April 15, 2015
The House Natural Resources Committee focused on the administration’s proposed Outer Continental Shelf (OCS) Oil and Gas Leasing Program for 2017-2022 at its April 15 hearing.
In his opening statement, Chairman Doug Lamborn (R-UT) said the Obama Administration is not “committed” to promoting oil and gas production on federal lands, citing a statistic from the Congressional Research Service that crude production on state and private lands has increased by 89 percent since 2010, while production on federal lands fell by 10 percent over the same period. Rep. Lamborn said the administration’s proposed 14 lease sales is lower than any previous five-year plan. In comparison, President Reagan had 42 proposed sales in his 1987 draft plan and 17 in the final plan.
Regarding Alaska OCS, Rep Lamborn encouraged a “more aggressive agenda” to increase production to “reinvigorate the declining throughput” of the Trans-Alaska Pipeline System (TAPS). He said TAPS can carry over two million barrels per day, but now moves only 560,790 barrels today.
“Bottom line: an aggressive offshore leasing strategy would clearly demonstrate true commitment to OCS oil and gas production in the U.S.,” Rep. Lamborn said in his opening statement. “It would also demonstrate a strong commitment to our long-term energy security. Finally, to further foster increased exploration and production activity, we would see a plan for greater influence in the global marketplace by relinquishing decades-old export restrictions.” Rep. Lamborn’s full statement can be found here.
Ranking Member Alan Lowenthal (D-CA) said the draft proposal would open nearly 100 million more acres to drilling on the OCS, in addition to the 220 million acres already opened to drilling.
“Predictably, many in the oil and gas industry say this is not enough,” Rep. Lowenthal said. “Quite frankly, most in the industry wouldn’t be satisfied until every acre of the OCS was open for drilling, they always want more.”
Rep. Lowenthal said he was pleased BOEM, in its draft plan, recognized opposition to OCS leasing near Washington State, Oregon and California. “I am personally not persuaded by claims how much safer OCS drilling has become in the last few years. Those same claims would’ve been made prior to the Deepwater Horizon spill. In fact, they were.” He cited the tremendous risk that human error could cause another tragedy while the mid and South Atlantic OCS planning areas would “only meet our national consumption for five months.”
As the hearing’s opening witness, Gov. Pat McCrory (R-NC) advocated for the inclusion of the Atlantic OCS in the proposed plan, and discussed the impacts on his state. Gov. McCrory said his testimony reflected the views of the OCS Governors Coalition (Alaska Gov. Bill Walker is a member), which he chairs. Gov. McCrory supported updated seismic imaging to help better understand the Atlantic’s resource potential, federal OCS revenue sharing legislation, an offshore buffer zone shorter than 50 miles, and federal support for OCS-related infrastructure investment, including roads, ports and processing systems. Gov. McCrory’s full opening statement can be found here.
Abigail Hopper, Director of the Bureau of Ocean Energy Management (BOEM), described the current 2012-2017 five-year plan and the new proposal, which includes three offshore Alaska planning areas in the Beaufort Sea, Chukchi Sea and Cook Inlet. Hopper said Alaska’s three potential are proposed later in the schedule—from 2020 to 2022—in order to give BOEM the opportunity to obtain and evaluate environmental concerns, subsistence use needs, infrastructure capabilities, and the results from exploration activity associated with existing leases. Hopper’s full opening statement can be found here.
Hopper and Rep. Lamborn had a heated exchange about whether the draft plan will maintain U.S. competition in the international field.
Rep. Lowenthal asked the percentage of leased acreage that industry actually bids on, and if the drop in oil price has had an impact on this percentage. Hopper said the bid percentage ranges from 9 to 11 percent, and that it has dropped to three percent at current oil prices. The oil companies are not bidding on a lot of the acreage being offered as the industry “makes decisions about where the prospects are and where to utilize their capital.”
Rep. Cynthia Lummis (R-WY) asked Hopper if the three Arctic lease sales will remain on the schedule among the eight sales planned. Hopper confirmed they are on current schedule. Both the Chukchi and Beaufort have had calls for nominations, received public comment and are now being assessed by BOEM. The Cook Inlet sale is further along and in the environmental impact statement preparation stage.
Rep. Ruben Gallego (D-AZ) asked how many acres of OCS are not actually producing oil right now. Hopper said roughly 24 million acres are leased, but not currently producing. Information wasn’t available on how many years the acres had been leased.
