[Senate Hearing 113-384]
[From the U.S. Government Publishing Office]
S. Hrg. 113-384
OUTER CONTINENTAL SHELF PRODUCTION
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
TO
EXAMINE OUTER CONTINENTAL SHELF PRODUCTION AND TO IDENTIFY WHAT ACTIONS
THE FEDERAL GOVERNMENT CAN TAKE TO MAXIMIZE THE OPPORTUNITIES AND
MINIMIZE THE CHALLENGES
__________
LAFAYETTE, LA, JULY 7, 2014
Printed for the use of the
Committee on Energy and Natural Resources
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
MARY L. LANDRIEU, Louisiana, Chair
RON WYDEN, Oregon LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont MIKE LEE, Utah
DEBBIE STABENOW, Michigan DEAN HELLER, Nevada
MARK UDALL, Colorado JEFF FLAKE, Arizona
AL FRANKEN, Minnesota TIM SCOTT, South Carolina
JOE MANCHIN, III, West Virginia LAMAR ALEXANDER, Tennessee
BRIAN SCHATZ, Hawaii ROB PORTMAN, Ohio
MARTIN HEINRICH, New Mexico JOHN HOEVEN, North Dakota
TAMMY BALDWIN, Wisconsin
Elizabeth Leoty Craddock, Staff Director
Sam E. Fowler, Chief Counsel
Karen K. Billups, Republican Staff Director
Patrick J. McCormick III, Republican Chief Counsel
C O N T E N T S
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STATEMENTS
Page
Chiasson, Chett, Executive Director, Greater Lafouche Port
Commission, Galliano, LA....................................... 39
Cruickshank, Walter, Acting Director, Bureau of Ocean Energy
Management, Department of the Interior......................... 6
Landrieu, Hon. Mary L., U.S. Senator From Louisiana.............. 1
Leimkuhler, Joseph, Vice President--Drilling, LLOG Exploration
Company, L.L.C................................................. 25
Malbrough, Oneil, CB&I, Director of Coastal, Ports and Marine,
Environment and Infrastructure,................................ 34
Ramsay, Court, President, Aries Marine Corporation............... 30
Satterlee, Kent, Manager, Offshore Regulatory Policy, Shell
Exploration and Production Company............................. 21
Sieminski, Adam, Administrator, Energy Information
Administration, Department of Energy........................... 10
OUTER CONTINENTAL SHELF PRODUCTION
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MONDAY, JULY 7, 2014
U.S. Senate,
Committee on Energy and Natural Resources,
Lafayette, LA
The committee met, pursuant to notice, at 1:35 p.m. at the
Mardi Gras Room, Cajundome Convention Center, 444 Cajundome
Boulevard, Lafayette, Louisiana, Hon. Mary Landrieu,
chairwoman, presiding.
OPENING STATEMENT OF HON. MARY L. LANDRIEU, U.S. SENATOR FROM
LA
The Chair. Good afternoon.
Let me call the Senate Natural Resources Committee of the
U.S. Senate to order. Thank you all for joining us today for an
official field hearing of this committee.
I am so proud to chair this committee on behalf of the
people of Louisiana. When the people of Louisiana hold this
gavel good things happen, in my view, for the industry, the oil
and gas industry, which is so important and vibrant in our
country today, our State, the Gulf Coast region and the Nation.
When our State first wielded the chairman's gavel, held by
Bennett Johnston in 1987, there were significant obstacles to
deep water drilling becoming the power house that it is today
and actually the subject, OCS, of this field hearing. However
by the time he left office after 20 years as a member of this
committee and nearly 10 years as serving as chair the
percentage of deep water leases had gone from 40 to 70 percent
of the entire gulf. Because Senator Johnston was a Gulf Coast
Senator, there have only been 2 chairs of the Energy Committee
in the history of the United States from the East, both of us
being from the Gulf Coast.
He was focused on expanding and growing this industry and
the thousands of high paying jobs it creates. I will do the
same as chair.
This February the people of Louisiana got this gavel back
after waiting in line for 20 years. With this gavel now in hand
I'm confident that this committee can use it in a way to expand
this industry both onshore and offshore, reduce unnecessary and
redundant regulations that cost time, money and jobs, build on
the revenue sharing partnership that was actually established
by this committee, led by myself and Senator Pete Domenici,
when he chaired the committee. Also achieve American energy
security for the first time in our Nation's history.
We may do that as a Nation or we may do it as a North
American continent. But in our lifetime it can be done with the
changes of both technological, political and otherwise that are
occurring in Canada, the U.S. and in Mexico. The State of
Louisiana and our offshore energy industry will play a big role
in making this goal. I think this is a worthy goal, an exciting
goal, a reality.
I'd like to thank all of our witnesses today for coming
today. Look forward to hearing their thoughts on how Congress,
the private industry and all stakeholders can work together to
harness the abundant offshore revenues, both traditional and
non-traditional, resources to provide real energy security for
America and be a model industry for the world.
Let me go into just a few minutes in this opening statement
about the history of the OCS. Then we'll hear from our panel,
our first panel. Then we have a distinguished group of industry
leaders for our second panel.
When our country was established America literally stopped
at the water's edge. In 1973, in 1793 it was President George
Washington who expanded the country and claimed all submerged
areas, up to 3 miles off of our coast. If President Washington
had gone further and claimed the entire Outer Continental Shelf
of our 13 original colonies, he would have single handedly
increased our country's land mass by 10 percent and added that
much more land to the United States.
However, it took 152 years and 32 more presidents.
When Harry Truman then claimed the entire Outer Continental
Shelf and the resources beneath it for the people of the United
States this expanded our country's territory by 70 percent.
There are resources in this land that may be under the water,
but it's our land and it's our resource base. It must be
harnessed and tapped to build the economy and security of the
United States.
Today we are here to hear from the Department of Interior
and the Department of Energy on their plans to develop this
extraordinary resource.
Eight years later In 1953 Congress passed the Outer
Continental Shelf's Lands Act, the first law of its kind. After
President Truman claimed the Outer Continental Shelf for the
U.S. Congress passed the first Outer Continental Shelf Lands
Act, the first law of its kind to govern how the country would
explore and harness the vast natural resources off of our
shores. Twenty-five years later we updated the law and called
on the Department of Interior to prepare and periodically
revise a national assessment of our oil and gas leasing process
on these lands.
Today that is known as the DOI, Department of Interior's, 5
year plan. Mr. Cruickshank is here to testify today as to what
that plan is.
It has also called on the Secretary of Interior to
establish a number of planning areas to incorporate in each
plan. There are currently 26 planning areas in the Outer
Continental Shelf, 15 in Alaska, 4 along the Pacific Coast, 3
in the Gulf of Mexico and 4 in the Atlantic.
Currently there are only 36 million acres, an area only
slightly larger than the State of Louisiana itself, that is
actively leased. So a very small portion of the Outer
Continental Shelf is actively leased. That's only 2 percent of
the entire OCS.
By comparison it would be as if the country stopped at
Rhode Island, you know, or Vermont, you know, or whatever 2
percent of the land mass is. So there's a tremendously vast
area of the Outer Continental Shelf that should be, in my view,
explored and looked at for what resources it might hold, either
traditional or non-traditional resources, whether energy or
otherwise, for the economic benefit of our people in the United
States and in the world.
The Department of Interior is currently drafting its 5 year
plan for 2017 to 2022. We're currently operating on the
previous 5 year plan. The process that we're beginning right
now for 2017 to 2022 offers us a great opportunity to build
upon the success, I believe, of the Gulf of Mexico Energy
Security Act, GOMESA, an important and essential law that was
passed in 2006 by working with both Republicans and Democrats,
both Senate and House, led by Senator Domenici and myself.
GOMESA was the first bill passed in a long time, and
possibly forever, to open up 8.3 million acres of the Gulf to
oil and gas exploration since the original plan. It was the
first time Congress had ever opened up so many acres to new
exploration. This area would soon produce up to 2 million
additional barrels of oil per day. That's more than 10 percent
of what the United States consumes and more oil than we import
from Saudi Arabia.
It is clear from this example that good things can happen
when we open up more areas for drilling in a responsible
manner. We can and should do even more, in my view, in a
balanced and environmentally thoughtful way. To start we should
complete an updated resources assessment of the entire OCS,
particularly the areas off the East Coast.
Since 1990 our proven reserves have multiplied dramatically
each time the government completes a survey. Swift new advances
in drilling technology are making more of what we find easier
to extract. More drilling means more energy and more high
paying jobs, more security, more reliability and a stronger
economy. We need to act and turn this promising potential into
a reality, in my view.
Having these potential resources beneath our waters and not
using them is short sighted. It makes us more dependent on
countries that are unstable or countries that do not share our
values. The next 5 year plan must open up more areas for energy
production off of our coast.
One way to ensure that we can responsibly develop more of
our offshore resources is to make the permitting process as
efficient as possible. Unnecessary regulations drive innovators
out of the market and prevent us from creating more high
paying, energy jobs. Inefficient regulations and lack of
certainty add additional cost and time into the permitting
process in the Gulf compared to other areas of the world.
Since capital will flow to the areas that have the most
promise, it's important, in my view, for the U.S. OCS to be one
of the more promising areas and particularly the traditional
OCS which is the Gulf of Mexico. Delays cause many companies to
move production assets to other parts of the world like Asia
and Africa. As a Louisiana Senator, of course, I want to keep
as many jobs here in Louisiana, in the Gulf Coast area and in
the United States as possible.
North America can be a power house. An energy secure and
independent North America is something worth fighting for,
working for and working across parties lines to achieve,
particularly in light of the current turmoil in Iraq, ongoing
Russian aggression against the Ukraine and some of its other
neighbors. It has never been more important or more possible.
Considering the changes in the political landscape in a
very positive way in Mexico, and Canada's continued advancement
of their technologies, both on the energy side and the
environmental side , it is really, truly an exciting time for
us in this industry and in this particular geographic space.
For a coastal State like Louisiana, to produce more energy
offshore, we must build on the revenue sharing partnership that
was established with Senator Domenici through GOMESA in 2006.
Before this law was passed, as everyone knows, Gulf Coast
States played host to energy production offshore and our
States, Louisiana, Texas, Mississippi and Alabama, that were
production host States, received virtually no share of the
revenues from the Outer Continental Shelf which begins only 3
miles off of our coast.
Contrary to this situation and great irritation to me and
to others, the Federal Government shared 50 percent of those
same revenues on Federal lands in interior States. Rentals,
royalties, bonus bids were sent to the Federal Government and
one half were left in States like Wyoming, New Mexico, Utah,
etcetera, while 100 percent of the Gulf Coast OCS revenues were
taken and deposited into the general fund of the United States.
Now we changed that with GOMESA.
The Gulf has already received $31,000,000 from this law. In
2017 under the current law, these 4 States will receive up to
$50,000,000 to be divided among ourselves. But without lifting
the revenue sharing cap, we will not be in the same situation
as the interior States which, I believe, is an equality issue
that we need to work on.
That's why I'm committed to passing the FAIR Act. This
committee will consider that Act very shortly. I co-sponsored
this legislation with Senator Lisa Murkowski of Alaska. This
bill would accelerate revenue sharing payments to the State the
year of its enactment and lift the arbitrary cap of $500
million placed on the Gulf Coast States, a cap that does not
exist for any other State or any other region of the country.
Allowing coastal States to share in the same or an
equitable percentage, whatever Congress would believe, as the
interior States would be fair. In my opinion 50 percent would
be equitable. But we are open to the discussion. GOMESA is 37
and a half percent.
We can then use those revenues to keep America's working
coast, America's energy coast, strong and vibrant. More of that
revenue sharing would mean more lands preserved and more
wildlife refuges made stronger. It could also help us to stem
the tide of erosion along our coast and could be used for
appropriate energy related infrastructure and development.
More offshore energy exploration and production means more
high paying jobs for hard working families that pay the kind of
wages that allow our middle class to grow, to buy homes, to
save for the future and to build wealth. It means achieving
energy security for the United States, something that has
bedeviled the Members of Congress and Presidents for decades.
So today's hearing is about what we need to do to make this
a reality.
Today's hearing is about what promise does the OCS hold.
What are the resources?
What is the government's plan to develop these resources?
You can see the small chart here that outlines the planning
areas. Of course, there's limited capital. There's limited
infrastructure. So we have to have a plan that directs
resources to a certain area.
If it were all open which, you know, we could think about
as well, it would be interesting to see what areas would
receive the first interest from the industry. But clearly
there's more land, more leases that can be opened. You know,
there are different views about this. We'll hear some of those
today.
But I'm happy to conduct this field hearing on behalf of
the Energy and Natural Resources Committee to hear from the
people on the ground here in Acadiana at the center of
America's energy coast.
There will be, clearly, field hearings held in other parts
of the country. There will be different kinds of testimony
presented. But I believe it's important as we develop this 5
year plan to get a variety of different impacts starting with
the region that does the most drilling, and supports the most
production in the Outer Continental Shelf.
It is clear to me that the first hearing on the next 5 year
plan should be right here in Lafayette, in South Louisiana
which is the center of Gulf Coast production. I believe that my
Texas and Alabama and Mississippi Senators would agree with
that. Louisiana is looked on, particularly, Lafayette and this
Lake Charles area, as sort of the working coast, the center of
all support services for the offshore. We have most of the
energy ports in the Gulf Coast.For these reasons, this is a
perfect place to hold this hearing.
So at this time if Dr. Cruickshank and Mr. Sieminski would
come forward to begin your testimony. As you know we've
received it. We've reviewed it. You each have 5 minutes to
testify.
We'll start with Dr. Cruickshank first and then go to Mr.
Sieminski.
You'll be notified when you have 30 seconds to wrap up.
Then I'll introduce the second panel.
Dr. Cruickshank, thank you very much. You're always
welcome. You've been before our committee many times before. I
understand you've been in the government service for almost or
maybe 30 years. So we're happy to have you testify as a
knowledgeable leader in our government.
Welcome.
STATEMENT OF WALTER CRUICKSHANK, ACTING DIRECTOR, BUREAU OF
OCEAN ENERGY MANAGEMENT, DEPARTMENT OF THE INTERIOR
Mr. Cruickshank. Chair Landrieu, I am pleased to appear
before you today to discuss a number of important issues
including the current 5 year Outer Continental Shelf Oil and
Gas Leasing Program, the United States/Mexico Trans boundary
Hydrocarbon Agreement and development of the next 5 year oil
and gas leasing program.
The Bureau of Ocean Energy Management provides for the
environmentally and economically responsible management of the
Nation's energy and mineral resources on the Outer Continental
Shelf. One of the primary means for doing so is the 5-year oil
and gas leasing program. The current 5 year program for 2012 to
2017 schedules 15 proposed lease sales and 6 planning areas
that include more than 75 percent of the estimated,
undiscovered, technically recoverable oil and gas resources in
Federal offshore waters.
To date, BOEM has conducted 5 lease sales, 2 in the Western
Gulf of Mexico planning area, 2 in the Central Gulf of Mexico
and one in that portion of the Eastern Gulf, not subject to
moratorium under the Gulf of Mexico Energy Security Act.
These sales resulted in leasing approximately 4.3 million
acres for a total of nearly $2.3 billion in bonus bids. The
next sale in the 5-year program is in the Western Gulf of
Mexico scheduled for next month. Six other lease sales are
scheduled for the Gulf of Mexico through the end of the 5-year
program and 3 lease sales are scheduled offshore Alaska, one
each in portions of the Chukchi Sea, Beaufort Sea and Cook
Inlet planning areas. The 5-year program adopted a targeted
leasing strategy in the Arctic to focus leasing on the most
promising blocks while protecting important Arctic habitats and
critical subsistence activities.
In the mid and south Atlantic BOEM is currently pursuing a
strategy to develop modern, scientific information about the
scope and location of potential oil and gas resources and to
resolve significant potential conflicts between oil and gas
activity and other important uses of Federal waters. A record
of decision that sets a framework for appropriate geological
and geophysical survey activities off the mid and south
Atlantic coast and that clears the way for G and G permits to
be considered is expected to be issued in the coming weeks.
Information gained from this data will help inform BOEM's
decisions regarding potential future leasing along the Atlantic
coast.
Turning to the United States Mexico Trans Boundary
Hydrocarbon Agreement.
This agreement was signed into law in December of last year
creating a new level of certainty for U.S. and Mexico firms
operating in the Gulf Offshore Boundary region and making
additional areas accessible for safe and responsible
exploration and production activities. The Trans Boundary
Agreement sets clear guidelines for the development of oil and
natural gas reservoirs that cross the maritime boundary. Under
the agreement U.S. and Mexican operators will be able to
voluntarily enter into agreements to jointly develop these
reservoirs.
In the event the companies can't agree the Trans Boundary
Agreement establishes a process through which U.S. and Mexican
operators can individually develop the resources on each side
of the border while protecting each Nation's interests and
resources.
The Trans Boundary Agreement enters into force on July 18th
at which time the leasing moratorium on blocks within the 1.4
nautical mile buffer area, north of the boundary in the Western
Gap expires and those blocks will be available for leasing.
With the current 5 year program expiring in August 2017
BOEM recently announced the first step in a robust public
engagement and analytical process to develop the next 5 year
program for 2017 to 2022. The OCS Lands Act requires the
Secretary of the Interior to prepare and maintain a schedule of
proposed oil and gas lease sales in Federal waters indicating
the size, timing and location of sales that would best meet
national energy needs while achieving the appropriate balance
among the potential for environmental impacts for discovery of
oil and gas and for adverse effects on the coastal zone.
Last month BOEM took the first step in the development of
the next 5 year program with the publication of a request for
information and comments.
The RFI, as it is known, is the initial step in a 2 and a
half to 3 year planning process. It does not identify any
specific course of action. Consistent with past practice and
judicial guidance BOEM will evaluate all 26 OCS planning areas
during this first planning stage.
The RFI provides an opportunity for interested parties to
submit comments and suggestions about the potential for leasing
and to identify environmental and other concerns and uses that
may be affected by offshore leasing.
The RFI's public comment period ends on July 31st.
Using the information received in response to the RFI BOEM
will prepare successive decision documents describing a draft
proposed program followed by a proposed program and a proposed
final program. Throughout the planning process BOEM will
consult with all interested parties and seek additional public
comment. Concurrently BOEM will prepare a programmatic
environmental impact statement to evaluate the potential
environmental impacts of various OCS oil and gas leasing
alternatives and to help inform decisions on the proposed final
program.
Chair Landrieu, thank you again for inviting me to appear
today. I look forward to working with the committee, especially
as we proceed with development of the next 5 year program. I
will be happy to answer any questions you may have.
[The prepared statement of Mr. Cruickshank follows:]
Prepared Statement of Walter Cruickshank, Acting Director, Bureau of
Ocean Energy Management, Department of the Interior
Chair Landrieu and Members of the Committee, I am pleased to appear
before you today to discuss a number of important issues including, the
current 2012--2017 Five Year Oil and Gas Leasing Program, the United
States--Mexico Transboundary Hydrocarbon Agreement, and development of
the next Five Year Oil and Gas Leasing Program for 2017--2022.
