract for our crude oil and that is the point we are not at 
right now.
    Mr. LEPPO. The only thing I would add is oil is, as 
mentioned a couple of times, a global market. If the United 
States can produce more oil, we are going to get some of those 
efficiencies we are talking about.
    One example is how long it takes to drill a well in our 
area, it has dropped from seven to eight days to five days, 
just by the drilling crews getting more efficient at what they 
are doing. Those efficiencies lead to some of the effects you 
are talking about, where you would increase jobs, increase the 
amount of output by American oil and gas producers.
    Mr. HARDY. There is a belief out there that some of these 
restrictions, some of the reasons that people do not want more 
crude coming from the United States--we are being held up on 
permits all over lands out in the west that we know have crude 
oil but you cannot get the permit because they are public 
lands, so to speak.
    With that being said, the discussion has always been what 
makes a happy person or happy individual, and studies have 
shown it is faith, family, friends, and work, and work leads to 
the first three.
    By creating jobs, do we not create a better environment 
here in the United States for economic stability, a better 
environment for unemployment, people that are unemployed to 
have that quality of life that we all are here for?
    Mr. Slocum, do you want to address that?
    Mr. SLOCUM. Absolutely. I think an economy that works for 
as many different kinds of people is the kind of dynamic 
economy we want.
    The question is do we want to have an economy that is 
reliant upon, as has been stated here on this panel, globally 
priced commodities. Anyone that puts too much of their chips in 
the commodity basket is going to suffer through the volatility 
that produces.
    When I look at the American economy, the value of the 
American economy is not pulling a raw material out of the 
ground and selling it on a global market. That is the Nigerian 
model of economic growth.
    What I see in the United States is the dynamic value added 
of manufacturing of products. I think that is the key to a 
robust economic future.
    Chairman CHABOT. The gentleman's time has expired. The 
gentlelady from North Carolina, Ms. Adams, who is the ranking 
member of the Investigations, Oversight, and Regulations 
Subcommittee, is recognized for five minutes.
    Ms. ADAMS. Thank you, Mr. Chair, and thank you gentlemen 
for your testimony. As we explore the current ban on crude oil 
exports, we must take a full 360 view of this topic and the 
implications on policy and geopolitical matters.
    Mr. Slocum, it can be reasonably believed that if the U.S. 
were to start exporting our crude oil again there would be 
additional drilling and production activities in states that 
are endowed with tight oil resources, such as Texas, Oklahoma, 
and North Dakota. What impact will an increase in crude oil 
production have on the environment in areas where there is a 
natural resource, particularly with regard to water 
contamination and transportation related spills, and also what 
regulatory options exist or could be made available to 
potentially mitigate these risks?
    Mr. SLOCUM. Thank you. The bulk of growth of oil production 
in the United States has been through hydraulic fracturing or 
fracking, particularly in the Bakken shale, which is largely in 
North Dakota, and Eagle Ford in Texas.
    There is no such thing as benign oil production. There are 
always going to be risks associated with the water resources 
required, with risks of drilling, of whether or not the well is 
cased properly. There have been instances of water 
contamination in wells from fracking in both natural gas and 
oil.
    There are more than 100,000 or so fracked wells across the 
United States, so it is clear that fracking does not 
automatically lead to contamination, but neither is fracking an 
entirely sustainable activity.
    One thing to keep in mind is that as amazing and robust as 
the U.S. fracking boom has been, it has a relatively short 
shelf life. Rex Tillerson, the CEO of Exxon Mobil, gave an 
interview in March this year where he said the window on 
fracking is about a decade, and we are going to start to see 
production decline.
    We are already seeing in most fracked wells production 
declines after the first year of between 40 and 70 percent. 
That is because this tight oil is not located in a big easy to 
get at reservoir, it is dispersed throughout the formation, so 
you see extremely sharp production declines.
    We have been able to maintain steady rates of production 
because the fields are very large. As we drill in these fields, 
the production is going to drop off.
    I think it is erroneous to base a short term production 
phenomenon to make a long term decision about nixing the ban on 
oil exports.
    Ms. ADAMS. Thank you. The European Union trade negotiators 
released a paper last year on the ongoing transatlantic trade 
and investment partnership negotiation, better known as TTIP, 
stipulating their desire to access U.S. crude oil exports.
    Dr. Medlock, Congress is involved in a heated discussion of 
whether or not to allow for fast track negotiations of the 
TTIP. Can you speak to both the positive and the negative 
impact that importing crude oil will have on future trade 
pacts, including TTIP?
    Mr. MEDLOCK. I am assuming you meant exporting crude oil 
from the U.S.
    Ms. ADAMS. Yes.
    Mr. MEDLOCK. I just wanted to make sure I got that right. I 
will actually address that by touching on two points, and I 
think it is important to touch on the first one because it 
relates directly to your question.
    The comment was just made about production decline and 
wells that are drilled in the United States, in particular, 
shale wells. Individual well decline is very steep. There are a 
couple of things that are very important to reconcile.
    First of all, you cannot actually translate individual well 
decline into field level well decline. They are two different 
things. They are entirely different. I am sure Mr. McMinn can 
talk about this. Entirely different sort of phenomenon.
    Secondly, if your concern is that the resource will decline 
as it is produced is what is driving your resistance to argue 
to lift the export ban, there is a fallacy in the argument 
because if the production declines, we would not be exporting 
anyway. It is sort of like a non-starter in terms of the 
discussion.
    As this relates to the TTIP negotiations, I think the 
inability to export crude oil from the United States, in 
particular, Asian complexes, the refineries in that part of the 
world are really well suited to handle the kind of stuff that 
is coming out of the light type oil wells in the United States. 
That is going to become a contentious point.
    At some point, those refiners would like to have access to 
the production that is coming out of the ground in the United 
States, and if we simply say no, you cannot have it, then that 
begs the question what is the next sticking point in the 
negotiations. I think it does have a bearing.
    Ms. ADAMS. Thank you. I am out of time. Thank you, Mr. 
Chair.
    Chairman CHABOT. Thank you. The gentlelady's time has 
expired. The gentleman from Illinois, Mr. Bost, is recognized 
for five minutes.
    Mr.BOST. Thank you, Mr. Chairman. Thank you to the panel. 
U.S. Steel works in my District, produces steel that is rolled 
and used for oil exploration and everything like that. They 
threatened to idle about 2,100 jobs just this last year because 
of that. Now things have kind of changed around since.
    I need to know what else can be done in this process, 
besides releasing and freeing up and allowing us to sell our 
crude, that will make it to where we can still sell the product 