2012--2017 Five Year Oil and Gas Leasing Program
The 2012--2017 Five Year Oil and Gas Leasing Program (2012--2017
Five Year Program) became effective in August 2012, and schedules lease
sales in six planning areas with the greatest resource potential,
including more than 75 percent of the estimated undiscovered,
technically recoverable oil and gas resources on the Outer Continental
Shelf (OCS) comprising nearly 219 million acres in 15 proposed lease
sales.
To date, the Bureau of Ocean Energy Management (BOEM) has conducted
five lease sales--two in the Western Gulf of Mexico Planning Area, two
in the Central Gulf of Mexico Planning Area, and one in the portion of
the Eastern Gulf of Mexico Planning Area not subject to moratorium
under the Gulf of Mexico Energy Security Act. Under the current Five
Year Program, approximately 4.3 million acres, including 794 tracts,
have been leased for a total of nearly $2.3 billion in bonus bids. The
next sale in the Five Year Program is Lease Sale 238 in the Western
Gulf of Mexico Planning Area scheduled for August 2014. Six other lease
sales are scheduled for the Western, Central and Eastern Gulf of Mexico
Planning Areas, and three lease sales are scheduled offshore Alaska,
one each in portions of the Chukchi Sea, Beaufort Sea, and Cook Inlet
Planning Areas.
The 2012--2017 Five Year Program adopted a targeted leasing
strategy in the Arctic to focus oil and gas leasing on the most
promising blocks, while protecting important Arctic habitats and
critical subsistence activities. The strategy, which includes
consultations with Alaska Natives, the State, other Federal agencies,
and other stakeholders, identifies areas considered for leasing that
have high resource potential and clear indications of industry interest
while appropriately weighing environmental protection and subsistence
use needs.
BOEM is currently pursuing a specific strategy to develop modern,
robust scientific information about the scope and location of potential
oil and gas resources in the Mid and South Atlantic and to resolve
significant potential conflicts between oil and gas activity and other
important OCS uses in these areas, including military, fishing, and
vessel traffic uses as well as environmental and infrastructure
concerns. A Record of Decision that sets a framework for appropriate
geological and geophysical (G&G) survey activities off the Mid- and
South Atlantic coast and clears the way for G&G permits to be
considered, is expected to be issued in the coming weeks. Information
gained from this G&G data gathering will help inform BOEM's decisions
regarding potential future leasing along the Atlantic coast.
United States--Mexico Transboundary Hydrocarbon Agreement
Earlier this year, BOEM issued three leases in the Western Planning
Area of the Gulf of Mexico, along the United States--Mexico Maritime
Boundary. The three bids were opened during the Eastern and Central
Gulf of Mexico Planning Area lease sales held on March 19, 2014. The
three bids totaled over $21 million and were submitted by Exxon Mobil
Corporation.
The United States--Mexico Transboundary Hydrocarbon Agreement
(Transboundary Agreement), signed into law on December 26, 2013,
creates a new level of certainty for U.S. and Mexican firms operating
in the Gulf offshore boundary region and makes additional areas
accessible for exploration and production activities. The Transboundary
Agreement sets clear guidelines for the development of oil and natural
gas reservoirs that cross the maritime boundary. Under the Agreement,
U.S. and Mexico's operators will be able to voluntarily enter into
agreements to jointly develop those reservoirs. In the event that
consensus cannot be reached, the Transboundary Agreement establishes
the process through which U.S. and Mexico's operators can individually
develop the resources on each side of the border while protecting each
nation's interests and resources.
The Transboundary Agreement allows leaseholders on the U.S. side of
the maritime boundary to cooperate with Mexico's operators, in the
joint exploration and safe and responsible development of hydrocarbon
resources. The Agreement also provides for joint inspection teams from
the Bureau of Safety and Environmental Enforcement (BSEE) and the
Mexican Government to ensure compliance with applicable laws and
regulations. Relevant agencies in both countries will review plans for
the development of these reservoirs, and additional requirements may be
set before development activities are allowed to begin.
This agreement makes the entire transboundary region, which was
subject to legal uncertainty in the absence of an agreement, more
attractive to U.S.-qualified operators. BOEM estimates that the
transboundary area contains as much as 172 million barrels of oil and
304 billion cubic feet of natural gas.
With entry into force of the Transboundary Agreement on July 18,
the leasing moratoria on blocks within the 1.4 nautical mile buffer
area north of the Continental Shelf boundary in the Western Gap
expires, and those blocks will be available for leasing.
2017--2022 Five Year Oil and Gas Leasing Program
With the current Five Year Program expiring in August 2017, BOEM
recently announced the first step in a robust public engagement and
analytical process to develop the next schedule of potential offshore
oil and gas lease sales.
The OCS Lands Act requires the Secretary of the Interior, through
BOEM, to prepare and maintain a schedule of proposed oil and gas lease
sales in Federal waters, indicating the size, timing and location of
sales that would best meet national energy needs while achieving an
appropriate balance among the potential for environmental impacts, for
discovery of oil and gas, and for adverse effects on the coastal zone.
Last month, BOEM took the first step in the development of the next
Five Year Program with the publication of a Request for Information and
Comments on the Preparation of the 2017-2022 Outer Continental Shelf
Oil and Gas Leasing Program (RFI). The RFI is the initial step in a
two-and-a-half to three-year planning process and does not identify any
specific course of action. Per statute and consistent with previous
efforts and judicial guidance, BOEM will evaluate all 26 OCS planning
areas during this first stage. The publication of the RFI begins a 45-
day comment period ending on July 31, 2014. The RFI provides an
opportunity for interested parties to submit comments and suggestions
about the potential for leasing and to identify environmental and other
concerns and uses that may be affected by offshore leasing. BOEM seeks
a wide array of input, including information on the economic, social
and environmental values of all OCS resources, as well as the potential
impact of oil and gas exploration and development on other resource
values of the OCS and the marine, coastal and human environments.
Substantial public involvement and extensive analysis will
accompany all stages of the planning process. BOEM is reaching out to a
broad array of stakeholders, including State governments, coastal
organizations, and tribal representatives to educate them on BOEM's
programs, policies and procedures, as well as working with the
Department of Defense (DOD) to resolve potential conflicts between the
OCS leasing program and DOD requirements to use the OCS for national
defense and security. BOEM is holding meetings with coastal States if
requested; BOEM has met with the State of North Carolina and is
scheduled to meet with the Commonwealth of Virginia in early July.
Additionally, in response to coastal state requests and in order to
enable States to prepare a robust response to the RFI, BOEM is hosting
a meeting in its Gulf of Mexico Region office in New Orleans on July
16-17 to share comprehensive information on BOEM's, as well as the
Bureau of Safety Environmental Enforcement's, programs from oil and gas
leasing to decommissioning activities.
Using the information received in response to the RFI, BOEM will
prepare decision documents describing the Draft Proposed Program,
followed by a Proposed Program and a Proposed Final Program. Throughout
the planning process, BOEM consults with all interested parties and
seeks additional public comment on the Draft Proposed and Proposed
Programs. Concurrently, BOEM will prepare a Programmatic Environmental
Impact Statement (PEIS) required by the National Environmental Policy
Act to evaluate the potential environmental impacts of various OCS oil
and gas leasing alternatives under the Proposed Program and to help
inform decisions on the Proposed Final Program.
Permitting and Production
The aforementioned BOEM activities have the potential to increase
exploration, drilling, and production on the OCS. I have been asked to
mention a few significant efforts by our sister agency, the Bureau of
Safety and Environmental Enforcement (BSEE). To further enhance safety
and environmental protection across offshore operations, BSEE has
initiated a variety of regulatory improvements to address key safety
issues. As BSEE continues to evaluate possible regulatory updates, for
topics such as well control processes and technologies, crane safety
and oil spill response and preparedness, the bureau has also worked to
streamline the regulatory process to improve efficiency, provide for
more stakeholder input, and keep pace with industry as offshore
activity and production increases.
Over the past few years BSEE's permit review times have decreased,
without sacrificing human safety and protection of the environment. For
example, BSEE achieved an average review time of 59 days for deepwater
New Well permits submitted and approved in 2013, down from 71 days in
2011. BSEE has focused on reducing risks offshore by thoroughly
reviewing each permitted activity on a case-by-case basis that is
consistent with the level of risk that each activity carries.
BSEE's continued improvements in predictability and consistency in
permitting are evidenced by the record number of rigs currently
drilling in deepwater in the Gulf of Mexico (GOM) and the ongoing work
for 8 new floating platforms in the GOM that are expected to add up to
700,000 barrels of oil per day capacity in 2014 through 2016.
Additional discoveries under evaluation for development in the
deepwater GOM could facilitate development of an additional 700,000
barrels of oil per day capacity by 2020. The Energy Information
Administration forecasts oil production from the GOM to increase to
nearly 2 million barrels per day by 2016.
Industry continues to view GOM deepwater as a major development
target, and BSEE continues to heighten safety standards to address the
challenges of operating in these areas. The GOM has recently seen a
historic number of deepwater Mobile Offshore Drilling Units (MODUs)
that are either working or are under contract preparing to start work.
As a point of reference there were approximately 35 deepwater MODUs in
April of 2010 (about 9 drillships and 26 semisubmersibles) and now
there are 44 (26 drillships and 18 semisubmersibles) as of June 2014.
New and revised deepwater rig contracts and BSEE interaction with
industry on specific projects suggests that the number of deepwater
MODUs in the GOM is expected to continue to increase through 2017. The
number of deepwater MODUs is expected to vary within a range of 50 to
60 floating drilling rigs depending on the timing of development
projects coming on line, trends in future discoveries and movement of
rigs in and out of the GOM as exploration and development activities
increase globally.
BSEE remains committed to its efforts to increase efficiency and
transparency in its permitting process. For example, BSEE is developing
an ePermitting system that should provide companies with additional
information about permitting requirements, leading to increased
predictability and transparency in the permitting process. The system
should also allow BSEE personnel to more easily focus on proposed
activities with higher risk levels, thus helping BSEE fulfill its
mission of protecting both offshore workers and the environment.
Conclusion
Chair Landrieu and Members of the Committee, thank you again for
inviting me to appear before your Committee. I look forward to working
with the Committee especially as we proceed with development of the new
Five Year Program. I am happy to answer any questions.
The Chair. Thank you very much.
Mr. Sieminski.
STATEMENT OF ADAM SIEMINSKI, ADMINISTRATOR, ENERGY INFORMATION
ADMINISTRATION
Mr. Sieminski. Chair Landrieu, I had some slides but I
think we'll just do it without those. They are up here, but----
The Chair. Is it--we have a technical difficulty?
Mr. Sieminski. No. I'm going to need somebody to----
The Chair. No, please. We'd love to see them if you can get
somebody to help you.
Mr. Sieminski. Maybe we can have a volunteer?
The Chair. Yes.
Pat, you want to volunteer or T Brad? Who is sitting there?
Or if you want to sit there you're welcome to.
Mr. Sieminski. This will work. Maybe this is going to work.
Here we go. High tech.
The Chair. Go right ahead. I'm impressed.
Mr. Sieminski. Chair Landrieu, it's a real pleasure. I
appreciate the opportunity to be here today here in Lafayette.
The Energy Information Administration, as you know, is the
independent and impartial statistical and analytical agency
within the U.S. Department of Energy. My views expressed here
today should not be construed as representing those of the
Department of Energy or any other Federal agency. My testimony
focuses on the outlook for oil and natural gas development on
the Outer Continental Shelf and draws on EIA's short term
energy outlook and the 2014 Annual Energy Outlook which
includes long term projections out to the year 2040.
It is important to recognize that projections of energy
markets are highly uncertain and subject to many unforeseeable
events. The Annual Energy Outlook reference case represents an
energy future based on given market, technological, demographic
and other trends, current laws and regulations in consumer
behavior. The complete 2014 version of the Annual Energy
Outlook which we call the AEO was just released in May and it
includes side cases with alternative assumptions regarding
resources, technology advances and world energy prices that
could significantly affect projections for oil and natural gas
production.
So just as an example. This slide shows that under the high
oil price scenario projected lower 48 States offshore oil
production in 2040 is almost 10 percent above the reference
case.
In the short term, EIA's forecast of annual average
production from the Federal Gulf of Mexico increases from 1.3
million barrels a day in 2013 to 1.7 million barrels a day in
2015. At the same time due to relatively low natural gas prices
the Gulf of Mexico gas production is forecast to decrease
somewhat from 3.6 billion cubic feet a day to 3.2 bcf a day
over the same period.
Over the longer term under the AEO 2014 reference case and
that's shown here in this slide. Oil production on Federal and
State waters of the Gulf of Mexico varies between 1.3 billion
barrels a day and 2 million barrels a day over the period out
to 2040.
Now slide four, that's this one shows natural gas
production forecast to increase from about 5.2 bcf a day to 6.8
bcf a day over the same period. Toward the end of the period
the pace of exploration on production activity quickens
associated predominately with discoveries in the deep water and
ultra deep water portions of the Gulf of Mexico.
Slide 5 shows new offshore oil production from the Alaskan
North Slope partially offsetting the decline from onshore North
Slope fields.
For the high oil and gas resource case we assume more
resources in Alaska and the lower 48 States offshore. This
reflects more favorable resolution of uncertainty surrounding
undeveloped areas where there has been little or no recent
exploration.
The low oil and gas resource case reflects only uncertainty
around tight and shale crude oil and natural gas resources. All
other resource assumptions in the high case are unchanged from
the reference case.
An important aspect of the Gulf of Mexico production is the
quality of the crude oil. Recent and forecast increases in
domestic crude production have sparked discussion on the topic
of how rising crude oil volumes will be absorbed in the U.S.
refining system. U.S. crude streams vary widely in quality and
the economics for U.S. refiners to use additional domestic
production are directly dependent on the quality of the crude
oil.
Slide 6 shows that EIA's analysis of current forecast crude
production indicates that U.S. supply of lighter, API gravity
crude will continue to outpace that of the medium and heavier
grades. EIA expects that more than 60 percent of production
growth for 2014 and 2015 will consist of sweet grades with API
gravity of 40 degrees or above.
By contrast the Gulf of Mexico crudes are medium, sour with
an API gravity range of 27 to 35 degrees. These crudes are
particularly favored by the sophisticated world class
refineries along the Gulf Coast here.
So one of the interesting things that you should see in
that graph, that hatched red area to the bottom. There is some
growth in there although the scale is a little hard to see.
We're expecting quite a decent pick up of production of the API
27 to 35 degree crudes, most of that coming from the Gulf of
Mexico in 2015. That should actually help to alleviate some of
the difficulties that refiners have been having access to the
heavier domestic crudes.
A key element of the survey that we have been thinking
about, in fact EIA is currently working on a proposal that
would expand one of our surveys that we think is going to be
critical to ensuring timely and quality information on domestic
oil and gas production. A key element of this survey is the
inclusion of oil production by crude oil type or API gravity.
We are working closely with the industry associations to ensure
that this survey will be a success.
This final figure, Senator, and I'll just wrap it up then,
puts the offshore production situation into the context of
total national oil production.
Under EIA's reference case net oil import dependence which
you see had been as high as 60 percent back in 2005 has
declined very rapidly as production in onshore and offshore
waters has increased.
Under EIA's reference case net oil import dependence
declines 25 percent in 2016.
Under the high resource case net import dependence actually
continues to decline as production rises and that's that, kind
of, dotted blue line that you see there going up. At some point
it is possible in the period after 2030 that the U.S. might
actually be self sufficient in net oil imports.
I'd like to thank you very much for the opportunity to
testify here today. As Walter said, I'd be happy to answer any
questions.
[The prepared statement of Mr. Sieminski follows:]
Prepared Statement of Adam Sieminski, Administrator, Energy Information
Administration, Department of Energy
Chair Landrieu and Members of the Committee, I appreciate the
opportunity to appear before you today.
The Energy Information Administration (EIA) is the statistical and
analytical agency within the U.S. Department of Energy. EIA collects,
analyzes, and disseminates independent and impartial energy information
to promote sound policymaking, efficient markets, and public
understanding regarding energy and its interaction with the economy and
the environment. EIA is the nation's premier source of energy
information and, by law, its data, analyses, and forecasts are
independent of approval by any other officer or employee of the United
States Government. The views expressed herein should therefore not be
construed as representing those of the Department of Energy or any
other federal agency.
As requested, my testimony focuses on the outlook for oil and
natural gas development on the Outer Continental Shelf (OCS). My
testimony draws on EIA's June Short Term Energy Outlook (STEO) and the
2014 Annual Energy Outlook (AEO2014) which includes long-term
projections through 2040. EIA released the Reference case projections
for the AEO2014 in December. The Reference case is intended to
represent an energy future through 2040 based on given market,
technological, and demographic trends; current laws and regulations;
and consumer behavior. EIA recognizes that projections of energy
markets are highly uncertain and subject to geopolitical disruptions,
technological breakthroughs, economic fluctuations, and other
unforeseeable events. In addition, long-term trends in technology
development, demographics, economic growth, and energy resources may
evolve along a different path than represented in the Reference case
projections.
The complete AEO2014, which was released in May, includes
alternative assumptions regarding resources, technology advances, and
world energy prices that can significantly affect projections for oil
and natural gas production. The impact of alternative assumptions in
these two areas were explored in AEO2014 side cases that address high
and low oil price scenarios and more optimistic and pessimistic
assumptions regarding the resource base and the pace of technology
advances. The impacts of the revised assumptions in the alternative
scenarios can be substantial. For example, projected offshore oil
production in 2040 is roughly 10 percent above the Reference case level
in the High Oil Price scenario (*Figure 1).
---------------------------------------------------------------------------
* All figures have been retained in committee files.
---------------------------------------------------------------------------
In the June STEO, based on forecasts of annual average production
from 2013 to 2015, the federal Gulf of Mexico oil production increases
from 1.3 million bbl/d to 1.7 million bbl/d. Natural gas production is
forecast to decrease from 3.6 Bcf/d to 3.2 Bcf/d over the same period
because natural gas prices remain low relative to oil prices.
Looking at the longer-term picture, in the AEO2014 reference case,
Gulf of Mexico (federal and state) oil production varies between 1.3
million bbl/d and 2.0 million bbl/d over the projection period, 2013-
2040 (Figure 2). Natural gas production in the Gulf of Mexico is
forecast to increase from 1.9 Tcf (5.2 Bcf/d) to 2.5 Tcf (6.8 Bcf/d)
over the same period (Figure 3). Toward the end of the period, the pace
of exploration and production activity quickens, and new large
development projects, associated predominantly with discoveries in the
deepwater and ultra-deepwater portions of the Gulf of Mexico, are
brought on stream. New offshore oil production from the Alaska North
Slope partially offsets the decline in production from onshore North
Slope fields, as shown in Figure 4.
For the High Oil and Gas Resource case, we assumed that there are
more resources in Alaska and in the lower 48 offshore, including the
development of tight oil in Alaska and 50 percent higher technically
recoverable undiscovered resources for other Alaska crude oil and the
lower 48 offshore (which reflects more favorable resolution of the
uncertainty surrounding undeveloped areas where there has been little
or no exploration and development activity, and where modern seismic
survey data are lacking).
The Low Oil and Gas Resource case reflects only the uncertainty
around tight and shale crude oil and natural gas resources-
specifically, whether the performance of current and future wells
drilled will actually be less than estimated. All other resource
assumptions are unchanged from the Reference case.
Another aspect of Gulf of Mexico production that I would like to
highlight relates to the quality of the crude. Recent and forecast
increases in domestic crude production have sparked discussion on the
topic of how rising crude oil volumes will be absorbed. EIA recently
released a short-term forecast of domestic production by crude type,
supplementing the May 2014 overall production forecast provided in the
STEO. Forecasts of production by crude type matter for several reasons.
First, U.S. crude streams vary widely in quality. Second, the economics
surrounding various options for the domestic use of additional domestic
oil production are directly dependent on crude quality characteristics.
EIA analysis of current and forecast crude oil production indicates
that U.S. supply of lighter API gravity crude will continue to outpace
that of medium and heavier crudes (Figure 5). More than 60 percent of
EIA's forecast of production growth for 2014 and 2015 consists of sweet
grades with API gravity of 40 or above. The type of heavier crude from
the OCS, in particular, the Gulf of Mexico, however, is particularly
favored by refineries in the Gulf Coast. Gulf of Mexico oil production
is understood to be API gravity range of 27-35 degrees, and is medium
sour. Alaska crude, on and offshore, is in the same API gravity range.
I would like to mention EIA's pending proposal to expand one of our
important production surveys. The quality and timeliness of well-level
data on production by crude type used to develop the estimates vary
widely across states. As part of its continuing effort to improve data
on oil and natural gas production, EIA is now seeking public comment on
a plan to expand its current collection of monthly natural gas
production data in six states to include both oil and natural gas
production in 19 states plus the Gulf of Mexico. The proposed data
collection, which EIA plans to launch in 2015, would provide
information on production by crude type. Updated estimates of regional
production by crude type will also be needed as new plays start
commercial development, because production from new plays will change
the distribution of production by crude types in the regions where
those plays are located.
Finally, to put the offshore development into the national energy
context, my last slide shows that under EIA's reference case, net oil
import dependence declines from a high of 60 percent in 2005 to 25
percent in 2016 (Figure 6). Under the high resource case, net import
dependence declines rapidly and could approach net oil self-sufficiency
in the period after 2030.
The Chair. Thanks. I just want to make sure that last
sentence was in 2030 the U.S. will be completely free of the
necessity for imports?
Mr. Sieminski. We would have its net imports, Senator.
The Chair. OK.
Mr. Sieminski. So we would still be importing oil.
There are a number of places in the East Coast, the West
Coast and even here along the Gulf Coast where it would still
make sense to bring in a particular grade of crude oil to be
run through the refineries here. But if you add all of the
production up, take away the imports. We might actually have
more production than we do imports on a net basis.
The Chair. OK, which would provide an opportunity for
export either than or before depending on----
Mr. Sieminski. Yes. That's exactly correct.
The Chair. Yes, that's what this information will help us.
Let me begin with just a few questions.
This is a little confusing to me. Maybe it will be to those
listening. Your testimony currently States that we're producing
1.3 million barrels of oil a day in the OCS. In 2 years you
expect it to go to 1.7 million which is a 300,000 barrel
increase in 3 years.
The next paragraph says--that's the short run.
The next paragraph says in the long run which is from 2017
to 2040, you were estimating the same increase over that period
of time which is 23 years as you are in the next 2. Why is
that?
Are you standing on those projections?
What are some of your underlining assumptions that would
make that projection so conservative?
Mr. Sieminski. Senator, recent wells drilled in the Gulf of
Mexico have exhibited a relatively low gas to oil ratio and
that tends to keep our gas number down. The oil production
itself, some of the drilling is going to have to offset natural
declines that take place in the existing wells. So we may
actually have more new production coming on than you get in the
total number because you've got to offset the declines in the
wells.
It is worth noting that the numbers that I mentioned
excludes State waters. State waters would add for natural gas,
for example, another 1.5.
The Chair. But I just want to stay for oil. Let's just talk
about oil.
Mr. Sieminski. Just oil.
The Chair. Just oil. No gas.
Mr. Sieminski. Right.
The Chair. I just want to keep--I want to compare apples to
apples.
Mr. Sieminski. Then we'll just----
The Chair. So in your testimony, now I'm going to press
this with you. In your testimony you say that in the next 2
years the amount of oil is going to increase in 2 years by
300,000 barrels a day.
Then you project that over the next 23 years it will only
increase by 300,000 over that period.
That just seems--it just doesn't seem plausible.
Mr. Sieminski. Our geologists look at the resource base.
They look at what land is available for leasing. They look at
the activity of the industry in picking up those leases. They
try to make assumptions about the price of oil, the technology
and so on. The numbers that they come up with suggest that it
is going to be hard to grow the Gulf of Mexico oil base in the
same manner that we seem to be capable of growing it onshore at
this time.
So there's 2 other things that I would mention that could
change. That's the technology. The increased application, just
as an example of hydraulic fracturing in the offshore similar
to what we're doing onshore might make those projections very
different.
Another possibility and as Dr. Cruickshank mentioned,
policy issues such as agreements with Mexico or even Cuba that
could open up more U.S. boundary waters for development and
would add to the acreage available for exploration.
The Chair. I'm going to actually ask the staff to draft a
question to the committee. We don't have it for right now. What
are the four largest investors in the Gulf of Mexico in the
deep water and if they would share, if it's not proprietary,
their projections of the same timeframe. What they are
projecting?
Because I want to understand if there is a delta between
what the government is projecting in oil production in the Gulf
from the 3 to 4 major operators that have a lot of private
capital to risk. We don't risk private capital. We risk other
things, but not private capital, the government does.
But my indication is that the operators are feeling
bullish. So I'm having a hard time understanding why they would
be so bullish if there's nothing to find. I'm going to have to
resolve that. I can't do that today. But it seems like a very--
--
The Chair. Then my second question and I will send in
writing to you is this one.
You're projecting 23 years from 2017 forward. I want you to
go back 23 years and find the government data that projected
how much oil would be produced this, today, in the Gulf 23
years ago. I want to see how accurate you were then.
Because I think you're going to be wildly off. I'm trying
to get to the bottom of why the government projections are so
wildly off of what is the actual. I'm just seeing this decade
after decade after decade.
I've got to figure out what information you all are looking
at than other people are looking at. But we'll see. Maybe 23
years ago you projected that we would be generating, this very
close, to the amount of oil that we're projecting. I doubt that
would be the case.
I know it's difficult to, but it's not impossible. It's
difficult, but not impossible to get accurate estimates because
we need them. We need to know how many refineries to build. We
need to know, you know, what kind of refineries to build. We
need to know what kind of oil we can export. We've got to have
it very accurate.
The Chair. The other question I wanted to ask you is on
what technological basis do you decide if there's oil or gas
there if you don't to seismic? Or maybe I should put it this
way, what are the new technologies that the government uses
either by itself of with the private sector that allow you to
actually know what the resource base is? Is number one.
No. 2. Can you make an accurate projection of the resource
base without testing or doing seismic? I'm going to ask the
industry the same question.
Mr. Sieminski. Right. On that question, Senator, I'd say
that asking that of the folks at the US Geologic Survey and
some of the industry people might be a good idea.
I can tell you that when EIA looks at it we try to do
something similar to what other geologists do and that is look
at the amount of rock that's available for production and
compare that with what recovery rates have been from that
resource base and use that as a methodology to project
production going out into the future. It's subject to lots of
problems. The main one is you have a very, very hard time
dealing with changes in technology such as 3D seismic,
horizontal drilling, hydraulic fracturing, stages, multi stage
hydraulic fracturing and so on. All of which have tremendously
boosted oil production projections, actual production and
projections of those--that production in the onshore area.
The other big unknown is the price of oil and what the
price of oil was at port in terms of industry activity. So we
do the best that we can with the tools that we have available.
I certainly wouldn't want to claim here that our reference case
forecast for the year 2040 is going to be absolutely correct.
One of the things that I'll close on this comment, Senator,
for this question is that that doesn't mean that reference case
projections are not valuable. One of the things that you can do
with a reference case projection and then you very clearly
state what the assumptions are and you have those assumptions
very transparent so that others can look at them and test the
assumptions as you can go on side cases so we can look at a
higher oil or a lower oil price case.
We can look at what better economic or worse economic case
and other potential changes like that or even policy changes.
When you have that reference case to run those against it leads
to, I think, a little bit better view of what might be
possible.
The Chair. But just to follow on just for a minute and then
go to Mr. Cruickshank.
In the Gulf you can look at the East Gulf, the Central Gulf
and the Western Gulf. You know, there have been, I think,
40,000 wells drilled in the Gulf of Mexico, roughly. But I
can't remember exactly how many shallow or deep.
But I remember this from the Mercado well blew up and I had
to go on the Floor and talk about how they had safely drilled
about 40,000 and sometimes bad accidents will happen like that,
which we hope to always avoid. But there's a lot of activity in
the Gulf.
Do you know how many wells have ever been drilled in the
Mid Atlantic offshore? I don't think any.
Do you know how much seismic has been done either in the
South Atlantic, the Mid Atlantic or the North Atlantic?
Mr. Sieminski. But I think you're right. I think it's
pretty limited.
The Chair. Mr. Cruickshank, can you answer that question?
Mr. Cruickshank. Yes, Senator.
There have been--I'm going to have to get the exact number.
They have been in the order of 35 to 40 wells drilled in the
Atlantic.
The Chair. Thirty-five and 40. There have been 40,000 in
the Gulf. So just as a comparison, only 30 to 40 in the
Atlantic.
How many in the Pacific? Do you know?
Mr. Cruickshank. In the Pacific there's ongoing production
offshore, southern California.
The Chair. So do we know how much out of how many wells?
It's only a handful, like 20 or 30 or something like that.
Mr. Cruickshank. There are 23 producing platforms.
The Chair. Only 23 producing platforms.
Do we know how many producing platforms we have in the
Gulf?
Mr. Cruickshank. I don't know the number off the top of my
head. I think it's on the order of 3,000 to 3,500, something
like that.
The Chair. It's just so important for the country just to
understand the relative nature of this.
Fourty thousand wells drilled in the Gulf.
Three thousand producing platforms in the Gulf.
Twenty-five wells or so much in the whole Pacific and 23
producing platforms in the Atlantic.
There's one energy coast. That would be our coast. The
others are other kinds of coast. They're not the energy coast.
So what we find in the Gulf, which is the important thing,
I think, to know about is the more we look, we find. The more
we drill the more resources we get. The more resources we get
the richer all the people of our country become.
If it's conducted correctly it can be just a tremendously
positive impact to the--I mean to the economy. You know, not
harmful to the environment if it's done in the correct way.
So I'm going to be pursuing because it's very interesting
to me when people say they think they know how much oil and gas
is out there. I always want to say, well how would you know it?
[Laughter.]
The Chair. I don't know. Maybe the industry can help us
figure that out.
But let me go on because we've got to move to our second
panel.
Mr. Cruickshank, regarding BOEM's pursuit of scientific
information about the scope and location of potential oil and
gas, what is your timeframe for obtaining this information for
the Mid and South Atlantic?
What steps will BOEM carry out during this timeframe?
How do you collect information about the Mid and South
Atlantic, kind of following up on what we're saying because
you've got to put the next 5 year plan together.
What are you looking for to try to get the information for
the Mid and South Atlantic?
Mr. Cruickshank. To start with there are the geologic and
geophysical surveys. We expect to issue the record of decision
on the programmatic EIS that we published recently. That record
of decision should come out in the coming weeks.
At that point of the companies that have applied for G and
G permits will be able to pursue those permits. They will need
to get authorizations under the Marine Mammal Protection Act
from NOAA as well as our permits. But we're hoping that by the
end of the year, early 2015, the companies can be out there
collecting seismic information.
That information is available to us at basically, at the
cost of production as part of the terms of the permit. We will
use that information in our future decisionmaking.
The Chair. OK.
Getting back to the Gulf of Mexico. Our operators here tell
me consistently, repeatedly, that costs have gone up
significantly since the Deep Water Horizon Mercando event in
2010. As you know, unnecessary regulatory costs can contribute
to fewer wells being drilled, fewer royalty payments to the
Federal Government which should be of some concern, as well as
a decrease energy supply for the Nation.
Now appropriate regulation is always, actually, welcomed.
It's a good thing. But do you have an estimate based on pre
Mercando and post Mercando?
What increases have--what do you acknowledge that increase
to be? What is the official understanding of the Department? Is
it a 5-percent increase in drilling costs? A 10-percent? 20
percent or north of 20 or 25?
Mr. Cruickshank. That is something actually that our sister
agency, the Bureau of Safety and Environmental Enforcement
would be more likely to know. So I like to refer the question
to them and we'll get back to you.
The Chair. Because between the two of you all understanding
what those costs are are important because that has got to be
figured into your assumption whether people are going to be
drilling or not. So I think it's important for both of your
agencies to know that as well as for us.
We'll direct the question appropriately, but we'd ask you
to get that information as well.
The Chair. Let me ask Mr. Sieminski this.
Regarding your assessment due to the relatively low natural
gas price, gas production is forecasted to decrease in the
short term. Do you believe this decreased production will
increase natural gas prices in the short term?
Approximately what length of time do you mean by short
term?
Do you believe that limited amounts of natural gas
exports--I'll get to the export question in a minute.
Just answer those first 2 and then I'll get to exports.
Mr. Sieminski. Short term for us, Senator, is the timeframe
for the EIA short term Energy Outlook goes out to the end.
The Chair. Which is 2 years?
Mr. Sieminski. Yes, 2 years.
The Chair. Your long term is 40?
Mr. Sieminski. Twenty-five years.
The Chair. Twenty-five.
Mr. Sieminski. Right.
The Chair. Do you have anything in the middle that seem?
Two years to me is like two short to be of use and 25 years is
like too long to count on. So I'm wondering why you don't do 8
to 12.
Mr. Sieminski. The Annual Energy Outlook does include
projections, you know, in annual increments all the way out to
the year 2040. So you can get some medium term forecast from
that. But----
The Chair. OK.
So what's your short term forecast?
What's your short term forecast for gas prices?
Mr. Sieminski. Short term forecast is, for gas prices, to
hold at around $4 a million btu.
Over the longer term we expect that to climb up over, you
know, toward $6 and that is in the period out to 2030.
The Chair. OK, which is a long time to project. I have some
issues with trying to project out that far.
But what are your assumptions about exports and what volume
of exports is included in that assumption?
The Chair. Of gas.
Mr. Sieminski. Right. For natural gas in the very short
run----
The Chair. No. Over that longer period.
Mr. Sieminski. The longer period?
The Chair. What are your assumptions for exports?
Mr. Sieminski. Alright.
We have--that's built into the Annual Energy Outlook. We
assume that there will be a couple of LNG. So I presume the
exports you're talking about are not to Mexico which we
actually do see pipeline exports increasing there. The
possibility of some pipeline exports to Canada.
The thing that most people have been looking at very
closely is LNG, liquefied natural gas exports. EIA's
assumptions include a couple in the medium term. So let's say
out in the next 5 years. A couple of----
The Chair. But the volume. It's got to be 12 to 20.
Mr. Sieminski. Right. Up to----
The Chair. Something like that. What are you all
estimating?
Mr. Sieminski. We are up to a little over 10 billion cubic
feet a day at the end of the timeframe.
The Chair. In your estimates.
Mr. Sieminski. We are going to begin to do some work to
look at the possibility of what it would mean if exports of LNG
approach something closer to your 20 bcf a day figure.
The Chair. Then finally in your long term which I have
difficulty accepting, but for the purposes of this discussion,
your long term is that gas would be at 6. What do you have oil
at the equivalent number at the same time you have gas, you
know, rising to 6. What is your oil production?
Mr. Sieminski. I think by 2040 we actually have natural gas
prices up to just a little under $7 so we could get to 6 in
around 2030.
The Chair. OK.
Mr. Sieminski. For oil prices in the reference case
continue to climb in real terms by a few percentage points per
year. So that by 2040 you're up to about 100 and--I think it's
$140. But I'll supply that number to you for the record.
The Chair. One hundred dollars a barrel?
Mr. Sieminski. Right.
The Chair. Yes, that's not going to be really good news for
consumers in the country for gas. It will be very good for the
producers who want to explore and make a significant profit for
the exploration. But for consumers.
So gas is still going to be a bargain if we could get more
of it. I would think it would really be very helpful to the
country.
Mr. Sieminski. You're absolutely right about that.
We see a gas price to oil ratio continuing to favor, in a
sense, oil which makes natural gas attractive to both
industrial users and other consumers of natural gas. Because of
that in the Annual Energy Outlook we have rising use of natural
gas by electric utilities, by industrial users and even in the
transportation area.
The Chair. OK.
Do you all have any final comments you'd like to make?
Thirty seconds closing each before we go to the second panel.
Mr. Sieminski. One of the--your questions, Senator, had to
do with, you know, finding oil.
Yes, I think it is pretty critical to drill. There are
about, I think, more than 100 rigs looking for oil and gas in
the Gulf of Mexico and there are no rigs drilling for oil in
the Atlantic right now. The history of the oil industry is that
you find more oil by drilling holes than you do with models and
geologic interpretation.
Mr. Cruickshank. I would just close by reiterating we look
forward to working with you on the development of the next 5
year program where areas in the Atlantic and really the entire
OCS is on the table for discussion right now. We'll see where
that decisionmaking takes us.
The Chair. Thank you.
We don't want to leave out Alaska. Unfortunately Alaska is
not on this chart. So we'll try to get something up for our
next hearing because that's a very important part of the
country.
Of course in Alaska people don't realize but it takes up
about half of the continent of the lower 48 basically. That's
how big Alaska is. It's--you have that map? Good. I thought you
might have brought it.
We should put up Alaska, not to leave Alaska out. They
would not be happy about that.
But they have most of the opportunities for offshore and,
you know, different temperature and climate issues,
particularly on the North of Alaska. South is more moderate.
But we'll talk about that later with some of the other
panelists.
Alright, thank you all very much. Appreciate your
testimony.
If the second panel will come forward?
Thank you very much.
Our second--and as they come forward I'll introduce them
for efficiency purposes.
First I'd like to welcome Mr. Kent Satterlee, III, Manager
of Regulatory Policy for Offshore, Upstream America at Shell
Exploration and Production Company. Shell is one of the largest
lease holders and producers on the U.S. Outer Continental Shelf
and a leader in Alaska production.
To be fully disclosed here, Kent is also my first cousin.
I'm very proud of Kent. So thank you, Kent, for joining us.
Next we have Mr. Joe Leimkuhler, lime cooler, Vice
President-Drilling of LLOG Exploration Company right here at
home. I understand that Mr. Leimkuhler has over 30 years of
industry experience in both onshore and offshore drilling.
Currently oversees drilling at one of the top companies
operating in the Gulf of Mexico.
Next we have--and please you all can be seated.