and still make things affordable. Do you understand the 
question?
    Mr. MEDLOCK. I think so. I think basically what you are 
asking is how can we be sure if we lift the export ban we do 
not have an adverse effect on commodity prices that hampers 
activity. A very good question.
    As was pointed out, oil is a global commodity. Its price 
will be determined by a host of things that are outside the 
control of anything we do in the United States.
    Importantly, lifting the export ban actually allows 
transmission of that global price back to the well head, which 
will stimulate--we pointed this out in our report and I think 
IHS actually did some work that points this out as well--
allowing that price to transmit back to the well head will 
actually stimulate a lot of investment in the development of 
pipeline infrastructure and the build out of various ports.
    A great example would be what could happen particularly at 
the Port of Corpus Christi, which is in Texas. This is a port, 
I think it was B&SF that has a rail yard, an unit train yard 
they just built, you are talking about a lot of small business 
enterprises that are engaged in that value chain.
    Turn that around, if you lift the export ban, that actually 
incentivizes the development of pipeline infrastructure to the 
coast, but it also stimulates more delivery of frack sands, so 
you have something that is going in both directions.
    All that said, there is no guarantee that the price of oil 
will not spike. Heaven forbid something were to happen to the 
Kingdom of Saudi Arabia, that would have dramatic implications 
for the United States as well as every other country in the 
world that consumes oil, much less imports or exports it.
    There are a lot of things that are frankly out of our 
control and the export ban does nothing to convey a benefit in 
that regard.
    Mr.BOST. My next question, Mr. Slocum, when you say it is 
very short lived on the fracking, I would agree with you if 
there was only one shale play. I know for a fact in my state, 
because I worked on the language for fracking in the State of 
Illinois, I was one of the specific co-sponsors back when I was 
a member of the Illinois General Assembly, that New Albany play 
has not even been touched.
    The long term production and the ability to export and 
actually put ourselves basically in the controlling seat that 
many other countries around this world have been in, do you not 
see that as an opportunity for us to become a controlling 
market?
    Mr. SLOCUM. You are absolutely correct that there are a 
number of untapped plays, and in that interview that Rex 
Tillerson, the CEO of Exxon Mobil, gave, he cited as an example 
the Arctic. He said here is a massive area with huge reserves 
that we need to tap into.
    The question continues to be in search of acquiring 
adequate petroleum supplies for our economy, for our domestic 
needs, we will have to continue drilling in new areas. That is 
definitely a path in the short and medium term that we have to 
take.
    Another alternative is is there a way to detach our economy 
from--as President George W. Bush said in his 2006 State of the 
Union Address, America is addicted to oil and we have to move 
towards alternatives to oil. I agree with President Bush on 
that bold statement.
    We can continue turning over every rock and every shale 
play and every Arctic area and every offshore area. I do not 
think we can ever become energy independent as long as we 
continue using 19 million barrels of oil a day.
    Mr.BOST. I do not disagree with that, that we should not do 
the research that is necessary. That being said, we are in a 
situation right now where this is what is available and what we 
have to use.
    My other thought, and I am down to my last moments here, 
and maybe Dr. Medlock can answer this, is it possible, in your 
study of the economics of this, that once we start to export to 
this level, all refineries would all of a sudden see an 
advantage and all of a sudden change our refineries to handle 
sweet instead?
    Chairman CHABOT. The gentleman's time has expired, but you 
can answer the question.
    Mr. MEDLOCK. Thank you. I would say no. You need the margin 
for the refineries to cover the upfront fixed costs for 
investment. We will still displace all the light sweet crude. 
That will definitely happen because there is a competitive 
advantage in doing so. What we would effectively be doing is 
exporting the light sweet, which is a higher valued product, 
and importing the medium and heavier grades.
    It is effectively a swap that is actually creating value in 
terms of balance of trade.
    It also is important to point out that domestic refiners, 
where their margins would be squeezed a little bit, they are 
not going to be put at a competitive disadvantage relative to 
the European counterparts, for example. There are newer 
refineries that are actually much better equipped to produce 
the types of petroleum products that are needed globally, and 
one of the things that we often forget, the refining sector has 
benefitted tremendously from very low natural gas prices as 
well in the United States.
    Chairman CHABOT. The gentleman's time has expired. The 
gentlelady from New York, Ms. Clarke, is recognized for five 
minutes.
    Ms. CLARKE. Thank you, Mr. Chairman. I thank the ranking 
member. I thank our witnesses here today.
    My first question goes to Mr. Slocum. In your testimony you 
indicated that the United States is not close to breaching our 
storage capacity for refined and crude oil. Do you expect to 
see a point in the future where we actually exceed our oil 
storage capacity, and if so, when might that occur and what 
would that mean for the U.S. oil market?
    Mr. SLOCUM. Thank you, ma'am. I do not see any concern 
about the United States breaching its domestic storage 
capacity. There were some articles written several months ago 
that we are looking at what appeared to be some bad data 
including that we are at the brim of storage capacity and this 
is a crisis.
    When better data was examined, the consensus now is we have 
plenty storage capacity yet to be filled. The issue is the 
refiners are running at very high rates of utilization, meaning 
they are almost at capacity processing crude oil. We are 
exporting record amounts of refined products out of the United 
States.
    What we are seeing is domestic demand for oil, as I noted 
in my written testimony, is picking up. The EIA noted that U.S. 
gasoline demand is projected to go up more than four percent 
this year. Vehicle miles traveled, which is a key indicator of 
how much Americans are driving, is on the increase after going 
down after the economic crisis.
    We are seeing sales of less fuel efficiency like trucks and 
SUVs grow very quickly while sales of more fuel efficient cars 
are actually in decline. That paints a picture in the next few 
years anyway of steady increases in demand.
    As Dr. Medlock said, this summer we might see a driving 
season for the first time since 2006. That is more demand and 
that again relieves a lot of pressure on storage levels.
    Ms. CLARKE. You also concluded your testimony by saying the 
oil industry is sponsoring studies based on dubious 
calculations that Americans will be better off by lifting the 
crude oil export ban. Can you elaborate on how the oil industry 
might specifically gain from lifting this ban and in your 
opinion, how lifting the ban might actually impact small 
businesses and the end consumer?
    Mr. SLOCUM. Right. Like I began my testimony, ma'am, at its 
core, the issue is that the ban limits the ability of U.S. 
producers to sell their oil overseas, and as Dr. Medlock 
explained, the light oil coming out of the shale formations is 
more valuable. As a result, U.S. refiners are having access to 