Next we have Mr. Court Ramsay, President and CEO of Aries
Marine Corporation. Mr. Ramsay brings over 20 years of
experience in the oil and gas marine industry. His company
Aries Marine operates a diverse fleet of self evaluating--self
elevating work boats and supply vessels in the Gulf of Mexico
working with both major and independent producers.
We have Mr. Oneil Malbrough, Executive Director of Coastal
Ports and Marine Environment and Infrastructure of CB and I,
one of the world's largest energy infrastructure companies with
a large presence in the Gulf of Mexico and a significant
corporate presence in Baton Rouge, Louisiana. We welcome you.
Finally Mr. Chett Chiasson, Executive Director of Port
Fourchon. As we all know Port Fourchon provides vital supplies
and services to the Gulf of Mexico offshore, deep water oil
platforms. It's truly a phenomenal and essential energy port
that does it all for the deep water. We look forward to hearing
from your comments, particularly about the infrastructure
challenges that affect our 5 year oil and gas plan for the
Nation.
So Mr. Satterlee, we will begin with you.
We ask you all to limit your remarks to 5 minutes as time
allows we'll have you be able to add. Of course, you can fill
in some of the things if you didn't get to say it in your time
in questions. We thank you very much.
You may have to lean into the microphone.
Thank you very much for the work that Shell does and for
your extraordinary commitment to this area, post Katrina and
Mercando.
STATEMENT OF KENT SATTERLEE, MANAGER, OFFSHORE REGULATORY
POLICY, SHELL EXPLORATION AND PRODUCTION COMPANY
Mr. Satterlee. Thank you, Madame Chair. Thank you for the
opportunity to testify today on behalf of Shell to examine OCS
production and what it means for our country. This hearing is
timely as both the Federal and State governments work to
address energy supply and demand, climate challenges and
continued economic recovery.
We live in a world facing significant increases in demand
globally. In order to meet the growing global energy demand the
U.S. needs access to more domestic oil and gas because we can't
continue to depend on foreign supplies when most of the
expected population growth is in other countries that are
competing with the U.S. for energy. The OCS offers a bountiful
resource, much of which is untapped.
U.S. domestic oil and gas production is up. That's good
news because energy from coal resources is down and renewable
energy, like wind and solar, is not expected to increase
appreciably according to the EIA. We have witnessed the
greatest energy expansion in the history of the world with our
U.S. onshore, unconventional gas. We have the ability to see a
similar expansion in supply from the offshore.
In 2013 the Gulf of Mexico produced 457 million barrels of
oil in condensate down from a record OCS oil production of 570
million barrels in 2009. Natural gas production in the Gulf of
Mexico is also down from a high of 5 trillion cubic feet in
2000 to just above one tcf in 2013. We can do better.
The BOEM estimates 88.6 billion barrels of oil and 398.4
trillion cubic feet of gas have yet to be discovered on the
U.S. OCS. A significant amount of those resources are located
in the Eastern Gulf of Mexico and in the Atlantic where they
remain off limits to oil and gas exploration and development.
According to the BOEM, 87 percent of offshore acreage is off
limits.
A 2011 study by Wood Mackenzie shows that developing these
off limit areas could create more than one million new jobs and
generate $127 billion in new government revenue by the year
2020.
Energy producers, including Shell, carefully evaluate when,
how and where they will invest in opportunities globally. As
you can see from the gap on the map, our neighbors to the north
and the south, moving forward developing their oil and gas
resources where safety, environmental protection and jobs and
revenue are equally important. With offshore access growing
across Canada, Mexico and Latin America, the U.S. risks losing
jobs, revenue and technology to other countries if we continue
to block further development. Competition for investments in
recent and upcoming bid rounds will widen this development gap.
Since Mercando the root cause cementing issues have been
addressed and a new industry standard. Other new and revised
standards address deep water wall construction, operator and
contractor management systems and blow out prevention
equipment. But we are confident that we can drill and produce
safely at deep water locations in the Gulf and elsewhere on the
OCS. Continuous improvement is our goal. We can never be
satisfied.
We need to act now though. We can start in 4 key areas.
No. 1, include today's off limit lease areas in the next 5
year plan so we can access and explore these significant
opportunities, particularly in the Eastern Gulf of Mexico and
in the Mid and South Atlantic margin.
In order to have new OCS access available for leasing
during this period it is crucial that Interior include these
areas in a Section 18 review and in their EIS. It must also
move quickly to approve seismic permits so that new resource
data can be collected. Seismic acquisition properly mitigated
causes no harm to marine animals.
No. 2, enact Federal revenue sharing legislation which
allocates bonus and royalty revenues to the those coastal
States with existing or planned offshore development. As you
have already done for the Gulf of Mexico and are seeking to
expand.
No. 3, adopt performance based regulatory oversight
programs.
The U.S. must improve the efficiency of its regulatory
system. As our regulatory regime continues to evolve we urge
you to work with Federal regulators to achieve regulatory
certainty for our industry. Permits to explore and develop must
be reasonable and issued expeditiously.
For example, over a year for an air permit from EPA to
drilling exploratory well in the Eastern Gulf of Mexico is not
reasonable.
Fourthly, recognize the benefits of America's oil and gas
resources and the opportunities that it brings all Americans,
not just those who work in our industry.
To achieve this our Federal Government must enact policies
that encourage investment here in the U.S.
The U.S. could sit on the sidelines and watch as
neighboring countries explore offshore opportunities or we can
work together toward a common goal safely, responsibly and
efficiently harnessing the benefits of our resources for our
country, for America's energy future.
Thank you very much.
[The prepared statement of Mr. Satterlee follows:]
Prepared Statement of Kent Satterlee, Manager, Offshore Regulatory
Policy, Shell Exploration and Production Company
Madame Chair and members of the Committee, thank you for the
opportunity to testify today of behalf of Shell Oil Company at this
hearing to examine Outer Continental Shelf (OCS) production and why it
is important for our country.
This hearing is timely as both the federal and state governments
work to address energy supply and demand, climate challenges, and
continued economic recovery.
Shell is an integrated oil and gas company, dedicated to meeting
ever-growing energy demands efficiently and responsibly. We are active
in more than 70 countries, and have a long history of deepwater
development. At Shell, safety, sustainability, innovative technologies,
and new, viable energy sources are essential. They are our business.
We live in a world facing significant increases in demand globally.
The US Census Bureau puts the world population at over 7 billion today
and estimates it to reach 8 billion by 2025 and 9 billion by 2040.
Energy consumption to provide for the needs of these people is expected
to increase 56 percent by 2040. In order to meet growing, global energy
demand, the U.S. needs access to more domestic oil and gas because we
can't continue to depend on foreign supplies when most of the expected
population growth is in other countries that are competing with the
U.S. for energy. The OCS offers a bountiful resource, much of which is
untapped.
U.S. domestic oil and gas production is up. That's good news,
because energy from coal resources is down; and renewable energy, like
wind and solar, is not expected to increase appreciably, according to
the EIA. We have witnessed the greatest energy expansion in the history
of the world with our U.S. onshore unconventional gas, and we have the
ability to see a similar expansion in supply from the offshore. The
Bureau of Ocean Exploration and Management (BOEM) estimates 88.6
billion barrels of oil and 398.4 trillion cubic feet of gas have yet to
be discovered on the U.S. OCS. In 2013, the Gulf of Mexico produced 457
million barrels of oil and condensate, down from a record OCS oil
production of 570 million in 2009. Natural gas production in the Gulf
of Mexico is also down from a high of 5 trillion cubic feet in 2000 to
just above 1 TCF in 2013.
And a significant amount of those resources are located in the
eastern Gulf of Mexico and in the Atlantic-where they remain ``off
limits'' to oil and gas exploration and development. According to the
BOEM, 87 percent of offshore acreage is ``off limits''.
A 2011 study by Wood Mackenzie shows that developing these ``off
limit areas'' could:
Create more than 1 million new jobs; and
Generate $127 billion in new government revenue by 2020.
According to Interior's analyses, conducted pursuant to Section 18
of the OCS Lands Act, it is estimated that over $1 trillion in net
economic value is associated with development of the GOM over the past
20 years. Studies of employment benefits estimate that over 150,000
direct jobs are associated with GOM federal offshore development. In
addition, there are ``multiplier'' effects which extend to virtually
all of the 50 states. The Federal government has collected over a $150
billion in revenues.
While official DOI resource assessments in the 1980's heavily
discounted any possibility of significant resource potential in the
deepwater GOM, exploration results proved otherwise. Our industry has
continued to find new reserves and has successfully developed the
technology to recover them. Energy producers, including Shell,
carefully evaluate when, how and where they invest in opportunities
globally.
As you can see from the gap on the map, our neighbors to the north
and south are moving forward, developing their oil and gas resources--
where safety, environmental protection, jobs and revenue are equally
important. With offshore access growing across Canada, Mexico and Latin
America, the U.S. risks losing jobs, revenue and technology to other
countries if we continue to block development. Competition for
investments in recent and upcoming bid rounds will widen this
development gap.
Shell's experience in the Gulf of Mexico and elsewhere around the
world shows that we can produce oil and gas safely and efficiently, and
our technology is helping us produce more with a smaller environmental
footprint. In the Gulf of Mexico, Shell currently operates seven major
floating offshore facilities, 12 fixed structure platforms, numerous
subsea production systems; and we have under contract one of the
largest drilling rig fleets.
Shell urges you to support the 5-year planning process and the
unanimous inclusion of all of the ``off limit'' lease areas, so we can
access and explore these significant opportunities. Our interest is in
all areas currently open for leasing in the Gulf of Mexico and offshore
Alaska, but also exploration in new areas where the true potential of
the resource is unknown, particularly in the Mid- and South-Atlantic as
well as the Eastern Gulf of Mexico.
We can safely, responsibly and effectively harness the economic
benefits of our domestic oil and gas resources for our country's gain.
Shell, and the industry, recognizes the need to explore for and produce
natural resources in a safe and environmentally sound manner. Post-
Macondo, we all worked together-- operators, regulators, government
officials, community members and others to further improve and move
forward to deliver much needed energy from the Gulf of Mexico.
We have seen safety standards implemented and we've seen step-
changes in prevention, intervention and response--thanks to advances in
technologies and utilization-all contributing to improved safety of
offshore exploration. In the weeks and months following the incident,
new government regulations were put in place. New and revised industry
standards were developed. Also, the Marine Well Containment Company is
up and running. Shell was a founding member of this industry consortium
that developed and maintains a containment system for underwater well-
control responses. The Center for Offshore Safety, which helps
companies thoroughly and objectively audit safety and environmental
management systems, is in full operation. And perhaps the most recent
example of partnering, innovating and utilizing technology is Marine
Vibroseis, where Total, Exxon and Shell are working together to use low
frequency vibration technology to minimize underwater noise during
seismic surveys. Shell is proud to have been involved in all of these
game-changing initiatives.
Deepwater development has been remarkably successful, not only from
an energy production standpoint, but also from a safety standpoint. For
the past 18 years, the MMS (now BSEE) has required Deepwater Operations
Plans (DWOPs). The DWOP process is a flexible, goal-setting regulatory
approach that has facilitated deepwater development and enhanced
safety. DWOPs assess risks, barriers, and operational controls for all
deepwater projects. Through 2013, 1271 DWOPs had been approved for 410
projects. 5.2 billion barrels of oil and condensate and 17 tcf have
been produced from these projects without a major safety incident.
Since Macondo, the root cause cementing issues have been addressed
in a new industry regulatory standard. Other new or revised standards
address deepwater well construction, operator and contractor management
systems, and blowout prevention equipment. BSEE participates in the
standards committees. While we are confident that we can drill and
produce safely at deepwater locations in the Gulf and elsewhere on the
OCS, continuous improvement is our goal and we can never be satisfied.
We need to act now, and we can start in 4 key areas:
1) Include--today's ``off limit'' lease areas in the next 5-
year plan, so we can access and explore these significant
opportunities, particularly in the Eastern Gulf of Mexico and
the Mid-and Southern Atlantic margin. The Interior Department
has just initiated its 2017-2022 leasing plan and is accepting
public comments. In order to have new OCS areas available for
leasing during this period, it is crucial that Interior include
these areas in its Section 18 review and EIS. It must also move
to quickly approve seismic permits so that new resource data
can be collected. Seismic acquisition, properly mitigated,
causes no harm to marine animals.
2) Enact--Federal Revenue Sharing legislation which allocates
bonus and royalty revenues to those coastal states with
existing or planned offshore development, as you have already
done in the Gulf of Mexico and are seeking to expand.
3) Adopt--performance-based regulatory oversight programs.
The U.S. must improve the efficiency of the regulatory system.
Federal agencies need to work together and be adequately
funded. As our regulatory regime continues to evolve, we urge
you to work with Federal regulators to achieve regulatory
certainty for our industry. Permits to explore and develop must
be reasonable and issued expeditiously. For example, over a
year for an air permit from EPA to drill an exploratory well in
the Eastern Gulf is not reasonable. With performance-based
regulation and a productive collaboration between government,
industry and other stakeholders, we can address concerns and
move forward. We must gather the necessary science that shows
that offshore development can proceed without compromising our
environment. Our regulatory system has not kept pace with the
technological advancements of ultra-deep water and frontier
areas, like the Arctic. The U.S. has not kept pace with other
countries in moving toward performance-based systems and risks
falling behind.
4) Recognize--the benefits of America's oil and gas resources
and the opportunities it brings to all Americans, not just
those that work in our industry. The jobs created extend to
most every sector of our economy, and affordable energy enables
us live comfortably and invest in our economy. To achieve this,
our Federal government must enact policies that encourage
investment here in the U.S. and not export it to other
countries.
Producing more oil and gas in our own country is a ``win-win''
proposition. It provides real economic and security benefits. With
increased domestic production, less money is exported from the U.S.,
more money is invested here and federal revenues increase through
royalties and taxes. This can be done in a way that provides
appropriate environmental protections based on solid science.
The U.S. could sit on the sidelines, and watch as neighboring
countries explore offshore opportunities, or we can work together,
toward a common goal of safely, responsibly and efficiently harnessing
the benefits of our resources for our country- for America's energy
future.
The Chair. Thank you very much, Mr. Satterlee.
Mr. Leimkuhler.
STATEMENT OF JOSEPH LEIMKUHLER, VICE PRESIDENT-DRILLING,
LLOG EXPLORATION COMPANY, L.L.C.
Mr. Leimkuhler. I also have some slides to cover so let me
just put these windows up.
Madame Chair, thank you for inviting me to testify today on
behalf of LLOG Exploration Company. LLOG welcomes this
opportunity to provide what we see as the opportunities and
challenges to further development of the Nation's resource in
the Outer Continental Shelf. My goal is to provide you with a
snapshot of our current operations, how those operations are
conducted within the regulatory processes and what we see as
improvement areas.
First, a little overview of LLOG.
I won't go over all of our history. I'll leave it there for
you to look at. Unlike a super, major, LLOG being an
independent we are the largest, privately owned oil producer in
the OCS. As a private company, unlike a super, major, we target
our areas in specific niches within the Gulf of Mexico. So the
expertise and capability bring to the areas we target is indeed
state-of-the-art.
I'll leave you with two main points on our background.
Safety.
At LLOG, safety is a core value. Priorities may change, but
safety does not. In recognition of that value is LLOG being
awarded the SOAR Award for Safe Operations and Accurate
Reporting in 2008, the last year the award was made.
In terms of scope, we have 16 deep water developments to
date with 8 fields in the OCS currently under development.
The core work for us centers around subsidy developments
tied into floating offshore, deepwater platforms. We are the
only private company to utilize this tool in the world. We use
standardized well designs and standardized platform designs to
be able to respond quickly to take advantage of the
opportunities that the OCS provides.
We have never drilled an expendable well.
If we find oil in commercial quantities we have always
found a way to produce it. We design our wells to production
quality specifications so we can quickly turn our discoveries
to producers as efficiently as any operator in the OCS.
However, we operate within the same leasing framework. I'm
not going to go over all of these processes. I only have 5
minutes.
But I did want to point out some areas specifically where
LLOG feels that improvements can be made to help us improve our
operations in the Gulf of Mexico. As Kent Satterlee mentioned
first of the air permits required. The Clean Air Act actually
divides the jurisdiction of air permits in the Gulf of Mexico
into two regions. They are not aligned with the leasing
planning areas of the Gulf of Mexico.
So the first request from LLOG is that if we could have the
planning for the air permits lined with at least the operating
areas. Our preference would be to have BOEM manage all air
permit approval for all drilling operations and production
operations in the OCS. But in light of that it would be a big
help to at least get it lined up with the planning areas.
As you can see in the western central--eastern central Gulf
of Mexico, the EPA jurisdiction out of Atlanta and Kent already
mentioned that takes a year to get that permit. The permit is
also rig specific. So you have to know what rig you're going to
have to contract a year in advance.
The Chair. That doesn't make any sense.
Mr. Leimkuhler. So we are applying for those permits. We're
moving forward to develop the leases that LLOG has in that
area, but it would make a lot more sense and be more efficient
for us. We feel it can be done with no impact to compliance
with the Clean Air Act.
The second issue that we find is dealing with our--with the
actual capability of the regulatory agencies to process and
permit our approvals. I've worked my entire career offshore
since 1987 in the deep water Gulf of Mexico and the technical
professionals and regional management at the MMS, what was the
MMS, BOEM and BSEE that I have worked with over that time were
and are consistently professional, capable and dedicated. We
just need more of them.
We continue to receive our well related permits, drilling,
as well as completion just in time. This is not due to a lack
of effort by the BSEE and BOEM staff, but rather an
understaffed situation despite the best efforts of BSEE and
BOEM district and regional management to obtain and recruit
talent. The overall approval cycle could be improved with
increase in agency capability.
We're finding that the more knowledgeable staff are
retiring which leaves the current staff shorthanded and
overworked. Not to mention the lack of experience among the
understaffed. This is part of the larger big crew change. It's
a challenge not only for industry, but also BSEE's district
managers and BOEM's regional supervisors. Because of the
situation permits are being approved with a short window prior
to commencement of operations which makes it difficult for us
to conduct operations that require long lead time for planning
and sequential approvals.
So in conclusion of this statement, additional capable
agency staff equals additional permit approvals, additional
production revenue and additional economic development.
Third is the comingling approval process. LLOG strives to
make all the wells we drill commercial by using smart well
technology to open up multiple zones and adjacent surface
reservoirs within the same well.
To make our project economically viable we normally request
to comingle our down hole production from these zones. Our deep
water rigs often drill development wells in subsea fields where
the completion of the well immediately follows the drilling
process. As long as Mother Nature cooperates and we find the
reservoirs in the expected locations and depths we can file for
our comingling approvals in plenty of time.
However, we often find our zones do not come in as
expected. We need to either file for an initial comingling
permit or modify an existing permit. With a rig on location
consuming over a million dollars a day in capital we need to
evaluate the ability and likelihood to obtain a comingling
permit approval verses the potential impact of costly delays to
project profitability. Under such conditions even the
expectation of delays make some zones uneconomic and thus
reserves are being lost.