that valuable crude oil at a discount relative to what it is 
selling internationally.
    If you are an oil producer, you do not want to sell your 
oil at a discount to some U.S. refiner. You want to have the 
freedom to sell that valuable oil overseas at a higher price so 
your shareholders or owners can enjoy a bigger return.
    I understand the oil industry's desire to do that, but if 
we allow that, it will come at the expense of U.S. refiners 
having access to that discounted crude, and I believe the data 
show that the refiners have been sharing that discount with 
consumers in the form of lower gasoline prices.
    Ms. CLARKE. Very well. Dr. Medlock, it is my understanding 
that the Baker Institute receives corporate funding and even 
solicits corporate support on its website. In fact, both 
Chevron and Shell have sponsored lecture series at the Baker 
Institute.
    My question is how could you be free and unbiased in your 
opinion to lifting the export ban, given the Institute's 
relationship to big oil?
    Mr. MEDLOCK. To be clear, the Institute through our 
corporate affiliates program has relationships to big oil, to 
small oil, to midstream operators, to EDP Renewables, which is 
a wind company. It is across the spectrum. That is the first 
point I will raise.
    The second point I would raise is the study that I am 
mentioning, as a matter of fact, the last two major studies we 
have released, one was funded by the Alfred P. Sloan 
Foundation, the other one was funded by endowment funding, 
which has nothing to do with oil.
    We actually do this by design. The critical thing that we 
get from our corporate relationships is we will host workshops 
during the course of studies, and the workshops actually allow 
us to engage with a variety of individuals and corporations on 
either side of the discussion, any discussion actually. It 
keeps us grounded. The last thing you want to do sitting in a 
think tank that is academically oriented is become an ivory 
tower institution. You want to stay grounded. You want to stay 
in touch. That is what we use it for.
    Chairman CHABOT. The gentlelady's time has expired.
    Ms. CLARKE. Thank you, Mr. Chairman. I yield back.
    Chairman CHABOT. Thank you. The gentleman from Missouri, 
Mr. Luetkemeyer, who is the vice chairman of the full 
committee, is recognized for five minutes.
    Mr. LUETKEMEYER. Thank you, Mr. Chairman, and thank the 
panelists for being here.
    The last thing I am is an expert on oil. This is an 
interesting discussion to me today. The only thing I know is I 
stick it in my car and farm equipment to make sure it all works 
properly.
    I hear the discussion going back and forth on the different 
kinds of oil that we have. Let's start first with the amount of 
oil, known reserves. Somebody told me one time we have 800 
years worth of known oil reserves. Is that figure accurate? Dr. 
Medlock?
    Mr. MEDLOCK. There is a definitional issue here. Reserves 
are something that are actually readily producible in a 
reasonable amount of time. It is really an accounting 
definition more than anything else.
    Where you get sort of beyond that, and this is from people 
who sort of get into resource assessment methodologies, you get 
into what are called ``commercially recoverable resources,'' 
which are things that can be produced given today's 
technologies and today's prices and costs, and then you get to 
technically recoverable resources, which are things that can be 
produced with today's technologies, using today's technologies, 
regardless of the costs.
    That number is obviously a lot larger than commercially 
recoverable in even proven reserves. Then there is something we 
call ``resource in place,'' which is just all the oil that is 
down there. That number is by far much larger than even today 
what is technically and commercially recoverable in light tight 
oil formations.
    For example, when you drill into the Eagle Ford or Bakken 
or even the Permian, which was another sort of shale oriented 
play, Utica, in the liquids bearing portions of those plays, 
what you are actually getting is on the order of about 10 
percent of what is down there.
    That should tell you two things. (a) we are not really just 
barely scratching the surface in terms of the volume that is 
underneath our feet, but (b) it tells you there is a lot of 
room for technology to run. This is an area where upstream 
enterprises are constantly engaged in trying to improve rates 
of recovery.
    Mr. LUETKEMEYER. My point is we do not have to worry, we 
have been fracking for over 50 years, I believe.
    Mr. MEDLOCK. There has been over a million wells fracked in 
the United States.
    Mr. LUETKEMEYER. We probably have a few more we can drill 
to be able to go out and find some more oil. Then we come to 
the point where what are we doing with oil that we have. You 
are saying there are three different kinds, heavy, medium, and 
light crude.
    Mr. MEDLOCK. That is a rough characterization.
    Mr. LUETKEMEYER. Keeping it basic. Bear with me. The light 
crude, it is difficult for us to be able--we do not have really 
a good market for it or refiners are not able to refine it in a 
way that is profitable for them at this point so they have been 
using mostly heavy and medium crude.
    Mr. MEDLOCK. It was actually explained to me once, every 
refinery has the kit to process light crude. It is not an issue 
of whether or not we can handle it. It is an issue of whether 
or not the refineries that were built in the 1990s to handle 
the heavy Venezuelan crudes or the heavy Mexican crudes, which 
is where largely our crude oil was coming from, but want to 
handle it.
    Mr. LUETKEMEYER. Basically, we have plenty of oil for the 
refineries to take care of our needs here. We have this light 
crude that they have to make a financial decision whether to 
refine or not, and if this is the kind they really want to 
export. Is that a fair assessment?
    Mr. MEDLOCK. The refiners will only be willing to take that 
light crude if it is competitive with the crude they could 
otherwise buy, which is a heavier grade.
    Mr. LUETKEMEYER. Okay. We have plenty of resource. We have 
to make a financial decision on whether or not it is a good 
deal to refine some of it or not. The question then becomes if 
we can reach a point where we are refining enough to meet our 
needs, to me it would seem there would have to be a financial 
benefit for them to go out and build another refinery, 
otherwise it is probably cheaper to just export the oil.
    Mr. MEDLOCK. I realized I did not get to completely answer 
the question asked earlier. That would beg the question why are 
we not building more refineries. Today, siting is a big issue. 
This is an issue that has come up over the last three decades, 
to be honest with you, related to siting.
    The expansion we have seen since the early 1990s have not 
been green field expansions.
    Mr. LUETKEMEYER. I have one more comment to make, one more 
question. It would get down also to the distribution system. We 
do not have enough oil tankers. We do not have enough trucks. 
We do not have enough ships to be able to get all this out. I 
come from Missouri. We are competing with our greens for train 
cars and barges up and down the rivers with your oil products.
    I am just saying this is a problem if we want to export, it 
is going to be a bottleneck for this whole situation.
    Mr. MEDLOCK. Absolutely.
    Mr. LUETKEMEYER. It has to be worked out at some point. 
This is not a panacea that everybody talks about here, but it 
is an opportunity, I think, that we need to take a look at. 
Thank you for your comments.
    Chairman CHABOT. The gentleman's time has expired, but if 
you want to answer.
    Mr. MEDLOCK. This is actually an issue we raised in the 
lift or not to lift study and some research I am currently 
engaged in, and it goes back to some work I did on biofuels 
policy, to be honest with you. It has to do with what is the 
appropriate mode of transportation given the size of the market 
outlets.
    I think there has to be a hard look done internally within 
the United States to understand why there is so much crude 
being transported by rail and by barge now. It has to do quite 
frankly with the fact that all the stuff that is coming on 
line, you cannot capture the economies of scale by building 
pipeline infrastructure to get to the coast because you cannot 
sell it to the international market.
    That means you do things in a piecemeal way, and you end up 
with the kind of competitive pressures that you are talking 
about.
    These are very real issues that I think if the ban is 
lifted, it is not going to completely address, because the 
capital has been sunk to move things by rail and barge. If 
production were to continue to grow, you would actually see 
those competitive pressures relieved because it would 
incentivize pipeline development, which will result in the 
lease rates on the barges and on the tank cars on rails--the 
competitive pressure would be to lower those lease rates.
    Mr. LUETKEMEYER. Yes, that is where I was headed.
    Chairman CHABOT. Thank you. The gentleman's time has 
expired. The gentlelady from Michigan, Ms. Lawrence, is 
recognized for five minutes.
    Ms. LAWRENCE. Thank you so much, Mr. Chairman. Dr. Medlock, 
if we lift the ban on crude oil exports today, do we not lose 
our ability to offer lower energy prices all through the supply 
chain for industries and small businesses? Do you agree with 
that statement or disagree?
    Mr. MEDLOCK. I disagree with that statement. When you get 
to the products that are actually sold to petrochemical 
producers, those products are actually at a competitive level 
internationally because there is no restraint on exports of 
those products.
    The only thing there is a constraint on is the export of 
raw crude. That is actually where the discount accumulates. It 
does not actually pass downstream. Why would it? If I am a 
refiner and I can produce a distillate, why would I sell it at 
a discount domestically when there is an international buyer 
that will pay a competitive price for it.
    Ms. LAWRENCE. Would there be a risk to our economy in 
America today or benefit to some big energy companies, because 
if I can buy competitively, and we are talking about small 
businesses, so look at our larger oil industry and the smaller 
dispenser industries, would that be a risk, a benefit to the 
large ones and not for the small?
    Mr. MEDLOCK. Let me make sure I am interpreting your 
question correctly. I think you are asking me if the ban were 
lifted, would it represent risks to small business enterprises.
    Ms. LAWRENCE. To the benefit of larger.
    Mr. MEDLOCK. I think there is an important thing that needs 
to be put on the table here. The shale revolution, as it has 
been called, it is not a big oil story. It has actually been 
driven by small independent producers and mid-cap sized 
producers.
    Ms. LAWRENCE. This would have a direct impact?
    Mr. MEDLOCK. Absolutely, it does.
    Ms. LAWRENCE. Proponents for the crude oil export state the 
benefits for exporting crude oil to our allies abroad. You 
touched on the issue during your testimony. A May 2015 CRS 
report found that U.S. oil exports would do little to help 
Eastern Europe countries decrease their reliance on Russian 
energy.
    I have concerns about the fact that are we overstating the 
geopolitical benefits of lifting the ban on crude oil to raise 
the profits of a small group in a short term at the expense of 
the long term picture.
    Mr. MEDLOCK. I think it is fair to say that if there is a 
perceived benefit, people will run with that benefit to try to 
make a point and will inflate it. The issue with Eastern Europe 
really is a natural gas issue much more than a crude oil issue.
    A lot of the discussion and really I think the focal report 
of that CRS report was related to LNG exports specifically. As 
you know, there has been a lot of rhetoric on Capitol Hill, we 
should be exporting gas to the Ukraine and these sorts of 
things.
    There would be a long lead time for that to happen, first 
of all. It's not even clear U.S. sourced energy, oil or gas, 
would be competitive with the alternative, particularly when a 
country like Russia can consistently undercut because their 
cost of production is lower.
    The energy security benefits that could be conveyed more 
broadly to Eastern European countries, you can get that mixed 
up with stability in price at a reasonable level and source of 
supply. At the end of the day, if the U.S. were to allow more 
exports of both natural gas and crude oil, that introduces a 
competitive threat to Russian dominance in the region, and it 
does not necessarily mean that U.S. energy has to flow there, 
that the competitive threat itself would actually yield a 
difference in the pricing strategies of Russians to maintain 
that market share.
    I think that is what the Eastern Europeans would want, low 
cost energy at a reasonable price.
    Ms. LAWRENCE. Mr. Leppo, could you respond to that as well, 
please?
    Mr. LEPPO. We are one of those small businesses, and we are 
a support company into the industry. For us, the increased 
demand there would be for American produced oil and gas by 
lifting the ban on crude oil exports would create jobs for our 
company.
    It would not show up in any big reports anywhere because we 
are relatively small, but we are seeing the impact both on our 
business and businesses in our area where because of the lack 
of demand right now, job creation has disappeared in the oil 
patch in Ohio.
    Chairman CHABOT. The gentlelady's time has expired.
    Ms. LAWRENCE. I yield back. Thank you.
    Chairman CHABOT. The gentleman from Kansas, Mr. Huelskamp, 
is recognized for five minutes.
    Mr. HUELSKAMP. Thank you, Mr. Chairman. I appreciate the 
hearing today. This is a pretty important topic in my District, 
given we produce plenty of the sweet crude that is discounted 
because of years and years of policy. I am trying to figure out 
how we move forward.
    In doing research in preparing for this hearing, I found 
out there are not many things that we prohibit exports of in 
this country, plenty of those that deal with national security 
issues, nuclear materials, and such, but much of what we 
produce in Kansas ends up not only outside our state but 
outside this country.
    I want to ask Mr. Slocum a few more questions to try to 
understand the position of Public Citizen, the group you work 
for. You are opposed to lifting the ban on crude oil exports; 
is that correct?
    Mr. SLOCUM. Yes, sir.
    Mr. HUELSKAMP. Natural gas exports, you are opposed to 
exporting those as well?
    Mr. SLOCUM. I have concerns that exporting significant 
amounts of natural gas would end up raising prices for domestic 
consumption of natural gas.
    Mr. HUELSKAMP. I understand that. Do you support or oppose 
that ban?
    Mr. SLOCUM. There is no current ban on natural gas exports, 
but I do believe we need to be very careful about allowing----
    Mr. HUELSKAMP. That was part of the 1975 ban; correct?
    Mr. SLOCUM. It is. The Department of Commerce never put 
together rules to enforce that aspect of the statute. I do 
think it is worth taking a look at.
    Mr. HUELSKAMP. That is maybe. What about the import of oil 
products, are you opposed to imports of oil products? Your 
association has concerns about global climate change and has 
taken positions that would suggest you do not want the use of 
these products. Do you oppose the import of these products into 
America?
    Mr. SLOCUM. I think there have been problems posed on the 