Additional improvement opportunities related to operations
are in the areas of containment response and the impact of
rigid application of the Jones Act to offshore facility
installation. In containment response those needs are met by
two providers, the Marine Well Containment Corporation and the
Helix Well Containment Group. Both are very capable
organizations that together provide a diversity of suppliers,
operator expertise and response capabilities. This diversity of
response should be encouraged and continued.
However, in LLOG's view this response capability is at risk
of being compromised if responder immunity is not improved. We
urge the passage of the proposed amendment covering improved
responder immunity.
With respect to heavy lifts associated with offshore
facility installations in the Jones Act, LLOG encourages the
Coast Guard and regulatory agencies to adhere to the historical
application of the law with respect to transport vessels.
Current rigid application of the Jones Act to heavy lift
vessels for the minimal distances that those vessels move the
suspended load for offshore installation has resulted in
increased lift complexity, scope and added risk.
In addition, LLOG feels that continued application of the
Jones Act to heavy lift vessels has the potential to transfer
the work away from Gulf Coast Fabrication yards.
With regard to the management of Plug and Abandonment
liabilities, it is LLOG's understanding that revisions to the
supplemental bonding requirements are to be released in an
upcoming notice to leasees or NTO. LLOG requests that serious
consideration be given to the scope of the proposed changes. If
the changes are more than a refinement or clarification of the
existing regulations than the rulemaking process should be
followed.
Finally with regard to the regulators and operator
interface we would like the Department of Interior to perform
an after action review of the allocation of work scope between
BOEM and BSEE. LLOG understands and supports the split of the
revenue function to BOEM and the operational enforcement rule
to BSEE. However in LLOG's view the full permitting and plan
approval function, after the lease sale, through the full
operational cycle should fall to BSEE.
Thank you for the opportunity to present the views of LLOG
and myself on these issues. Safe, efficient production and use
of our Nation's resources on the OCS is good for LLOG, good for
Louisiana, good for Gulf Coast and good for the Nation.
[The prepared statement of Mr. Leimkuhler follows:]
Prepared Statement of Joseph Leimkuhler, Vice President-Drilling, LLOG
Exploration Company, LLC
Madame Chair and members of the Committee, thank you for inviting
me to testify today on behalf LLOG Exploration Company. LLOG welcomes
this opportunity to provide what we see as the opportunities and
challenges to further development of the nation's resources in the
Outer Continental Shelf (OCS). My goal is to provide you a snapshot of
LLOG's current operations, how those operations are conducted within
the regulatory processes of the Gulf of Mexico, and what we see as
improvement opportunities.
LLOG is one of the largest privately owned oil & gas firms in the
country and is the largest private oil producer in the offshore US OCS.
Our focus is the US Gulf of Mexico where we apply a targeted approach
using floating production systems and subsea wells to safely and
efficiently develop the nation's deepwater oil and gas resources.
Unlike a Super Major our areas of focus is quite limited, however
the level of expertise and capability we bring to those areas is state
of the art. I'll leave the LLOG company background info on this slide
for your reference, but wish to highlight two main points:
Safety--At LLOG we hold safety as a core value--priorities may
change but values do not. Recognition of that value is LLOG being
awarded the SOAR award in 2008.
Scope--we have 16 deepwater developments to date with 8 fields in
the OCS currently under development.
The core work for LLOG is the exploration of our leases in the Gulf
of Mexico (GOM) utilizing standardized well designs to efficiently
explore, followed by field development utilizing subsea production
flowline systems that flow back to a central floating production
platform. Utilizing these tools LLOG is able to construct viable
economic subsea projects from multiple discoveries safely and
efficiently. In our history we have yet to drill an ``expendable
well''--if the oil and gas are present in commercial quantities we have
been able to eventually produce the well. LLOG designs our wells to
production quality specifications such that we can turn our discoveries
to producers safely and efficiently as any operator in the OCS.
How that process plays out within the regulatory framework is shown
using a Simplified Permit Process Overview for a Subsea Well Tie in.
Depending on where a subsea well is drilled in the GOM from 9-11
permits or plan approvals are needed to move a prospect from leasingto
production. Those permits and plan approvals are split between BOEM
(red text) and BSEE (blue text) and for the eastern Statement of Joseph
Leimkuhler Vice--President--Drilling LLOG Exploration Company LLC to
the U.S. Senate Committee on Energy and Natural Resources Monday, July
7, 2014 July 5th, 2014 2 portion of the central gulf planning area the
EPA (bold black text). I do not have time to cover all these approvals
but wish to highlight three where LLOG feels there are improvement
opportunities and address other issues not indicated on this process
diagram.
First is the air permits required to be compliant with the Clean
Air Act (CAA). [Show Slide 6] For wells drilled in the OCS in the
Western Planning area the CAA compliance is incorporated into the
Exploration Plan approval process required by BOEM. This also applies
to the majority of wells drilled in the Central GOM Planning Area with
the exception of the Eastern portion of the Central Planning Area where
EPA jurisdiction applies. The EPA air permit approval process and
protocol is quite different from the BOEM protocol and takes from 12-18
months to secure. This EPA permit is actually individual rig specific
versus rig type specific in the BOEM protocol and in our view adds
operational complexity and delays with no actual benefit relative to
CAA compliance. LLOG urges you to allow BOEM to assume CAA compliance
across the GOM and at a minimum allow BOEM to administer CAA compliance
for the western and central planning areas.
Second is the APD or drilling permit approval process. I have
worked my entire offshore career since 1987 in the Deepwater Gulf of
Mexico and the technical professionals and Regional Management at the
MMS, BOEM and BSEE that I have worked with over that time were and are
consistently professional, capable and dedicated . . . we just need
more of them.
We continue to receive our well related permits (drilling and well
as completion and workover) just in time. This is not due to a lack of
effort by the BSEE and BOEM staff, but rather an understaffed
situation, despite the best efforts of BSEE and BOEM district and
regional management to retain and recruit talent. The overall approval
cycle could be improved with an increase in agency capability.
We are finding that the more knowledgeable staff are
retiring which leaves the current staff short-handed, and
overworked, not to mention the lack of experience among the
younger staff. This is part of the larger ``Big Crew Change''
and is a challenge not only for industry but also for BSEE's
District Managers and BOEM's Regional Supervisors. Because of
this situation, permits are being approved with a short window
prior to commencement of operations, which makes it difficult
for operators to conduct operations that require a long lead
time for planning and sequential approvals.
In our opinion funding should not be an issue. Given the
amount of fees charged for permitting we feel the financial
resources are available. This year alone, LLOG has paid
$431,507 to date in permit fees for DOCDs, EPs, APDs, APMs,
Pipeline, Facility permits and rig inspection fees. With our
current anticipated workload, LLOG will spend close to $1MM
this year in permitting fees. This does not include the
revenues paid to the federal agencies from Lease Sales,
Bonuses, nor revenue from Royalties. Can this revenue stream be
focused on staff retention, recruiting and capabilities within
the agencies?
Additional capable agency staff=additional permit approvals,
additional production revenue & additional economic development.
Third is the comingling approval process. LLOG strives to make all
the wells we drill commercial by utilizing smart well technology to
open up multiple zones in adjacent subsurface reservoirs within the
same well. To make such projects economically viable we normally
request to comingle dowhhole the production form those zones. Our
deepwater rigs often drill development wells in subsea fields where the
completion and subsequent production from the wells immediately follows
the drilling and casing of the well in a continuous operation. As long
as mother nature cooperates and we find the reservoirs in the expected
location and depth, we can file for our commingling permit with plenty
of time for approval. However, we often find zones that do not come in
as expected and we need to either file for an initial commingling
permit or modify an existing permit. With a rig on location consuming
over $1 million a day in capital we need to evaluate the ability and
likelihood to obtain comingling permit approval versus the impact of
costly delays to the project profitability. Under such conditions even
the expectation of delays makes some zones uneconomic, thus reserves
are being lost.
Additional improvement opportunities related to operations are in
the areas of Containment Response and the impact of rigid application
of the Jones Act to offshore facility installation.
In containment response those needs are met by two providers the
Marine Well Containment Corporation or MWCC and the Helix Well
Containment Group (HWCG). Both are very capable organizations that
together provide a diversity of suppliers, operator expertise, and
response capabilities--this diversity of response should be encouraged
and continued. However, in LLOG's view this response capability is at
risk of being compromised if Responder Immunity is not improved. We
urge the passage of the proposed amendment covering improved Responder
Immunity.
With respect to heavy lifts associated with offshore facilities
installations and the Jones Act. LLOG encourages the USCG and
regulatory agencies to adhere to the historical application of the law
with respect to transport vessels. Current rigid application of the
Jones Act to heavy lift vessels for the minimal distances that these
vessels move the suspended load (in most cases hundreds of feet or
less) is resulting in increased lift complexity and scope and adding
risk. In addition LLOG feels continued application of the Jones Act to
heavy lift vessels has the potential to transfer work away from Gulf
Coast Fabrication yards.
With regard to the management of Plug and Abandonment liabilities--
it is LLOG's understanding that revisions to the supplemental bonding
requirements are to be released in an upcoming Notice to Lessee or NTL.
LLOG requests that serious consideration be given to the scope of the
proposed changes. If the changes are more than a refinement or
clarification of the existing regulations then the rule making process
should be followed.
Finally with regard to the Regulators and Operator Interface--we
would like the Dept. of Interior to perform a AAR--an After Action
Review--of the allocation of work scope between BOEM and BSEE. LLOG
understands and supports the split of the revenue function to BOEM and
the operational enforcement role to BSEE. However, in LLOG's view the
full permitting and plan approval function after the lease sale through
the full operational cycle should fall to BSEE.
Thank you for the opportunity to present the views of LLOG and
myself on these issues. Safe, efficient production and use of our
nation's resources from the OCS is good for LLOG, Louisiana, the Gulf
Coast and the Nation.
The Chair. Thank you very much.
Mr. Ramsay.
STATEMENT OF COURT RAMSAY, PRESIDENT, ARIES MARINE CORPORATION
Mr. Ramsay. Good afternoon.
Thank you, Madame Chair, for the opportunity to participate
in today's hearing on OCS production. My name is Court Ramsay.
I'm the President of Aries Marine Corporation, an offshore
marine service company here in Lafayette.
Aries Marine was founded in 1981, employs over 300 people
and operates a fleet of 24 vessels.
Fifteen are self elevating work platforms, known as lift
boats or jack ups and they're used in platform maintenance and
repair.
The other 9 vessels are supply boats that deliver the
various equipment, drilling mud and commodities to the drilling
platforms.
Aries, in addition, has another 5 boats under construction,
4 of which are being built here in Louisiana.
Our fleet is part of a robust offshore support vessel
industry that was born in South Louisiana and currently
includes approximately 1800 work boats flying the U.S. flag.
The vessels support the entire life cycle of an offshore oil
and gas well. From the beginning in seismic work all the way to
the end of decommissioning and plug and abandonment, the work
boats are part of this valid and necessary infrastructure.
We're in the middle of a boat building boom. The energy
renaissance in North America has kick started the largest ship
building boom in over 3 decades. Seven hundred and fourty-five
vessels are currently on order, under construction or have been
recently delivered in the United States.
Some of those are product carriers.
Some of those are also offshore work boats.
Those product carriers would be hauling crude and fine
crude to regions outside the Gulf Coast and the shipyards will
be building OSVs to the tune of 111 contracted since 2013.
We're actually a net exporter of offshore support vessels
currently.
The Gulf of Mexico outlook is great. Interest in the U.S.
Gulf has continued to strengthen over the last several years,
especially in the deep water. There is an increase year after
year of rigs working on our OCS.
The Department of Interior also held a lease sale in March
for 329 Gulf tracks that brought in over $872 million in high
bids.
The impact on Louisiana.
The growth in shipbuilding and the offshore exploration and
production is particularly beneficial to our State. It not only
employs the people in the energy sector, but it also leads the
Nation in domestic maritime jobs and ranks third in
shipbuilding jobs.
Some new frontiers.
Opportunities to open additional areas in Alaska and the
Mid Atlantic to offshore development of fossil fuels could spur
significant job growth and economic activity as will wind
projects off the coast of Massachusetts, Rhode Island,
Delaware, Maryland, Virginia. In order to take advantage of
these opportunities though, it's imperative that the Department
of Interior move forward with planned lease sales and expedite
the applications for drilling permits.
Some challenges.
Despite the growth of the offshore marine industry a deluge
of regulatory requirements from Washington is threatening that
growth. Domestic offshore vessel companies have become
collateral damage in the aftermath of the Deep Water Horizon
incident and are subject to multiple overlapping and
duplicative safety and environmental regimes and regulations.
One example.
Just last year the Coast Guard announced plans to require
all vessels operating on the OCS to implement vessel specific
safety environmental management systems, also known as SEMS
plans. But vessel operators already comply with safety
management and systems mandated by another Federal agency, the
Bureau of Safety Environmental Enforcement. Our customers, the
operators, are required to ensure that all contractors have
safety policies and procedures in place to support the
implementation of the operator safety management system.
Believe me, there are regular and consistent contractor
audits undertaken to ensure that the contractors are in
compliance with the operator's plans. This new proposed Coast
Guard regulation will create 2 different safety plans for a
single OCS operation by two different regulatory agencies. This
makes this proposal not only duplicative, but potentially
contradictory and dangerous.
Training requirements continue to rise. Our industry is
also the subject of increase and then sometimes excessive
training requirements for the crew members which cost the boat
operators significant amounts of time and money and represent a
real barrier to recruitment.
The overall impact of regulations.
The offshore marine industry believes strongly in promoting
a culture of safety and environmental stewardship and instills
those values on each and every one of our crew members. For
years now the U.S. work boat industry has had a stellar safety
record, but OSVs operating in the Gulf of Mexico today travel
with bookshelves that are continuously loaded down with
additional rows of plans, procedures, manuals required by
multiple Federal agencies. They are continuing to overlap
regulation upon regulation in the offshore environment. This
trend not only makes compliance costly and difficult, it
threatens to put family owned boat companies out of business
and shift the focus toward paperwork instead of safe
operations.
The Chair. Thirty seconds.
30 seconds, if you can try to wrap up.
Mr. Ramsay. In closing I'll give you some information about
my company that I'm especially proud of.
We have a loyal and dedicated work force of some of the
greatest Americans alive. Over 300 employees work for Aries
Marine and enjoy salaries that can support a family along with
rich benefits, medical insurance, supplemental insurance and
401K retirement plans. It's a great package in any industry.
But the phenomenal thing is we provide the family's medical
benefits too. Through Aries Marine over 900 people enjoy the
comforts of medical insurance. That's what this industry does
for America in this region. That's what this industry can do
for America and other regions.
Thank you for this opportunity. I'd be happy to answer any
questions you have.
[The prepared statement of Mr. Ramsay follows:]
Prepared Statement of Court Ramsay, President, Aries Marine Corporation
Introduction
Thank you, Madam Chair, for the opportunity to participate in
today's hearing on OCS production.
My name is Court Ramsay, and I am the President of Aries Marine
Corporation, an offshore marine service company headquartered in
Lafayette. Aries Marine was founded in 1981, employs over 300 people,
and operates a fleet of 24 vessels. 15 of those are self-elevating work
platforms, also known as liftboats or jackups, which are used for
platform maintenance and repair, workover operations, pipeline repairs,
well hookups, rig tending, and salvage operations. The other 9 vessels
are supply boats that deliver equipment, drilling mud, and other
commodities to offshore drilling and production operations in both
shallow and deep water. Aries has another 5 boats on order right now,
and has performed work for every major and most of the independent oil
and gas companies in the Gulf of Mexico, as well as on the west coast,
Alaska, and Hawaii.
The Aries Marine fleet is part of a robust offshore support vessel
industry that was born in South Louisiana and currently includes
approximately 1,800 workboats flying the U.S. flag. These vessels
support the entire life cycle of an offshore oil and gas well--
conducting seismic surveys, drilling test wells, towing and installing
production platforms, laying pipelines, providing dive support,
transporting workers, fuel, and equipment, and facilitating the
decommissioning of platforms and the plugging and abandonment of wells.
America's offshore workboat fleet is a critical part of this nation's
energy infrastructure, and we are proud as a company and an industry to
support the development of natural resources in the Gulf of Mexico and
elsewhere.
Opportunities
Boatbuilding Boom
The energy renaissance in North America has kick-started the
largest shipbuilding boom in over three decades. 745 vessels are
currently on order, under construction, or have been recently delivered
in the United States. That includes 17 large product tankers and 8
coastal tank barges. In addition to those, 336 inland tank barges were
delivered last year, breaking the previous record of 261 established in
2012. These vessels will facilitate increased shipping of traditional
heavy and non-traditional light, sweet crude to refineries outside the
Gulf region. In addition to product carriers, U.S. shipyards are also
building more offshore support vessels, entering into 111 contracts in
2013 for new builds. The United States is now a net exporter of
offshore support vessels as the industry tallied half a billion dollars
in export revenues just last year.
Gulf of Mexico Outlook
Interest in the U.S. Gulf has continued to strengthen over the last
several years, especially in deepwater. There are now 36 active rigs in
the Gulf, up from 33 last year, and the Department of Interior held a
lease sale in March for 329 Gulf tracts that brought in over $872
million in high bids.
Impact on Louisiana
The growth in shipbuilding and offshore exploration and production
is particularly beneficial to Louisiana, which not only employs people
in the energy sector, but also leads the nation in domestic maritime
jobs and ranks third in shipbuilding jobs. Many of the product carriers
and offshore support vessels that I mentioned are being built in
Louisiana yards, by Louisiana workers, and a big chunk of those OSVs
will eventually be delivered to Louisiana operators, and crewed by
Louisiana mariners.
New Frontiers
Opportunities to open additional areas in Alaska and the mid-
Atlantic to offshore development of fossil fuels could spur significant
job growth and economic activity, as will wind projects off the coast
of Massachusetts, Rhode Island, Delaware, Maryland, and Virginia. In
order to take advantage of these opportunities though, it's imperative
that the Department of Interior move forward with planned lease sales
and expedite applications for drilling permits.
Challenges
Regulatory Environment
Despite robust growth in the offshore marine industry and
opportunity on the horizon, the deluge of regulatory requirements from
Washington is threatening that growth. Domestic offshore vessel
companies have become collateral damage in the aftermath of the
DEEPWATER HORIZON incident and the subject of multiple, overlapping,
and duplicative safety and environmental regimes and regulations.
SEMS
For example, late last year the Coast Guard announced plans to
require all vessels operating on the OCS to implement vessel-specific
Safety and Environmental Management Systems (also known as SEMS) plans.
But vessel operators already comply with Safety Management Systems
mandated by another federal agency, the Bureau of Safety and
Environmental Enforcement (BSEE), for all OCS lessees and their vessel
contractors. Operators are required to ensure that all contractors and
sub-contractors have safety policies and procedures in place that
support the implementation of the operator's safety management system.
There are regular and consistent contractor audits undertaken by
operators to ensure compliance with the BSEE SEMS mandates and good
industry practice. This proposed Coast Guard regulation will create two
different safety plans for a single OCS operation by two different
regulatory agencies, which makes this proposal not only duplicative,
but potentially contradictory and dangerous.