national security basis of the United States relying on imports 
of oil from nations that do not share some of our geopolitical 
goals. I think that is a problem.
    Mr. HUELSKAMP. I think that is fair. You do still oppose 
imports along the Keystone Pipeline if it would be completed?
    Mr. SLOCUM. The Keystone Pipeline we opposed because it is 
designed to facilitate the export of Canadian land locked 
crude, but not for domestic consumption.
    Mr. HUELSKAMP. We cannot export the crude currently.
    Mr. SLOCUM. No, we cannot export U.S. produced crude. The 
Keystone Pipeline is designed to accommodate the export of 
refined products out of the Gulf Coast. We are getting a 
million barrels of Canadian crude every day.
    Mr. HUELSKAMP. You are not opposed to that?
    Mr. SLOCUM. It is part of the mix. The issue with the 
Keystone Pipeline is proponents were selling it as a way to 
lower gasoline prices, and that is not what it is designed to 
accomplish.
    Mr. HUELSKAMP. If we would prohibit the export of wheat, 
which is a main product in Kansas, would that reduce the price 
to consumers in America?
    Mr. SLOCUM. I am an energy policy guy.
    Mr. HUELSKAMP. It is supply and demand. If you are not 
allowed to export a product, it can only be used exclusively in 
the United States, almost in every case that would reduce the 
price of that product; is that correct?
    Mr. SLOCUM. Yes, especially like an issue like oil where--
--
    Mr. HUELSKAMP. I was asking about wheat.
    Mr. SLOCUM. I understand that.
    Mr. HUELSKAMP. Most folks I talk to would say food is 
probably more important than oil and the cost to consumers is 
pretty critical. If you take your logic that we want to limit 
the exports and reduce prices, I think Public Citizen probably 
should apply that to any exports, because it is so critical.
    You do or do not support limits on----
    Mr. SLOCUM. I do not know what our current rates of 
domestic consumption of wheat are compared to our domestic 
production of wheat. I know what that ratio is for oil 
consumption. We use far more oil than we domestically produce.
    I think facilitating the export of that product does have 
negative consequences for the U.S. economy. I do not know what 
that demand situation is for wheat.
    Mr. HUELSKAMP. You have identified the negative aspects for 
consumers in your mind but not for producers. You would agree 
lifting the export ban would help oil producers in America?
    Mr. SLOCUM. Absolutely, it would allow them to sell their 
oil at a higher price.
    Mr. HUELSKAMP. You are opposed to that higher price for oil 
producers?
    Mr. SLOCUM. If it comes at the expense of higher prices for 
the American consumer and small business, absolutely.
    Mr. HUELSKAMP. There is no question it will come at the 
expense of those that are paying for it, the same thing for any 
ban on any product.
    As we talk about trade, Mr. Chairman, and this is a very 
critical issue, there are folks like we see here today, Mr. 
Slocum, that frankly do not believe in trade. We cannot live in 
a vacuum any more. It is not 1975, sir. For Kansas wheat 
producers, 50 percent of our product goes overseas, and you say 
hey, we are going to continue to ban oil exports from Kansas 
and elsewhere, but wheat producers are going to live in this 
vacuum.
    We have to recognize we are in a global economy, and we 
simply cannot rely on policies from the Ford/Nixon era. I yield 
back, Mr. Chairman.
    Chairman CHABOT. The gentleman's time has expired. The 
gentlelady from American Samoa, Ms. Radewagen, who is the 
chairman on the Health and Technology Subcommittee, is 
recognized for five minutes.
    Ms. RADEWAGEN. Thank you, Mr. Chairman. My question is for 
Dr. Medlock. Recognizing the economic and geographic isolation 
of the home district I represent, American Samoa, and 
considering that energy consumption in island states and U.S. 
territories is almost entirely based on imported petroleum, 
what benefits do you foresee reaching the U.S. territories 
should the export ban be lifted?
    Mr. MEDLOCK. Good question. This gets into a logistical 
issue, right, in terms of thinking about where the products 
that are coming into American Samoa are sourced. They are not 
generally sourced from the United States. They are generally 
sourced from the Pacific Rim.
    When you start talking about the imports of the liquids, 
the petroleum products, Hawaii is the same thing, why not 
export products from California, for example, to Hawaii, well, 
that gets into a Jones Act issue, separate sort of issue, 
right?
    A lot of the products that come into Hawaii are actually 
coming from Singapore and Asia Pacific markets.
    It is not clear to me, to be honest with you, there would 
be any real direct benefit, but indirectly benefits would 
accrue to the extent that petroleum product prices are affected 
in terms of stabilization, or affected lower by allowing more 
light crude from the United States--I am sorry.
    Chairman CHABOT. We have more water coming.
    Mr. MEDLOCK. Thank you. Can you come back to me on that 
one? Sorry about that.
    Ms. RADEWAGEN. You want me to give you the question again?
    Mr. MEDLOCK. Sure.
    Ms. RADEWAGEN. Recognizing the economic and geographic 
isolation of the islands I represent, American Samoa, and 
considering energy consumption in island states and U.S. 
territories is almost entirely based on imported petroleum, 
what benefits do you foresee reaching the U.S. territories 
should the export ban be lifted? By the way, some of our oil 
does come from the United States.
    Mr. MEDLOCK. Of course, it does. Lifting the export ban 
will have a bigger effect to global markets. That is what I was 
trying to convey in terms of the direct benefit. It is not 
clear to me there is a massive direct benefit. It is more clear 
to me there is probably an indirect benefit that would 
accumulate to American Samoa as a result of the lifting of the 
export ban.
    As has been identified by a lot of studies, a lot of the 
oil exports that would come from the United States would 
actually end up in the Asian Pacific market, and that would 
have an impact on the flow of all products as well as raw 
crudes in the Asia Pacific market, which would convey a benefit 
to American Samoa directly.
    My point is it is more of an indirect benefit because it 
has a market reorienting effect, and actually it has an impact 
on logistically what happens with petroleum products and raw 
crude in the international marketplace.
    Ms. RADEWAGEN. Thank you. Mr. Leppo, do you have any 
thoughts on this?
    Mr. LEPPO. Yes, I was very happy you originally directed 
that to Dr. Medlock.
    I am not an economist, so understanding what the impact 
would be on American Samoa is outside my realm of expertise.
    Ms. RADEWAGEN. Thank you, Mr. Chairman. I yield back.
    Chairman CHABOT. Thank you very much. Thank you. I would 
ask unanimous consent that members have five legislative days 
to submit statements and supporting materials for the record.
    I want to thank our very distinguished panel here this 
morning and this afternoon as well for their great testimony. 
Things were going great, Dr. Medlock, until it sort of went 
south there at the end. That just shows you how tough this 
Committee can be on witnesses.
    Whatever the point of view was, I think everyone did a very 
commendable job, and I think it was very persuasive. We had a 
lot of members here that I think learned a lot, and that is one 
of the more important things.
    This is a key issue. You all helped shed some light on it. 
Thank you very much for that.
    If there is no further business to come before the 
Committee, we are adjourned. Thank you very much.
    [Whereupon, at 12:32 p.m., the Committee was adjourned.]
                            A P P E N D I X

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 

 Crude Intentions: The Untold Story of the Ban, the Oil Industry, and 
                       America's Small Businesses


   Statement of Dale Leppo, Chairman, Leppo Group Inc., Tallmadge, OH


 Before the Committee on Small Business, U.S. House of Representatives


                             June 17, 2015


    Thank you, Chairman Chabot, Ranking Member Velazquez, and 
Small Business Committee members for inviting me to testify 
about the impact of lifting the ban on crude oil exports on our 
small, family-owned business which employs 127 people in Ohio 
and has been in business since 1945.

    Leppo Group rents and sells construction equipment at seven 
locations throughout Northeast and East Central Ohio. In 2013 
we opened ``Razor Rents'' in Carrollton, Ohio to serve the 
needs of the emerging Utica Shale energy play. Fifteen percent 
of our employees are involved in some way in supporting our 
energy-related operations.

    In the SECOND half of 2014, Razor Rents business DOUBLED 
vs. the first half of 2014 as the Utica Shale activity ramped 
up. Ohio had 48 drill rigs operating by the end of 2014. As a 
result of that activity we added inventory and we hired staff 
to meet that demand. In 2014 we:

           Added 14 new jobs, many of which went into 
        the support of the energy sector

           Our Razor Rents rental fleet grew by 130% 
        (from 154 to 355 units) which also created jobs for our 
        manufacturing partners

           In 2014 we purchased 45 new pieces of 
        equipment from JLG Industries, almost all of which are 
        manufactured either in Ohio or Pennsylvania. Each 
        machine represents an investment of $80,000 to 
        $140,000.

           We created 3 internships for students from 
        Ohio State University Agricultural Technical Institute, 
        who then joined us full time upon their graduation.

    When the prices of oil and natural gas fell, so did that 
increased activity.

           The number of drill rigs working in Ohio has 
        fallen from 48 to 22.

           The number of machines that we have on rent 
        in the energy sector has fallen by 42% since the peak 
        in late 2014.

    As a result, in 2015 we have:

           Put an aggressive 2015 hiring plan ``on 
        hold'' until our future activity level becomes clearer.

           Transferred some of our co-workers from the 
        energy sector back to our ``normal'' construction and 
        industrial equipment activities

           That means that 6 positions we had planned 
        to fill this year will remain open until it becomes 
        clearer that we do (or don't) need the additional 
        capacity.

           Significantly reduced our rental fleet 
        growth. For instance, so far in 2015 we have ordered 
        minimal new equipment for our energy markets--nine 
        small units at last count

           We currently have two interns from Ohio 
        State University Agricultural Technical Institute, but 
        time will tell if we have the level of activity needed 
        for us to bring them on full-time after they graduate.

    So what can Congress do to help our small business create 
jobs, both in our company and for our customers and our 
suppliers?

    Congress can help INCREASE MARKETS for American-produced 
crude oil by lifting the ban on crude oil exports!

    Why would that help? I think there are several reasons:
          1) Crude oil moves around the world in what is a 
        global energy market. By banning the export of crude 
        oil we artificially put the U.S. energy sector at a 
        competitive disadvantage by removing exports as a 
        potential market at a time when I believe the US is in 
        a world-wide battle for energy market share. IHS 
        Economics estimates that lifting the ban would increase 
        US crude oil production by up to 2.3 million barrels 
        per day average between 2016 and 2030.\1\
---------------------------------------------------------------------------
    \1\ IHS Economics (2014). US Crude Oil Export Decision: Assessing 
the impact of the export ban and free trade on the US economy

          2) This new production will drive substantial 
        additional investment in products and services from the 
        crude oil supply chain, generating up to $63 billion of 
        supply chain economic output nationally, and up to $1.8 
        billion in Ohio.\2\
---------------------------------------------------------------------------
    \2\ IHS Economics (2015), Unleashing the Supply Chain: Assessing 
the economic impact of a US crude oil free trade policy

          3) This investment would create up to 440,000 new 
        supply chain jobs nationally, and up to 13,600 in Ohio 
---------------------------------------------------------------------------
        alone by 2018.\2\

          4) These export-dependent jobs and GDP growth are 
        widely spread throughout the American economy. They 
        will exist in all 50 states and throughout 60 different 
        industry sectors. Of the national supply chain job 
        gains, 10 of the top 15 states gaining jobs are non-
        producing states. By GDP growth, 11 of the top 15 
        states are non-producing states.\2\

          5) The Energy Equipment and Infrastructure Alliance, 
        of which my company is a member, estimates that there 
        are at least 120,000 supply chain businesses supporting 
        American oil and natural gas production, of which at 
        least 100,000 are small businesses.\3\
---------------------------------------------------------------------------
    \3\ Statement of Toby Mack, President, Energy Equipment and 
Infrastructure Alliance, to the House Small Business Committee staff 
briefing, May 27, 2015

          6) The U.S. energy sector has been a leader in 
        developing new technologies for energy exploration and 
        extraction. Taking advantage of those technological 
        advances before competitors do would continue to give 
        the U.S. energy industry incentives to innovate and 
        become even better at finding and extracting oil and 
---------------------------------------------------------------------------
        natural gas in an efficient and safe manner.

    During the energy boom in Ohio we have seen significantly 
increased activity in the energy supply chain:

           The manufacturing of steel pipe

           The manufacturing, distribution and support 
        of equipment used in energy markets such as forklifts, 
        man lifts, pumps, compressors, generators and 
        earthmoving equipment

           Investment in infrastructure to produce and 
        get oil and natural gas to market (well-site 
        preparation, pipelines, separation plants, rail lines, 
        roads and bridges)

           Investment in gas fired electric generation 
        plants to replace older and less efficient coal-fired 
        generating plants

           Investment in places for energy sector 
        workers to sleep, eat and ship, including hotels, 
        restaurants, car dealerships, etc.

    At a time when the United States continues to see sluggish 
growth in the kind of good jobs that the energy sector 
provides, lifting the ban on crude oil exports is a step that 
could yield almost immediate results.

    I hope we can move forward on expanding the markets for US 
exports of energy that I believe will be a source of good jobs 
for Ohio and much of the rest of the country.