Other Vessel Requirements
These vessels are also required to carry a Vessel General Permit
(VGP) regulated by the Environmental Protection Agency (EPA), meet
emission standards, abide by procedures for ballast water discharge,
update marine safety manuals, conduct lifesaving and firefighting
drills, undergo annual inspections, and keep up with new versions of
these various requirements including equipment mandates and retrofits.
Training Requirements
Our industry is also the subject of increasing and sometime
excessive training requirements for crewmembers, which cost boat
operators significant amounts of time and money and represent a barrier
to recruitment. The Coast Guard published regulations on Christmas Eve
last year that amended the Standards of Training, Certification, and
Watchkeeping (STCW), requiring additional sea service time for crew
members aboard OSVs, medical certificates, and numerous other changes.
Overall Impact of Regulations
The offshore marine industry believes strongly in promoting a
culture of safety and environmental responsibility and instills those
values into each and every crewmember. For years now the U.S. workboat
industry has had a stellar safety record, but OSVs operating in the
Gulf of Mexico travel with bookshelves that are continuously loaded
down with additional rows of plans, procedures, and manuals required by
multiple federal agencies. They are continuing to overlap regulation
upon regulation in the offshore environment. This trend not only makes
compliance costly and difficult, it threatens to put family-owned boat
companies out of business and shift the focus toward paperwork instead
of safe operations, which will actually reduce safety instead of
improving it.
Workforce Development
Another significant challenge we are facing on the marine service
side is workforce development. Although the Gulf region has a very
skilled industrial workforce, it's an aging one, and we are struggling
to feed the pipeline. The average age of a welder in U.S. shipyards is
55. Given the aging mariner and shipyard workforce, increased funding
and utilization of Department of Labor grants for training,
advancement, and retention is needed, such as the State of Louisiana's
Incumbent Worker program. Vessel operators are having a tough time
recruiting new talent, and it's a shame because these are good paying,
steady jobs that give students straight out of high school a chance to
earn upward of 50, 60, or even 100 thousand dollars within 4 or 5
years.
Partnering with technical and community colleges is important, but
we need to do more. We need to get into the elementary schools and the
high schools and explain the incredible economic potential of these
industrial jobs. Not all of our high schools should be college
preparatory schools. We need to introduce trade skills into the
curriculum on a wider basis and give kids the option to attend full-
time trade schools if they choose. Coastal Louisiana parishes enjoy
some of the lowest unemployment rates in the country, but the maritime
industry is still struggling to fill positions. High-paying jobs aren't
being filled because not enough children are exposed to industry
opportunities in the local economy or given a chance to attain skills
to succeed in that industry. We need deckhands and welders, but we need
engineers too, and science, technology, engineering, and math (STEM)
programs at all age levels in this region of the country should also
expose students more regularly to the offshore energy and marine
industries that anchor South Louisiana's economy.
Conclusion
In closing, I'll give you some information about my company that I
am especially proud of. We have a loyal and dedicated workforce of some
of the greatest Americans alive. Over 300 employees work for Aries
Marine and they enjoy salaries that can support a family along with
rich benefits of medical insurance, supplemental insurance, and a 401K
retirement savings account. A great package in any industry but the
phenomenal thing is we provide the families medical benefits, too.
Through Aries Marine over 900 people enjoy the comforts of medical
insurance. That's what this industry does for America.
Thank you again for the opportunity to share my perspective on some
of the opportunities and challenges faced by the offshore marine
industry. I'd be happy to answer any questions.
The Chair. Thank you, Mr. Ramsay. Excellent.
Mr. Malbrough.
STATEMENT OF ONEIL MALBROUGH, CB&I, DIRECTOR OF COASTAL, PORTS
AND MARINE, ENVIRONMENT AND INFRASTRUCTURE
Mr. Malbrough. First I'd like to thank you, Madame Chair,
for allowing me to speak at this hearing and to talk about a
critical issue that our local, coastal energy ports have been
wrestling with for more than a decade. My name is Oneil
Malbrough. I'm the Director of the Coastal, Ports and Marine
Group for CB and I.
The Coastal Ports and Marine Group is the engineering and
construction management group for CBI that specializes in
engineering and design of ports, channels, port infrastructure
and marine towns.
The presentation I will make today is centered on the
opportunities and challenges that are currently occurring to a
group of ports in Louisiana we call the Coastal Energy Ports.
These ports are very unique in that they do not ship
containers, corn, steel or ore, but what they do ship is
personnel, supplies, platforms, equipment and numerous other
sophisticated and complex machinery components to and from the
offshore drilling rigs and production platforms in the Gulf. To
be more precise, these energy ports facilitate the day to day
operations of a multibillion dollar industry by delivering the
necessary supplies and equipment needed to explore, drill and
produce a large percentage of our oil and gas consumed by our
Nation.
Just to detail the magnitude of the type of infrastructure
I'm talking about these floating and fixed structures are
comparable to thousands of small cities scattered across the
thousands of square miles of the Gulf of Mexico which require
daily support from these land base facilities.
The oil and gas industry in the Gulf of Mexico started in
the 1940s in the shallow waters along our coast. In the
following few decades the industry continued to move farther
and farther out on the shelf. As you are well aware has
expanded into waters over 10,000 feet deep and 100 plus miles
offshore.
As the drilling rigs and production platforms move farther
and farther, the size and weight of the equipment required to
explore, drill, fabricate and install and produce for our
Nation so critically depends on, keeps getting bigger and
bigger.
The first slide I will share with you today depicts the
different types of production facilities that the industry has
used in the Gulf over the past 60 years. As you can see
everything is getting bigger and bigger. Unfortunately as this
oil and gas infrastructure has grown in size and weight, our
ports, more specifically the coastal energy ports, have not
been able to keep up primarily due to the insufficient water
depths that navigate to and from as well as within the ports.
I would like to emphasize that in the 1950s, 1960s and
1970s, almost every piece of iron floating and working in the
Gulf of Mexico was built and serviced by the ports along the
Gulf Coast. However today, industry experts will tell you that
the number is closer to 60 to 70 percent and getting worse. The
30 to 40 percent drop off is directly related to the slow and
continuous restrictions in our access channels to the Gulf
which are the main arteries that supply the lifeblood to the
heart of our local economy and our Nation's energy supplies.
Being capable or incapable of servicing the deep water
growth in the Gulf will be the No. 1, most vital component to
the economic future of our Nation's energy ports. Without
deeper channels we cannot and will not survive.
Slide 2.
The next slide depicts the 22 coastal ports connected to
the Gulf in Louisiana. These ports are divided into 3
geographical regions with the Western and Eastern regions
centered around the Calcasieu and Mississippi River
respectively.
The next slide which is the Central region gives us an in
depth look at what we refer to as the Coastal Energy Port
corridor. It extends from Freshwater Bayou in the southwest
portion of the State to the Barataria Waterway in the southeast
portion of the State.
This corridor includes the Ports of Vermillion.
The Port of Delcambre.
The Port of Iberia.
The Port of West St. Mary.
The Port of Morgan City.
The Port of Terrebonne.
I'm going to mess it up. Is it the Port of Iberia?
The Port of Morgan City.
The Port of Terrebonne.
The Port of Grand Isle.
The Port of Fouchon.
Although the previous slides show the robust industrial
activity currently going on within our coastal energy ports it
is very hard to illustrate the magnitude of what these 9
coastal energy ports mean to our national economy and the
growth potential if they had the proper channel depth to fully
service the channels of the current industry operating in the
Gulf and even more so for the industry on the horizon that will
be operating in the Gulf in the future.
If there's a baby boomer message I'd like to get across
today in this discussion it would be that our grandfather's
channels are not deep enough for our children's offshore oil
and gas industry.
Whereby a 12 foot draft was adequate for the GIWW
Freshwater Bayou Commercial Canal and Barataria Waterway when
they were dug in the 1950s and 15 and 20 and 25 foot draft were
OK for Terrebonne and Morgan City and Fouchon, respectively,
when they were dug in the 1960s. They are not adequate for the
industry of today. If nothing is done it will cause detrimental
effects on the growth of the industry of the future.
All of the mainline from Freshwater Bayou to Barataria
Waterway need to be a minimum of 20 feet deep and Fouchon needs
to be somewhere between 35 and 50 foot deep to adequately
handle the industry today and the industry of the future.
Studies have shown that the Coastal Energy Port corridor is
home to nearly 40,000 direct jobs and 36,000 indirect jobs in
and around the area where they are located. Economists have
estimated that a billion and a half dollars in construction
projects have been lost in the last few years due to
insufficient water depth. Estimates show that with sufficient
water depth we could see 35 to 40 percent increase in direct
jobs and 14,000 indirect jobs throughout ports in surrounding
areas.
With these increases direct benefits within--with these
increases direct benefits not only to the respective regions,
the investment in deeper channels would also benefit the Nation
as a whole by reducing our dependence on foreign oil, reducing
our trade deficit, reducing the flow of money to some unstable
and unfriendly areas of the world and providing a more reliable
and cheaper energy supply at home that could reverse the
decline in domestic manufacturing jobs that have occurred for
more than a generation.
In the current projection for deep water exploration in the
Gulf are accurate this State and this Nation needs to get
together and figure out a way to get these channels dredged and
maintained and to do so in haste. If we don't then we'll once
again miss the opportunity of a lifetime.
It can't go without saying that there has been some
positive steps that have been taken by Congress and the Federal
delegation in our State in the past few years toward the
deepening of the channel for the Ports of Iberia, Terrebonne
and Fouchon. But there is much left to be done in getting these
channels dredged deeper and properly maintained and to
interconnect all the other 6 coastal ports into the system. I'm
hoping that the attention given to this critical infrastructure
issue by this committee today is another step forward in moving
our coastal energy ports closer to the size and depth required
for the industry they support.
Once again I would like to thank you for allowing me to
speak today on behalf of these coastal energy ports.
[The prepared statement of Mr. Malbrough follows:]
Prepared Statement of Mr. Oneil Malbrough, CB&I, Directgor of Coastal,
Ports and Marine
1First, I'd like to thank Senator Landrieu and the Committee for
allowing me to speak at this hearing and to talk about a critical issue
that our local Coastal Energy Ports have been wrestling with for more
than a decade. My name is Oneil Malbrough and I am the Director of the
Coastal, Ports and Marine Group for CB&I. The Coastal, Ports and Marine
Group is the Engineering and Construction Management Group within CB&I
that specializes in the Planning, Engineering and Design of Ports,
Channels, Port Infrastructure and Marine Terminals in many different
parts of the world.
The presentation I will make today is centered on the Opportunities
and Challenges that are currently occurring to a group of Ports in
Louisiana, we call the ``Coastal Energy Ports''. These Ports are very
unique in that they do not ship containers, or corn, or steel, or ore;
but what they do ship is personnel, supplies, platforms, equipment and
numerous other sophisticated and complex machinery components to and
from offshore drilling rigs and production platforms in the Gulf of
Mexico. To be more precise, these Energy Ports facilitate the day to
day operations of a multi-billion dollar industry by delivering the
necessary supplies and equipment needed to explore, drill, and produce
a large percentage of the oil and gas consumed by our nation. Just to
detail the magnitude of the type of infrastructure I am talking about,
these floating and fixed structures are comparable to thousands of
small cities scattered across thousands of square miles of the Gulf of
Mexico which require daily support from these land based facilities.
The offshore oil and gas industry in the Gulf of Mexico started in
the 1940's, in the shallow waters along our coast, and in the following
few decades, the industry continued to move farther and farther out on
the shelf and now, as you are well aware, has expanded into waters over
10,000 feet deep and 100+ miles offshore. As the drilling rigs and
production platforms move farther into the deeper waters of the Gulf of
Mexico, the size and weight of the equipment required to explore,
drill, fabricate, install and produce the oil and gas that our nation
so critically depends on, keeps getting bigger and bigger.
(Slide 1) The first slide I will share with you today depicts the
different types of production facilities that the industry has used in
the Gulf of Mexico over the pass 60+years. As you can see everything is
getting bigger and bigger. Unfortunately, as this oil and gas
infrastructure has grown in size and weight, our Ports, more
specifically the Coastal Energy Ports, have not been able to keep up,
primarily due to the insufficient water depths that navigate to and
from, as well as within our Ports.
I would like to emphasize that in the 1950's, 60's and 70's almost
every piece of iron floating and working in the Gulf of Mexico was
built and serviced by the Ports along the Gulf Coast. However today,
industry experts will tell you that the number is closer to 60--70
percent and getting worse. This 30 percent to 40 percent drop off is
directly related to the slow and continuous restrictions on our access
channels to the Gulf of Mexico, which are the main arteries that supply
the ``life blood'' to the heart of our local economy and our nation's
energy supplies. Being capable or incapable of servicing the Deepwater
Growth in the Gulf of Mexico will be the number one most vital
component to the economic future of our nation's energy ports. Without
deeper channels we cannot and will not survive!
(Slide 2) The next slide depicts all the Coastal Ports in Louisiana
(22) connected to the Gulf of Mexico. These Ports are divided into
three (3) geographical regions, with the Western & Eastern Regions
centered around the Calcasieu River and Mississippi River,
respectively.
(Slide 3) This next slide, which is in the Central Region, gives an
in depth look at what we refer to as our Coastal Energy Port corridor.
It extends from Freshwater Bayou, in the southwest portion of the
State, to the Barataria Bay Waterway, in the southeast portion of the
State. This corridor includes the following Ports:
(1) Port of Vermillion (including Intracoastal City)
(Slide 4, 5, and 6)
(2) Port of Delcambre
(3) Port of Iberia (Slide 7 and 8)
(4) Port of West St. Mary
(5) Port of Morgan City (Slide 9)
(6) Port of Terrebonne (Slide 10 and 11)
(7) Lockport/Larose Marine Industrial Complex
(8) Port of Grand Isle (Slide 12)
(9) Port Fouchon (Slide 13, 14, and 15)
Although the previous slides show the robust industrial activity
currently going on in our Coastal Energy Ports, it's very hard to
illustrate the magnitude of what these 9 Coastal Energy Ports mean to
our national economy and the growth potential if they had the proper
channel depths to fully service the demands of the current industry
operating in the Gulf today and even more so for the industry on the
horizon that will be operating in the Gulf in the very near future.
If there's a ``baby boomer'' message that I'd like to get across
today in this discussion, it would be that ``Our Grandfather's channels
are not deep enough for our Children's offshore oil and gas industry''.
Whereby a 12' draft was adequate for the GIWW, Freshwater Bayou,
Commercial Canal and Barataria Bay Waterway when they were dug in the
50's and 15', 20' and 25' draft were OK for Terrebonne, Morgan City and
Fouchon respectively when they were dug in the 60's, they are not
adequate for the industry of today and if nothing is done, it will
cause detrimental effects on the growth of the industry of the future.
All of the mainline channels from Freshwater Bayou to Barataria Bay
Waterway need to be at a minimum of 20' deep and Port Fouchon needs to
be 35'-50' deep to adequately handle the industry today and the
industry of the future.
Studies have shown that the Coastal Energy Port Corridor is home to
nearly 40,000 direct jobs and impacts an additional 36,000 indirect
jobs in and around the areas where they are located. Economists have
estimated that > $1.5B in construction projects have been lost in the
last few years due to insufficient water depths. Estimates show that
with sufficient water depths, we could see a 35--40 percent increase in
direct jobs (15,000 jobs) and 14,000 additional indirect jobs at our
ports and the surrounding areas.
While these increases will directly benefit their respective
regions, the investment in deeper channels will also benefit the nation
as a whole by:
Reducing our dependence on foreign oil,
Reducing our trade deficit,
Reducing the flow of money to some unstable and unfriendly
areas of the world, and
Providing a more reliable and cheaper energy supply at home
that could reverse the decline in domestic manufacturing jobs
that has occurred for more than a generation.
If the current projections for Deepwater Exploration in the Gulf of
Mexico are accurate, this State and this Nation needs to get together
and figure out a way to get these channels dredged and maintained and
to do so in haste. If we don't then we'll let this ``once in a
lifetime'' opportunity pass us by.
It can't go without saying that there has been some positive steps
that have been taken by the Congress, our Federal Delegation and our
State in the past few years toward the deepening of the channels for
the Ports of Iberia, Terrebonne and Fouchon, but there is much left to
be done in getting these channels dredged deeper and properly
maintained and to interconnect all the other 6 coastal ports into the
system. I am hoping that the attention given to this critical
infrastructure issue by this committee today is another step forward in
moving our Coastal Energy Ports closer to the size and depth required
by the industry they support.
(Slide 16) Once again, I would like to thank you for allowing me to
speak to you today on behalf of our Coastal Energy Ports.
The Chair. Thank you. Excellent testimony.
Mr. Chiasson.
Go ahead and take a minute to set up.
Oh, well, we'll try to get it unstuck. But why don't you go
ahead.
Do you want to do it by slides or we'll follow here?
STATEMENT OF CHETT CHIASSON, EXECUTIVE DIRECTOR, GREATER
LAFOUCHE PORT COMMISSION, GALLIANO, LA
Mr. Chiasson. There's some right there.
The Chair. Go ahead. You can begin and if there's--Bubba
will find them for me.
Mr. Chiasson. At the end of it there's some slides. Oh,
there you go. That's it right there.
The Chair. OK, got it.
Mr. Chiasson. We have it.
The Chair. OK.
Mr. Chiasson. OK.
Good afternoon, Chairwoman Landrieu. I very much appreciate
the invitation to appear before you today and as always for
your continued leadership.
Senator, I know you know Port Fourchon. That it services 90
percent of all the deep water activity in the U.S. Gulf of
Mexico, Louisiana offshore oil port and nearly 20 percent of
the Nation's oil supply. I know that if I'm appearing before
you anywhere at any time I better mention the critical need to
complete the remaining portions of Louisiana Highway 1, the
only landside link to Port Fourchon and the rest of the world
and the critical need for the Federal Government, in this case
the Corps of Engineers, to maintain and deepen, where needed,
the channels and our Nation's ports.
Port Fourchon and LA 1 are prime examples of the need to
maintain our Nation's infrastructure to support a variety of
economic activities in our country.
But today I'd like to focus my comments on the role that
the Federal Government plays in offshore energy development of
all kinds through its leasing program, development of its 5
year plan and the like. At the end of the day nothing else
matters without the Federal Government promoting and
effectively managing offshore energy development. All of the
economic activities that fuels our local and national
economies, all of the jobs, all of the energy independence we
seek to achieve, all of the benefits that we see now and hope
to continue well past any of our lifetimes, start when an
effective, consistent, reliable offshore leasing program.
I'd like to direct your attention to the 3 photographs that
I brought with me today.
The first one is an aerial photograph on the left side of
the slide of Port Fourchon in the early 1990s, in 1993 before
the Deep Water Royalty Relief Act was passed in 1995.
The second photograph is of the port today. This was taken
just this past January. It's already a little out of date. We
are growing just that fast.
The third, if we can move it to the next?
Oh, OK, sorry.
Oh, OK.
The third is just a map depicting what we're looking at
into the future. You can see an extra slip out there and moving
forward into the future to develop more to service the oil and
gas industry.
With this newest expansion we will grow the port by an
additional 300 lease able acres over our current 12 hundred
leased acre footprint today. These 3 photographs, spanning
roughly 30 years, illustrate the growth of Port Fourchon as a
direct result of energy exploration and development in the
Gulf. Our growth, of course, is directly linked to the
investment by a multitude of companies involved in offshore
energy, exploration and development which, of course, is
impacted by the Federal Government both positively and
negatively.
You don't need to look back any further than 1995 when
Congress passed the Royalty Relief Act to see the positive
effect of Federal policy in fostering the growth in offshore
energy development that we experience today.
On the flip side of that, we have the tragedy of the Deep
Water Horizon incident, the likes of which I pray we will never
see again which resulted, as you well know, in the offshore
moratorium and establishment of a new permitting regime which
while necessary and I presumed well intended, took a long time
to develop and implement both of which caused additional
economic hardship and delay in further investment, seriously
impacting the economic growth that comes with it.
Now our industry is as resilient as it is innovative. Thus
we have not only rebounded since Mercando, but we are looking
toward the future once again. By looking, I mean investing tens
of billions of dollars across this industry.
As speaking of one of those investors on behalf of my port,
investing public funds, our industry needs to have confidence
that the investments made in domestic offshore energy
production will not be overly impeded by Federal actions or
inactions, as the case may be, and that our Nation's domestic
energy policy, now and over the next century, will continue to
sustain industry investment of all types today, tomorrow and
years to come.
Senator, I'd like to provide you with one recent example
that's really not on the headlines right now, but I assure you
will have the very kind of positive benefits that our industry
looks for with respect to the Federal Government's role in
offshore energy development.
I'm talking about the U.S. and Mexico Transboundary
Agreement. This agreement is intended to facilitate the
development of oil and gas reservoirs that cross the
International Maritime Boundary between our two countries in
the Gulf of Mexico. That means that additional work is coming
for U.S. companies in the oil field service and supply industry
and for Port Fourchon and other oil service ports in the U.S.
Gulf. That's great news.
Along those lines we now know that BOEM currently is
requesting comments on the development of the 5-year plan to
take effect in 2017. As someone who sees, literally on a daily
basis, the positive results of Federal lease sales, as someone
who is currently planning in investing in Gulf activity over
the coming decades, I can state that a 5-year plan must present
a robust OCS leasing program, promote expanded access in areas
of the Gulf and in Alaska currently available for leasing and
promote new areas for lease off our coastlines as well.
I can tell you as a Port Director for the most important
offshore service port in our country I have had a number of
conversations with port directors or other community leaders
around the country interested in how and what makes Port
Fourchon tick and so have the vessel companies and other
service companies that work at Port Fourchon and elsewhere in
the Gulf. Communities as well as small and large businesses are
preparing to invest in new areas where offshore energy activity
will be permitted. I don't just mean oil and gas activities,
renewable energy as well. We have one local company at
Lafourche Parish called Michael Offshore that is actually
certified to do this work and has done some on the Atlantic
Coast.
For Port Fourchon to continue to grow and have a successful
future creating jobs continued Gulf of Mexico lease sales are
critically important. That is the future of our industry.
Robust lease sales have the ability to energize oil and gas
service companies that suppliers and so on throughout the
country.
Port Fourchon should be seen as an example of what could
happen in areas along the east and west coast and what must
continue in our own backyard if these areas would be available
for conventional and renewable energy development.
Thank you.
[The prepared statement of Mr. Chiasson follows:]
Prepared Statement of Chett Chiasson, Executive Director, Greater
Lafouche Port Commission, Galliano, LA
Good afternoon Chairwoman Landrieu and Members of the Committee. I
appreciate the opportunity to appear before you today. My name is Chett
Chiasson, and I am the Executive Director of the Greater Lafourche Port
Commission, otherwise known as Port Fourchon.
With this testimony, I hope to impress upon Members of the
Committee and the federal officials appearing here today several
points: the importance of Port Fourchon to the offshore oil and gas
industry; the contribution that Port Fourchon therefore makes to the
national economy; and the importance of robust oil and gas lease sales
in the Gulf of Mexico, to not just the Gulf economy and not just with
respect to offshore fossil fuel development, but to our national
economy, and to sustain long term, offshore energy development from all
available sources that our Country intends to pursue.
By way of background, The Greater Lafourche Port Commission, a
political subdivision of the state of Louisiana, facilitates the
economic growth of the communities in which it operates by maximizing
the flow of trade and commerce. We do this to grow our economy and
preserve our environment and heritage. The Port Commission exercises
jurisdiction over the Tenth Ward of Lafourche Parish, south of the
Intracoastal Waterway, including Port Fourchon and the South Lafourche
Leonard Miller, Jr. Airport. The Port Commission has been in existence
since 1960 and its 9 member Board of Commissioners is the only elected
Port Commission in the State of Louisiana.
Port Fourchon is located on the Gulf of Mexico, near the mouth of
Bayou Lafourche, and it is the only Louisiana port directly on the Gulf
of Mexico. Although more than 500 million barrels of domestically
produced and imported crude oil per year are transported via pipelines
through the Port, Port Fourchon does not handle any bulk oil and gas
per se. Rather, we are an intermodal offshore supply port. More than
250 companies utilize Port Fourchon in servicing offshore rigs in the
Gulf of Mexico, carrying equipment, supplies and personnel to offshore
locations. In terms of service, Port Fourchon's tenants provide
services to 90 percent of all deepwater rigs in the Gulf of Mexico, and
roughly 45 percent of all shallow water rigs in the Gulf. 80 percent of
all Gulf oil now comes from deepwater Gulf of Mexico operations. In
total, Port Fourchon plays a key role in nearly 20 percent of the
nation's entire oil supply.
A study of the economic impact of Port Fourchon to the Nation
determined that more than $63 billion in total value of oil and gas are
associated with Port Fourchon. A more recent study published by the
U.S. Department of Homeland Security's NISAC Lab in collaboration with
the NIMSAT Institute, entitled the Louisiana Highway 1/Port Fourchon
Study, found that a disruption of access to Port Fourchon for a 90 day
period could have a nearly $8 billion impact to the Nation's GDP. While
each report was intended for different purposes, I share this
information with the Committee to illustrate the need for continued and
sustained progress in developing all of our offshore energy resources,
both conventional and non-conventional. Port Fourchon is the epicenter
of offshore oil and gas activities, and the companies in and around
Fourchon, and their technologies and innovations developed as a result
of these activities, will not only continue to sustain future offshore
domestic oil and gas activities, but will foster growth in our budding
offshore renewable energy industry as well.
For Port Fourchon to continue to grow and have a successful future
creating jobs throughout the economy and facilitating development for
our community, continued Gulf of Mexico Lease sales are critically
important. That is the future of the oil and gas industry. Robust lease
sales have the ability to energize oil and gas service companies',
their suppliers and their suppliers' suppliers throughout the country,
who are planning for future development. It facilitates critically
needed investment by entities that service these offshore activities,
which has a positive ripple effect throughout the national economy.
According to the economic impact study to which I eluded earlier,
Port Fourchon supports more than 8,000 direct jobs. These are good
paying jobs, in which someone with a high school diploma can start out
making $50,000 per year. If that person wants to work on an offshore
supply vessel or tugboat company, they can start out as a deckhand and
work their way up to Captain within 5 years, earning a six figure
income. The Houma-Thibodaux MSA maintains one of the lowest
unemployment rates in the country, at about 3.7 percent, well below the
National average. If a man or woman is willing and able to work, they
typically have a job. And I know this is the case in other Gulf
communities, and in areas around the country where new discoveries of
onshore energy resources have occurred, such as in North Dakota, or
eastern states such as Pennsylvania, West Virginia and Ohio.
A very recent example of the role that the federal government can
play in fostering continued economic development in the US, coupled
with achieving further energy independence, is the U.S. Mexico
Transboundary Agreement. This agreement is intended to facilitate the
development of oil and gas reservoirs that cross the international
maritime boundary between the U.S. and Mexico in the Gulf. The
Department of Interior signed an agreement with Mexico in 2012, and
implementing legislation was enacted by Congress at the end of last
year and signed into law by President Obama. Just about a month ago, at
the end of May, BOEM awarded the first leases--three to be exact, in an
area of the Gulf subject to the Transboundary Agreement. Without this
Agreement, the ability to develop this area--and more importantly, what
US laws would apply and what US companies would be able to participate
in this new activity, were uncertain at best. Thus the ratification of
this agreement will have significant economic benefits to US companies
who participate in the oil and gas industry. And I assure this
Committee, as I know for a fact, additional work is coming for Port
Fourchon and other oil service ports in the U.S. Gulf as a result. This
is good news and congratulations to all in our federal government who
achieved this goal.
The Bureau of Ocean Energy Management (BOEM) is currently
requesting comments on the development of the next five year plan for
offshore energy development, to take effect in 2017. As someone who
sees, literally on a daily basis, the results of federal lease sales,
and as someone who is currently planning and investing in Gulf activity
over the coming decades, I can state that a five year plan must present
a robust OCS leasing program, promote expanded access in not only areas
of the Gulf and in Alaska, but expanded areas off our coastlines as
well. I can tell you that as the Port Director for the most important
offshore service port in our Country, I have had a number of
conversations with port directors or other community leaders around the
country, interested in how and what makes Port Fourchon tick. So have
the vessel companies and other service companies that work at Fourchon
and elsewhere in the Gulf. These aren't just academic conversations.
Communities and small and large businesses are preparing to invest in
areas where offshore energy activity is permitted. And I don't mean
just oil and gas. One of the leading service companies working today on
offshore wind development on the East Coast is a liftboat company in
Lafourche Parish that was started in the 1960's to work the offshore
oil fields, and to this day continues to work on offshore oil and gas
projects in the Gulf. But it now owns three new liftboats that are
certified to work on offshore wind projects as well as oil and gas.
Thus it only makes sense that those companies involved in offshore
mineral development will play similar roles in offshore renewable
energy development, as we're seeing that already.
In conclusion, while the effects of the BP oil spill, the
subsequent moratorium and the new permitting regime still linger, our
industry is as resilient as it is innovative, and thus we have not only
rebounded, but are looking towards the future. And by ``looking'', I
mean investing tens of billions of dollars across this industry. But
the industry needs to have confidence that the investments made in
domestic offshore energy production will not be overly impeded by
governmental regulations, and that our Nation's domestic energy policy
will continue to sustain investment of all energy types. The response
by industry in recent government lease sales is certainly one indicator
of that confidence, and the significant sums of dollars then invested
as part of those sales.
Port Fourchon should be seen as an example of what could happen in
areas along the East and West Coasts if these areas would be available
for conventional and renewable energy development, as well as continue
to explore in areas of the Gulf and Alaska already open for
development. Billions of dollars of investment throughout the country,
low unemployment rates, high paying jobs, more revenue for our federal
and local governments, and making great strides toward energy
independence.
Again Senator Landrieu and Members of the Committee, I appreciate
the opportunity to appear before you today, and I would be happy to
answer any questions that the Committee may have.
The Chair. Thank you all very much for that excellent
testimony.
Let me begin, if I could, Mr. Satterlee, with you.
In your testimony you said that of the off limit OCS areas
Shell may be particularly interested or focused on the Eastern
Gulf of Mexico and the Mid Southern Atlantic areas. Can you
express why Shell might be interested in those areas and what
potential do you all see in the Eastern Gulf and Mid South
Atlantic areas?
Mr. Satterlee. Yes.
Let me just preface it by saying that we are in a quiet
period so I'm limited on forward looking information.
The Chair. Correct.
Mr. Satterlee. Some of the information is proprietary.
But--and you asked a question earlier of the government
representatives concerning seismic data. There is quite a bit
of seismic data in the Atlantic and also in the Eastern Gulf of
Mexico.
In the Atlantic though it's more than 3 decades old and it
does not go very far deep, in deep water. So it only goes out
to about maybe, 50 miles out. So we have reprocessed some of
that data. What we see is promising.
Although we certainly prefer to have new seismic data
before we go to a lease sale what we see so far is promising.
The Chair. What would be--can you just explain for the
record and not in too, too much technical detail, but explain
for our audience that may not know the activities that go along
with seismic? How would you explain the difference in
technology 20 years ago to today? How much more accurate is
some of that?
There's some--that's 1.
How much more accurate, generally, is it by industry
standards?
Are there any--there are some legitimate criticisms of some
impacts that seismic could have on marine life, etcetera. Could
you just comment about the state of seismic today in the
industry, generally?
Mr. Satterlee. I'm not an expert in that area. So I would
like to get back to the committee on a more detailed answer.
Mr. Satterlee. But there's really two areas where seismic
technology has been enhanced over the last several decades.
One, in the acquisition of the seismic. So you've got more
precise air guns and more precise receivers.
Then probably even more so is in the interpretation and the
work of that data to get it into a format where you can
interpret it.
So the limitation for the seismic in the Atlantic is both
because it's old, but also because it has not been acquired in
deeper water. But also the spacing of the lines is pretty far
apart. So we'd like to see much closer spacing of lines so we
can make a better interpretation.
With regard to marine mammals the mitigation measures that
we have in place today really protect the marine mammals,
marine animals. So we understand that there's quite a bit of
concern, but there's also quite a bit of science and
environmental work going on right now to make sure that we do
not harm those animals.
The Chair. OK.
You testified also about some of the performance based
regulatory oversight programs that Shell believes would be most
effective. Can you give an example or 2 of the kind of
performance based regulatory programs that would be?
You all drill all over the world.
Mr. Satterlee. Correct.
The Chair. So you might answer this by giving us, giving
the committee, 1 or 2 examples of what other Nations do that
have high environmental standards or at least standards
equivalent to ours and maybe a more efficient system that we
could look to as a model.
Mr. Satterlee. OK.
The crux of the matter is that the regulatory process works
very slowly here in the United States. It's a good system, but
it takes anywhere from 3 to 7 years to get a new set of
regulations in place. Our move into deep water and the
technology development has moved much quicker than that.
So basically, the regulatory agencies just have not been
able to keep pace. That's no fault of our own. It's really the
process that we have.
So what a performance based system enables an agency to do
is to move much faster than their own regulatory development
process. It can be managed through industry standards. So
industry standards can be done. Then our industry will be
subject to those standards because they can be incorporated and
made requirements.
As far as other Nations I think Norway and Australia have
both excellent systems. To their credit BSEE and BOEM are very
much involved in an International Regulators Forum which
compares data and also it compares regulatory systems. So I
know they're looking at types of regulatory reforms.
But I will say that the SEMS program that BSEE has in place
right now is a very good example of a performance based system.
The Chair. Great.
Mr. Leimkuhler, could you add to that as a--you know, here
you have a large, international, public company. You all are
the largest private, you know, operator. What perspective would
you like to share on this potentially improved regulatory
framework?
Mr. Leimkuhler. I would second what Ken said, a more of a
performance standard where in the regulations you describe the
risks that we are challenged to meet and then we come up with a
set of operating protocol procedures, SEMS plans, to actually
meet that risk rather than a more prescriptive approach.
I think a good example of that would be on blow out
preventer testing.
Right now we're required to do almost a full overhaul of
the BOPs every time they come to surface. So at LLOG we're in a
development program. I've got sequential completions lined up
where I'm going to do the completions for that facility I
showed you on the slide.
I've got 5 wells ready to complete. Each completion takes
about 30 days. But every time I bring my BOP stack to the
surface I have to fully break it down. That's 14 days worth of
work when I'm only using it for 30.
There is a sweet spot about 100 to 150 days where your BOP
is extremely reliable. You can make an argument it's actually
from a risk based perspective better to leave it down and hop
the BOP from well to well. BSEE is starting to be amenable to
looking at those types of proposals, but in response to the
current regulations of the new rig I have coming into the Gulf,
we have spent an additional $30 million to put a second BOP on
so that we can efficiently operate and do those 5 wells back to
back to where I'll be cycling those BOPs from the surface to
the sea floor.
So that's a pretty direct impact.
The Chair. That's a very good example of a regulation that
might be an over reach and not necessary. It may, eventually,
do more harm than good. We've got to let the engineers figure
that out.
Mr. Leimkuhler. Correct.
The Chair. Let me ask you, Mr. Malbrough, really try to
help us get on to this record the gap between the dredging, not
just the dredging depths from 12 to 20 or 15 to 25, but the
financial gap that we're looking at.
I don't know if you have the data. You talked about the 9
ports that you might have data for. But there are, of course,
upwards, I think, of maybe 20 energy ports in the coast from
Alabama to Texas.
But let's just focus either on the 9 that you're most
familiar with or some subset of those that you're comfortable
with to give this committee some information about how short we
are on our dredging dollars. So you could take it from Port
Fourchon.
What is your dredging requirement annually?
What do you receive from the Federal and State government?
What is the delta?
But I'm looking for a total amount from the 9 energy ports
that you had in your testimony, roughly?
Mr. Malbrough. When we added up the annual requirements
that the corps had projected, if I'm not mistaken, with the
exception of Morgan City the $10 million to $12 million that is
allocated now is probably adequate.
Morgan City because it's inside the Atchafalaya River and
it has a significant amount of sediment moving down there by
itself is $15 million.
So we have always talked about somewhere between $25 and
$30 million a year would sufficiently dredge the channels to
their existing depths.
The Chair. To those 9 ports.
Mr. Malbrough. To maintain.
The Chair. To maintain those 9.
Mr. Malbrough. Those 9.
The Chair. Ports.
How much do you receive from either the State or the
Federal Government?
Mr. Malbrough. It's usually around $10 to $12 million
depending upon--last year you all had that supplemental, I
don't know what you call it, the supplemental.
The Chair. So you're basically getting half of what you
need?
Mr. Malbrough. That's correct.
The Chair. Roughly, for those ports.
Mr. Malbrough. We're not yet--that's correct.
When you--the idea is there some people--when people miss a
year and then they catch them up a year or 2 later. So it's a
matter of having about half as much money to do the job that
they need. The idea is that we would need double that at this
time to keep them to their authorized depths today.
The Chair. Which one of you testified that the lack of this
relatively small amount of money. I mean as the Federal
Government's budget goes, $25 to $30 million is significant for
us, but not significant.
The loss of jobs, one of you testified how many jobs have
we lost or what contracts have we lost. Was that you, Neil?
Mr. Malbrough. Yes.
The Chair. Can you repeat that, please?
Mr. Malbrough. But that was not because of the dredging
cycle that was because of the lack of being able--those local
contractors are not able to even bid on projects because of
their inadequate draft depth to show the delivery of some of
the big platforms.
The Chair. You said we lost, according to your testimony,
about a billion and a half dollars?
Mr. Malbrough. That's correct. Actually it was three and a
half years now.
But in the meantime the unauthorized--the lack of O and M
dredging is in every single channel in that 9 coastal ports,
except for the one. The 6-months after the Corps finishes
dredging all of those channels are inadequate. OK?
There is not one of those channels with the exception of
Port Fourchon, OK. Port Fourchon is the deepest. But it's
closer to the Gulf and has a minimum amount.
The Chair. Oh, I see. So let's be clear.
So you're saying even with the--we're short $10 to $12
billion--million a year to keep these channels dredged to their
authorized, but their authorized is still not sufficient to
attract the 1.5----
Mr. Malbrough. Five billion dollar reconstruction price.