    Thank you again, Mr. Chairman for inviting me to address 
your committee.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 

    Mr. Chairman and Members of the Committee, my name is Rory 
McMinn and I am President and Managing Director of Read & 
Stevens, Inc., a small, privately held oil and gas production 
company headquartered in Roswell, New Mexico. I have served as 
a member of the New Mexico Public Service Commission and as a 
County Commissioner of Chaves County, New Mexico, and my wife 
currently serves as a County Commissioner in Lincoln County, 
New Mexico. I am pleased to have been invited to testify to the 
adverse impact that the current depressed oil price market has 
had on small companies such as Read & Stevens, and to convey to 
you the enormous value to small operators such as ourselves, 
our employees and our communities attainable from lifting the 
antiquated and destructive 1970s-era ban on the export of 
domestic crude oil.

    My trip to our Nation's Capital to speak to you today would 
be considered unnecessary spending if not for the fact that my 
shareholders so urgently want you to be aware of our situation. 
If not for their encouragement, I would not have spent what 
amounts to one half of a pumper's monthly salary to be here. 
The issue of eliminating the ban on crude oil exports is 
important to the livelihoods of thousands of people in New 
Mexico and the other producing states, as well as those many 
hundreds of thousands of people all over America who do not 
live in ``oil patch states'' but whose work and family welfare 
depends on making the goods and providing the services used by 
the oil production industry. Therefore, having the chance to 
have a seat at this table was incentive enough for my 
shareholders to want to be heard.

    Read & Stevens, Inc. was founded in 1972 and has drilled 
for and produced oil and natural gas within New Mexico and West 
Texas as a family owned small business ever since. Due to our 
firm's longevity, we have mineral leases in some of the prime 
target rich areas of the Delaware formation of the Permian 
Basin. We provide the livelihoods for 25 much valued full-time 
employees, of which two have 32 years and one has 21 years of 
employment with us. Our patriarch is Charles B. Read, who at 
age 93 continues to be active in our operations.

    Small Producers Are Being Severely Impacted:

    Read & Stevens operates 150 wells and has an equal number 
of wells where we own an interest, but are operated by other 
companies. Many of the wells in our inventory meet the 
threshold of being considered ``stripper'' production with 
output of fifteen or fewer barrels per day. While we have up to 
70 other cost-sharing working interest owners in many of our 
wells, as is very common for small producers in the oil 
business, the Read family finances its portion of the 
operations with cash flow and bank debt.

    Like many other small producers, there is no public funding 
of our stock and we have no access to private equity capital 
which finances operations by larger companies in the oil 
business. Therefore, anything that causes a constriction in our 
cash flow or devalues the oil and gas reserves that stand 
behind our bank debt causes great problems for us. 
Consequently, I want to make it very clear that the current 
depressed oil price market, and the associated cut back in 
drilling new wells which would create new revenue for us, has 
had a very strong adverse impact on our financial situation, a 
most unfortunate problem shared by other small oil and gas 
operators all across the nation.

    Our 26-well drilling program that was started in 2014, with 
24 wells remaining to be drilled, has been cancelled. In fact, 
if we had not already signed contracts for drilling those first 
two wells, we would not have done so. The 2014 estimated well 
costs were $6.75 million each and are now projected to cost 
$4.5 million each. The approximately one-third reduction in 
costs is made possible by our vendors who, facing a steep 
decline in demands for their goods and services from the 
reduction in new drilling, are eliminating jobs, mothballing 
equipment, deferring maintenance, eliminating advertising, 
closing offices, and cutting back their support for a wide 
range of civic and community organizations in a desperate 
effort to maintain their businesses rather than have their 
contracts simply cancelled--and I would emphasize that a lot of 
those vendor contracts have simply been cancelled already. 
Despite the one-third drop in well costs, the simultaneous 50% 
drop in the crude oil price, with its continuing inherent 
uncertainties, causes the economics to be negative.

    Just like our own vendors and suppliers, we operators are 
adjusting in a similar manner, only spending capital to 
maintain our existing production levels and eliminating all 
unnecessary spending. I can tell you in Roswell there are at 
least six other companies of approximately equal to Read & 
Stevens that have had similar experiences. All have cancelled 
drilling new wells and are only spending money as necessary to 
keep their current production pumping. My discussions with 
other small operators in Farmington, in the Four Corners area 
of Northeastern New Mexico, echo what we have been experiencing 
in Roswell.

    With small operators and their vendors and suppliers all 
cutting back on their activity, the Committee can see that the 
collective adverse impact on those small businesses, their 
employees, and their communities is widespread and immense.

    Read & Stevens is fortunate in that our mineral leases are 
long lived and are not in jeopardy of expiring because they are 
``held by production,'' therefore we do not have to drill new 
wells to save leases as many operators are forced to do. If not 
for the need to drill to save their leases, most of the 
operators would be deferring drilling as we are. Oil and gas 
reserves are similar to a savings account, as you take oil out 
and thereby reduce the reserves you must constantly look to 
replace that amount either by new drilling, by finding 
additional heretofore untapped reserves in existing wells, or 
by acquiring reserves from others. We constantly have to 
balance our efforts based upon the production of a diminishing 
resource. Our preferred and best opportunity to replace our 
reserves is to drill new wells. But due to the current 
marketplace, our only practical alternative is to find 
additional reserves behind existing pipe, hence the 
cancellation of our 26-well drilling program after only two 
wells and foregoing all the economic activity and jobs that 
would have been generated by drilling the other 24 wells.

    While Roswell, the community where our headquarters is 
based, has felt the drilling downturn by the loss of retail 
sales, the other larger Southeastern New Mexico communities 
where services are based such as Hobbs, Carlsbad and Lovington 
have endured a drastic decline in every level of wholesale and 
retail business, from drops in rental property values to steep 
declines in the volumes of sales of produce to the restaurants. 
The Red Wing boot shop in Hobbs now has enough steel-toed boot 
inventory to last several years because of the lack of demand. 
Our office is flooded with applications from people--from very 
unskilled workers to the most highly skilled and experienced 
field personnel. We have had other operators, especially those 
in the Midland/Odessa, Texas area, tell of receiving resumes of 
newly graduated petroleum engineers desiring a position at the 
lowest level. We have been in these boom and bust cycles 
before, but never have I previously experienced a bust during a 
period, as now, when due to American technological leadership 
that allows us to produce at world class levels, US oil 
producers are capable of competing with OPEC directly. But our 
ability to compete on the world market is frustrated by the 
export ban that prevents us from accessing that market with our 
oil.

    Broader Adverse Impacts on our State and Communities:

    Revenues from the oil and gas industry are the economic 
backbone of the state of New Mexico. New Mexico has been at the 
bottom of the list for recovering from the recent severe 
recession. The only bright light was the oil and gas industry, 
which is the largest private employer in the state and one of 
the few that was growing jobs until the last six months. Now 
our industry is laying people off. One New Mexico state agency 
says more than 2,000 jobs were lost in the first quarter of 
2015 in this industry.