The Chair. Five billion dollars.
So what we want to get into this committee for the staff is
the delta of the dredging to the authorized level annually for
all energy ports in the Gulf.
Then what the cost would be to get them all up to your
children's deep water, not your grandfather's deep water energy
industry.
Mr. Malbrough. That's correct.
The Chair. That's what we need for this.
Chett, do you want to--I mean, Mr. Chiasson, do you want to
add anything?
Mr. Chiasson. You can call me Chett, Senator.
The Chair. OK.
[Laughter.]
Mr. Chiasson. I'd just like to say that, just kind of
echoing what Oneil was talking about when it comes to dredging
of Port Fourchon. We're very happy to say that the Corps does
its job for us. Fortunately enough for Port Fourchon we don't
really have a siltation issue unless we have a storm that comes
by. But we don't have sediment coming down by Lafourche to
deposit into our channel.
So we're fortunate on that fact. But we have, probably,
every 3 years a million and a half or so dollars--what was
that, to $3 million that's spent in our channel. When we talk
about Port Fourchon, we're talking about deepening to continue
to meet the demand for the industry.
We already service about 90 percent of all the deep water
activity in the Gulf, like I mentioned. In order for us to
continue to do so we need to do whatever it is we possibly can
to get, you know, at least to 35 feet if not more to be able to
handle the size vessels and for the companies, the vessel
companies like Mr. Ramsay here, to be able to build those
vessels to the capabilities that they really need in the U.S.
waters.
The Chair. Mr. Ramsay, let me turn it over to you because I
think this, this frame, is so important for this committee to
really understand and trying to get this onto the Congressional
record.
The offshore industry, which is serviced by Port Fourchon
primarily in the Gulf, but there are a few other ports that
contribute, Corpus Christi in Texas and a few others have
needs, have infrastructure needs. $20 million, $30 million
annually together. We're going to try to get that figure
because it's important to get the official figure.
The reason I press this is because the industry itself
generates the tax dollars for the Federal Government. I believe
of somewhere between $8 and $10 billion a year. I want the
staff to give me the last 3 years right now. You can Google it.
The last 3 years of offshore production that's gone to the
Federal Government. We're going to get that on this record
right now.
But it's somewhere between $8 and $10 billion. So my
question to you, Mr. Ramsay, is do you think the Federal
Government can afford to spend a few million dollars supporting
the ports that generate the $10 billion a year for the----
Is there any reason, as a business person, that you could
even see or surmise that the Federal Government would not want
to make that decision?
Mr. Ramsay. Madame Chair, it's not understood at all by
Americans why the Federal Government would not want to invest
this money into our industry. It makes no sense to us at all.
The Chair. Because again, the industry generates, we think,
we're going to get the exact numbers in just a minute. But tell
me about, again, about what your industry not only employs, but
other companies like yours?
Mr. Ramsay. You know, as I said earlier, we've got
currently 4 vessels under construction here and in Louisiana
alone that's, you know, about a $90 million investment alone
just in construction costs of vessels, the shipyards that we're
using collectively employ 700 people, conservatively. You know,
those are good paying jobs, you know, great skilled labor jobs.
So and our vendors stretch all across the entire United
States. We're buying equipment from, you know, folks in many
different States.
Our crews largely come from the Gulf Coast, but many of our
officers fly in for crew changes. We've got, you know,
engineers and captains that come from as far away as California
or Maine to catch a crew change for our vessels. So----
The Chair. They take those paychecks back to where?
Mr. Ramsay. Back to their home States.
The Chair. To Maine and to California.
Mr. Ramsay. Exactly.
Mr. Leimkuhler, as the largest, as one of the largest,
independent can you talk about why the Federal Government would
not want to make this investment of money that's generated by
the industry so that the industry could continue generating the
income for the Federal Government based on your subcontractors.
You must hire companies like Mr. Ramsay's annual work.
Can you comment about the reach of your contracts? I'm
going to ask the same thing of Shell.
Mr. Leimkuhler. Yes, our contracts also----
The Chair. Speak a little bit, right more directly into the
mic.
Mr. Leimkuhler. Our contractors span across pretty much the
entire country. The Delta House facility we're putting in has
contracts existing, I believe it's close to 38 of the 50
States. So it has a national impact. It's a multibillion dollar
facility going in place.
Why we can't get the necessary attention to understand the
importance of it? I don't know as well.
I think it's a matter of the fact that we, as an industry,
to be blunt, probably have done a poor job of selling the
Nation on the importance on the role that we actually play.
There's a high degree of lack of awareness. I wouldn't' go so
far to say ignorance, but maybe that's what--the word that
needs to be used.
Just an overall lack of awareness of the role we play, the
impact we have and the positive impacts that could be realized
if we were able to expand more.
The Chair. Mr. Satterlee, for Shell?
Mr. Satterlee. We did an after look after we constructed
our Perdido platform in the Gulf of Mexico. We found that money
that was expended for fabrication was spent by vendors all
across the country. I don't have that number in front of me
right now, but I can get that for you. Somewhere on the order
of a couple billion dollars was spent in other States. So the
whole Nation is benefiting from the work that we do here in the
Gulf of Mexico.
Mr. Satterlee. So to answer your question I think that it's
probably just a matter of the rest of the Nation does not
understand the benefits that they receive from the work that we
do in the Gulf.
The Chair. Thank you very much.
Let me see while they're looking for that. I had a couple
of other questions.
Let me talk a minute, it's a little off subject, but while
I have both of you here about the Jones Act because you
testified a little bit on the opposite side of this issue. We
have our Offshore Association present.
As you know I'm a strong supporter of the Jones Act. Really
believe that we have to do a lot of our boat fabrication
business and the law requires that here. But you testified, Mr.
Leimkuhler, that in your operations are getting so large that
you need some of these heavy lift vessels that are either not
built here.
Mr. Leimkuhler. Right.
The Chair. Are they're not built here? Are they not U.S.
manned? Could you explain that?
Mr. Ramsay, I'd like you to comment, although I know this
isn't the hearing about the pros and cons of the Jones Act, but
I just, since you all are sitting right next to each other I
thought I'd get the benefit of your thinking on this.
Mr. Leimkuhler. I think--let me recap a recent experience
for a discovery we had called power ball where we went to
install the facilities.
The top signs that were to be installed on the jack and
platform, all of the equipment is hauled to location on U.S.
side vessels. But once it arrives it has to be assembled. When
we make the lift we can't find U.S. flag vessels capable of
making that lift.
So what we had to do in this particular project is we had
to actually disassemble the platform into smaller pieces, make
more lifts, more complex lifts in order to meet the
interpretation of the Jones Act where you have to use a U.S.
flag vessel to not only haul the materials to location. That's
not been an issue.
But you also must use a U.S. flag vessel to lift and then
transport about that 100 feet.
The Chair. OK.
Mr. Leimkuhler. It's only moving about 100 feet.
The Chair. So you're looking for a short--a small
exemption.
Mr. Leimkuhler. Right.
The Chair. To move equipment around, basically, a platform
site, not back and forth, but around.
Mr. Leimkuhler. Exactly. Once all the vessels are on
location just to lift and place. That's all we're asking for.
The Chair. Mr. Ramsay.
Mr. Ramsay. Thank you, Madame Chair, for putting me on the
spot. I'm a valued customer.
[Laughter.]
The Chair. Good. I'm glad you all aren't the only ones that
have difficulty. I do as well with my constituents. So go right
ahead.
[Laughter.]
Mr. Ramsay. Of course as a vessel operator we support a
very strong Jones Act. We feel it's a good thing for this
Nation, great for our economy, absolutely necessary for our
defensive stance around the rest of the world.
You know, I don't have heavy lift vessels. I understand the
question that is being discussed here. I think that over the
years there has not been a real clear and transparent waiver
process to allow the operators to get past this little
question.
I think if Homeland Security and Border Patrol, Customs,
Border Control and Customs could somehow devise a transparent
waiver process to allow that then that would give the customers
a chance to make these lifts. It also would indicate to the
domestic industry just where we need to go with our
construction.
The Chair. A limit to--right.
A limit to what could be done or give some signals, a more
transparent process.
Mr. Ramsay. Give us some signals as to what the industry
needs as far as equipment and we can build it to make sure that
we can do these lifts.
The Chair. OK. Thank you all.
Let me give you these numbers.
In 2011 the Federal Government received from offshore
alone, $6,442,000,000
In 2013 it was $8.5, $8.6 billion.
In 2014, I think this number went up so it was probably
closer to $9 billion. That's annually. So let's just, you know,
say, let's rough it at $8 billion, roughly, is what the Federal
Government has been receiving each and every year. So over a
10-year period that's $80 billion, when you think about a small
percentage of that, 10 percent, 20 percent or 30 percent.
Now the interior States keep 50 percent. OK? That's $40
billion. The interior States would keep and have no
restrictions on its expenditure. They have no restrictions.
They can spend it for environmental.
They can spend it not for environmental.
They can spend it for energy or not.
They can spend it for schools, health care.
No restrictions.
But assuming we adopted restrictions to just energy,
infrastructure, coastal restoration. What could we do with $40
billion? A lot.
What could we do? Do you want to say what we could do, Mr.
Chiasson?
Mr. Chiasson. We could build LA 1.
The Chair. Build LA 1. I could build----
[Laughter.]
Mr. Chiasson. $300 million, that's it.
The Chair. We could build LA 1. We could build I49 South.
Mr. Chiasson. I49, exactly.
The Chair. I49 South. We could do all the dredging we
needed to grow and expand the industry in a more safe and, you
know, with more safety in mind for workers, for the
environment, for businesses. I mean, we could build the flood
protection that's necessary. We could restore the marshes.
With 50 percent we could do just an enormous amount. But
even with 10 percent of that money or 20 percent of that money,
we could do some very important reinvestments back into the
region that's producing these riches for the country.
So this has been, I think, an excellent hearing. I'd like
to ask each of you all to do just a 30 second wrap up if
there's something that you wanted to cover that you didn't.
The record of this hearing will stay open for another 2
weeks which is the custom. We'll receive records from anyone
that testified. You want to add addendum to your record or any
other individuals that want to add anything to this record.
The Chair. I'll be conducting some more field hearings
around the country on our next 5 year plan which is 2017 to
2022 OCS plan to make sure we get it right.
What's opened? How it's opened? How the revenues are
shared? How those revenues are invested? New regulatory
framework that makes the development work more efficiently.
While this hearing was focused on oil and gas development
because that's what our region does, there are other types of
resource development, wind, some solar opportunities. There's
some geothermal opportunities that we're hearing about. I'm
going to be asking in other regions of the country, what are
some of the other resources that could be developed, energy
resources, developed offshore.
If you all have any additional information to share about
that, you should submit them in the record.
The Chair. But we'll start, maybe, with Mr. Chiasson first
and then close with Mr. Satterlee.
Any additional comments, Mr. Chiasson?
Mr. Chiasson. I just think it's important to point out I
wouldn't be a good port director if I didn't point out some of
the things when it talks about how important Port Fourchon
itself is to our Nation and our national economy.
You talked about other ports along the Gulf Coast and there
are significant amount of other ports that service the oil and
gas industry, but in a study that you actually helped
commission from the Department of Homeland Security back in, I
believe, 2011 it came out. It stated that if you combine all
the other ports along the Gulf Coast, compare it to Port
Fourchon, the services that it can provide. They only match up
to 25 percent of the services that Port Fourchon can provide.
So our port----
The Chair. To the deep water or to the offshore or deep
water?
Mr. Chiasson. To the offshore oil and gas industry.
The Chair. Offshore.
Mr. Chiasson. So we have 75 percent more capability at Port
Fourchon. So we focus solely on the oil and gas industry. So
that's the importance there.
You talked about economic impacts and numbers. Our port has
about $27 to $30 million in business sales annually. Oh, I'm
sorry, daily impact on the national economy. So that's really
important to note.
The Chair. Excellent.
Mr. Chiasson. Thank you.
The Chair. Neil?
Mr. Malbrough. One of the things I'd like to add is just
when in my presentation I talked about the group of ports and
how they work together and how they needed to work together. It
was interesting when we talk about 8 and 10 and 12,000 ton
topsides, these big, big topsides that we showed a few pictures
of, is a lot of--even if they built at McDermott shore or at
Gulf Island's yard or at Dynamics yard. All of the ports, a lot
of those facilities, we were in New Iberia, what, a couple of
weeks ago, 3 or 4 weeks ago.
A lot of that equipment you saw was going on wells,
platforms that were built somewhere else. So a lot of the small
pieces, if you when you interview some of the Vermillion port
folks, they are subcontractors to the big fabricators. So all
of these pieces get put when it looks like it's delivered out
of Houma or delivered out of New Iberia when in fact there's a
whole number of those smaller ports that need to be connected
to those, the infrastructure needs to connect those things, to
keep them all. Because when you see a big platform in Houma a
lot of those pieces are built in Vermillion and in other areas,
in Abbeville and other pieces are built in different places. So
it's not just one port.
The Chair. Are we building?
Right.
Mr. Malbrough. In one little region.
The Chair. So it's important.
Also for the redundancy, you know, in the event we get, you
know, when you're in a situation like we are in a storm, a
frequent storm situation. You literally cannot have all of your
rigs in one basket.
Mr. Malbrough. Exactly.
The Chair. Because you could get into serious trouble if
you had all of your rigs or production. So it's important to
have that redundancy across the Gulf of Mexico just for that
reason and across Louisiana as well.
But do we build? How much of our fabrication is being built
here and going overseas? Do we have some of it that's being
built here and floated in other parts or is mostly the work
that we do here for the Gulf?
I mean, I know most of it is for the Gulf.
Mr. Malbrough. Yes.
The Chair. But we do some international.
Mr. Malbrough. There is in the fabrication side which is
generally, the work we do is in channel depth, is centered in
and around the fabrication side. There is a lot of equipment
and a lot of things that are shipped to the North Sea.
The Chair. Yes.
Mr. Malbrough. Other areas.
In the Corps of Engineers analysis of the economic boom
they used the--a lot of those countries have utilization
requirements where the--it looks like it on paper that the
equipment is built, has to be built in Nigeria, as an example,
in one of these foreign countries.
What happens is you end up having a company there that subs
out our local fin. We ship a lot of equipment overseas to those
areas that in fact looks like it's done in the Nigeria area,
but it's really not. It's on the----
The Chair. This is very important testimony to get on the
record. I'd like you, Neil, as from representing one of the
largest companies in the world to please give us some
additional information for that because when we talk about this
work being done along the Gulf of Mexico it's not just for the
Gulf of Mexico. It's for drilling operations all over the
world.
The Chair. We know that our technology is used all over the
world, clearly, which is a great benefit. But our actual
fabrication and equipment that is built here, the steel that
comes into our ports is fabricated and used all over the world
for drilling. I think sometimes we don't get the credit that we
deserve for that because it's not easily dissected in the
economic data.
But it's important, again, getting back to what Mr.
Leimkuhler said, so we can be more effective advocates for this
region. It's not just jobs here. It's jobs all over the United
States. It's just not facilities or platforms that we're
building and rigs that we're using in the Gulf. This is used
all over the world.
So if the world is interested in energy the Federal
Government of the United States needs to support the energy
coast here in a much more robust way than they are currently
doing. That has been my message. We're building a record so
that this message can be received and heard in a way that will
move a political organization like the Congress to do something
about it and not just ignore it and go on with business as
usual.
Business as usual is clearly not going to work for the Gulf
States. I mean we will not be here if it's business as usual
because of the pressures on this coast from a variety of
different perspectives. That's not the subject of this hearing,
but we all know the coastal challenge to our coastal
restoration and marshes that are underway. The challenges to
our cities, to Houma, to New Orleans, to Lafayette, to New
Iberia, to Delcom, to Lake Charles, to Cameron, Johnson Bayou,
etcetera, etcetera, all the way to the tail of Plackman Parish.
Mr. Ramsay, do you have any closing remarks?
Mr. Ramsay. Yes, with that in mind, you know, this region
being so important to energy production here in this country
and worldwide, you know, even though this region has a very
skilled work force it's an aging one. We're struggling to feed
that pipeline. We could use increased funding from the
Department of Labor for grants for training, advancement and
retention such as, you know, the State incumbent worker
program.
You know, these are great jobs. They pay $50, $60,
$100,000, you know, in 4 to 5 years for these kids that come
straight out of high school. I think, you know, the partnering
with the technical and community colleges is important, but we
should do more as well.
You know, the STEM is the new education term, science,
technology, engineering and math programs, you know, is being
touted around by everybody in the country. But those students
in our elementary schools and our high schools need to be
exposed to this industry. It's a great industry to be involved
in. It's a very promising thing.
So any help along those lines will be appreciated.
The Chair. Thank you for raising that. The work force
issues are just tremendous, the challenges for our area, for
the country. We've conducted--I've conducted in a different
role as Chair of the Homeland Security Committee and just in an
economic development, you know, hat on the challenge for our
work force.
Thank you for raising that. It is important.
Mr. Leimkuhler.
Mr. Leimkuhler. I guess if I had to close with one closing
comment it would be really around the empowerment of the
technical staff of the regulators. These are very competent
people. But at sometimes when we manage through issues and
challenges with them you feel like their hands are tied a
little bit.
It's going to be essentially for healthy staff empowered if
we were to move to a performance based standard of regulations
rather than a prescriptive. You shall do this. You shall do
this. You shall do this.
Under a prescriptive regime it doesn't fit every situation.
You get into situations where from a risk and a safety
standpoint you need a variance. It's difficult sometimes to
obtain those because the staff just don't feel as empowered as
I think they need to be.
The Chair. Excellent.
Mr. Satterlee.
Mr. Satterlee. As we move into more frontier areas such as
Alaska and the Atlantic and the Eastern Gulf of Mexico it's
important to recognize that if we can do it safely then we're
confident that changes have been made to prevent another
reoccurrence of a blowout, an oil spill. Then we can do it in a
way that protects the environment, protects our personnel.
Second, from an economic standpoint Shell has spent over $5
billion in Alaska so far. We still don't have our permits. If
all the building blocks are put in place and we're able to get
our permits and we have a discovery that's only going to be a
sliver of what our company and other companies will spend in
the development of the Arctic.
The same holds true in other frontier areas.
In Alaska what we found was a very large amount of what we
spent came from Louisiana. We built 2, at least 2, OSVs right
here in Louisiana. Much of our man power came from Louisiana, a
lot of the equipment.
We'll see the same thing in the Atlantic. They just don't
have those kind of capabilities on the Atlantic Coast. So much
of that will have to come from the Gulf Coast.
The Chair. So the opportunity for opening Alaska, opening
the Atlantic Coast, the opening of Mexico, is going to position
Louisiana to be an extraordinary provider.
Mr. Satterlee. Right.
The Chair. Of technology, equipment, personnel. But the
challenges, work force, infrastructure, regulatory regime, and
just basic investments. So they are great opportunities, but
they are great challenges. Thank you all very much for
contributing to this record.
The field hearing is adjourned.
[Whereupon, at 3:40 p.m. the hearing was adjourned.]