    The adverse impact of the downturn in crude oil prices is 
not limited to the private sector alone. The State of New 
Mexico's revenues are down by $220 million dollars due to the 
crude oil price drop which affects public school funding 
projects. Lease bonus payments at monthly state land auctions 
have gone from record highs of more than $60 million to amounts 
less than $5 million. Revenues from the oil and gas industry 
accounted for 31.5% of the state of New Mexico's general fund 
in 2013 and nearly 35% in 2014. In the most recent budget 
preparation cycle, New Mexico's budgeting officials decreased 
their revenue estimates for the FY 16 fiscal year at least 
twice as the price of oil declined. This meant far less money 
was available for all state programs and operations. 
Preliminary figures for January 2015 revenues showed an average 
price of $42.70 per barrel which was down from an average price 
the year before of nearly $90 per barrel. The state economists 
are forecasting an average price for FY 15 of $56 per barrel, 
still well before the $90 figure from the previous year.

    In addition to their contribution to New Mexico's general 
fund, revenues from oil and gas support the fund used for the 
state's capital construction projects, including roads, college 
and school buildings, museums, senior citizen facilities, and 
much more. The severance tax collections supporting these 
projects decrease as the oil prices drop because they are based 
on a percentage of the sale of oil and gas. Oil and gas support 
nearly 86% of this capital outlay fund.

    Further, oil and gas revenues support over 95% of the 
permanent fund that serves as an endowment fund for New 
Mexico's public schools. The interest from the fund and a small 
percentage of the corpus fund school operations every year.

    Finally, oil and gas royalties from state lands are 
collected for other direct beneficiaries of development of New 
Mexico's state lands. These beneficiaries include hospitals and 
colleges.

    These severe reductions in state and local government 
revenues materially impact every small business and every 
person in New Mexico. Reductions in jobs and in funding for 
state and local social programs, hospitals, roads, and 
education all mean bad news for everyone--and it is all 
attributable to the reduction in the price of oil and the 
consequent reduction in new drilling for oil. It is not a 
winning situation for small business in New Mexico, and I would 
conclude it is not a winning situation for small business--
whether they are directly in the oil production business or in 
the supply chain that provides goods and services to the oil 
production business--anywhere in the country.

    We Need to Change America's Oil Export Policy:

    Based on my 43 years of experience in the oil and gas 
business, I am convinced that the prohibition on the 
exportation of US oil is having a serious adverse impact on 
small production companies such as us. All the research I have 
seen convinces me that allowing US oil producers to compete for 
additional customers on the world market--just as we encourage 
producers of almost every other kind of product and service in 
this country to sell to foreign customers--will enable US 
producers to secure a more fair price for our oil set by the 
market rather than artificially constrained by an outdated oil 
export ban policy whose time has long passed. Read and Stevens, 
and other small producers such as us, will never contract with 
international buyers for our oil. But we don't have to do so in 
order to benefit from lifting the crude oil ban. As other 
elements of the US oil industry with the capability to conduct 
those international transactions do so, the domestic price of 
crude oil will be favorably impacted for all US producers, 
including small producers like us. Moreover, that better price 
will provide the economic incentive for us to increase our 
drilling in the same manner as larger producers--we all will 
benefit and so will our communities.

    It makes no sense to me that as the world's greatest 
international trading nation, we allow the export of refined 
petroleum products but not the export of crude oil. Our market 
for customers ends at the coast, trapping our oil here in 
record surplus volumes, and creating a heavily discounted price 
for our domestic crude oil compared to the world price enjoyed 
by producers outside the United States. It is time to 
rationalize our crude oil market so that American producers can 
compete for foreign customers on a level playing field. We will 
get a higher price than the artificially discounted price we 
get today, but in accord with the laws of supply and demand the 
increased supply of crude oil from the US will lower the world 
oil price and in so doing put downward pressure on the prices 
of refined petroleum products which are set by the 
international price of oil--in my view a win-win situation for 
US oil producers and US gasoline consumers.

    Conclusion:

    In closing, I would say that the small producers in this 
country are critical elements of the social and economic fabric 
of the communities in which we operate and employ people. It is 
very difficult for small producers to stay abreast of 
regulatory developments adversely impacting the cost of doing 
business in our industry. I cannot understate how difficult it 
is for small producers like us to understand and comply with 
the numerous regulatory changes being imposed on us, such as 
the BLM's hydro-fracking rule, the increasing of federal 
royalty rates, and the endangered species costs, just to 
mention a few. All these regulatory burdens can overwhelm a 
company of our size and their debilitating impact increases 
exponentially when we are faced with the depressed prices and 
limitation on our ability to find customers caused by the oil 
export ban. I would urge you to consider that the least 
Congress could do is allow us to secure the best price for our 
product, and lifting the crude oil export ban would be a very 
significant and welcome signal that Congress cares about the 
small oil producers in this country. I urge you to do all you 
can to allow US oil producers to find customers abroad by 
eliminating this impediment to free trade that is now very 
clearly hurting small producers and the communities they serve.

    Thank you for allowing me to present my views.
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
        
    
 Congresswoman Radewagen (AS-at-large) Opening Statement for 6/
                       17/15 HSBC Hearing

    Crude Intentions: The Untold Story of the Ban, the Oil 
            Industry, and America's Small Businesses

    Thank you Mr. Chairman:

    I want to thank Chairman Chabot and Ranking Member 
Velazquez for holding this hearing today to examine the impact 
that removing the ban on crude exports will have on our 
nation's small businesses. This is an important issue, which if 
addressed properly has the potential to significantly and 
positively affect our rapidly growing national deficit and 
provide jobs to an estimated-additional 500,000 to 1.75 million 
people by 2025.

    To me Mr. Chairman and Members of the Committee, this is a 
no brainer. It is time that we lift this ban, which is the 
result of outdated policy set in the 1970's; a time that was 
the darkest for the United States in terms of energy 
availability and production. Those of us who are old enough to 
remember the long lines at gas stations and the rationing 
programs can attest to this.

    We are now in a time of abundance. Why we are not fully 
embracing this god-send is beyond me. The United States 
continues to let nations like Russia and Saudi Arabia, who 
let's be honest, are not our closest of friends, continue to 
dominate the export market around the globe, while we tie our 
own hands to appease those same nations and certain domestic 
organizations, who are more concerned with their own agenda 
than that of the nation.

    Mr. Chairman, it is high-time that we lift this 
unnecessary, outdated and misguided ban, and move the United 
States forward into the 21st Century as THE world leader in 
energy production and exports.

    Thank you Mr. Chairman, I yield back.

                                 [all]