Rep. Gallego believes oil demand will drop in near future, and that the government is putting up too many acres for lease with no guarantees for production. Rep. Gallego asked if there will be any lease sale rollbacks within the next two years. Hopper said the OCS Lands Act (OCSLA) requires BOEM to make lease acreage available expeditiously and continue to do so. Industry makes the decisions about what lease acres will be purchased and what will be developed, keeping in mind the extensive work that is required before production occurs.
In answer to other questions, Hopper said BOEM can’t offer new lease sales in areas being scoped, that BOEM has the discretion to move sales to earlier dates, that the federal government collects rent for inactive leased acres, and that a regulatory pathway is being developed for Atlantic seismic permits.
Rep. Jim Costa (D-CA) asked that if the leases in Alaska are developed and used in the next 10 years, how much will the U.S. dependency on foreign oil be reduced and how long will that take? Hopper said the Energy Information Administration (EIA) had just projected an oil production increase over the next 5 years. “Yes, the increased oil production on the OCS under this leasing plan will decrease our imports of oil,” she said. (The EIA had just leased its Annual Energy Outlook with projections to 2040 on April 14, found here.)
The third panel of witnesses consisted of:
- Mark Shuster, Executive VP of Upstream Americas Exploration, Shell Oil Company. Shuster advocated for more areas in the Eastern Gulf of Mexico to be included in the draft proposal, and more lease sales in the Atlantic. Shuster did not highlight Arctic exploration or Alaska leases. Shuster’s full statement can be found here.
- Robert Hobbs, CEO of TGS. Hobbs said the Obama Administration is sending “mixed messages” on how much of the Arctic will be leased and whether lease sales will actually take place. Because of the long lead time necessary to explore the Arctic waters, TGS (a geoscientific data products provider) has not been able to ascertain the timeframe to survey the Arctic. Hobbs’ full statement can be found here.
- Chett Chiasson, Executive Director of the Greater Lafourche Port Commission in Louisiana. Chiasson detailed the economic benefits of robust lease sales, advocating for more OCS leasing of oil and gas as well as renewable energy activity beyond the Gulf of Mexico, the Atlantic, and Alaska. Chiasson also described revenue sharing in Louisiana. Chiasson’s full statement can be found here.
- Emelie Swearingen, Commissioner of the Town of Kure Beach, NC. Swearingen expressed concern about the impacts of OCS development in the Atlantic, citing a recent Oceana report that said 1.4 million jobs and $95 billion in Atlantic coast GDP would be at risk in the event of an oil spill. Swearingen opposed OCS development in the Arctic, citing potential risks to wildlife and subsistence resources. She also said that all 14 towns on the North Carolina coast passed resolutions in opposition to OCS drilling. Swearingen’s full statement can be found here.
Rep. Lamborn asked Shuster about the Macondo oil spill in the Gulf of Mexico. Shuster said the Alaska targets are several tens of thousands of feet shallower than deep water wells in the Gulf of Mexico. Rep. Lamborn asked what could be done in Alaska about an oil leak that could not be done in the Gulf of Mexico? While Alaska is not his focus, Shuster said Shell has “significant resources” for an Alaska response.
Rep. Lamborn said his understanding was that the much shallower depth in Alaska’s OCS made wells easier to reach than the one to two miles depth for Macondo.
Rep. Lowenthal asked Shuster if Shell supports “putting a real price on carbon,” such as through a carbon tax. Shuster said yes. “Our view is carbon is something we have to plan for, and our concern is about long-term development.”
Rep. Lowenthal asked Shuster to expand on Shell’s position on the EPA’s Clean Power Plan. Shuster said Shell will look at the changing mix of energy sources over the next several decades and address new technologies and energy sources that are underway, including looking at carbon levels in the atmosphere. Rep. Lowenthal praised Shell for acknowledging the cost of oil and gas development on the environment.
Rep. Lowenthal asked Swearingen if the question of revenue sharing legislation impacts her support or opposition to OCS development. Swearingen said new legislation on this would be difficult to pass, but even if it happened, she is skeptical that federal revenue sharing would go directly to local communities and local governments.
Rep. John Fleming (R-LA) asked Shuster why the U.S. lease should more land when there is leased land right now that is not producing. Shuster responded that for every 100 OCS blocks, Shell identifies 10 prospects with typically one commercial discovery, which reflects the geology and underlying “prospectivity” of the areas.
Hobbs said oil can be detected via ultrasound technology, with ultrasound waves emitted for only one-tenth of a second. Rep. Fleming, also a physician, noted there have been no detectable harm to fetuses and mothers when using ultrasound technology. Hobbs pointed to $50 million of government research to confirm that ultrasound seismic technology does not damage or injure marine life.
Hobbs said the use of this technology actually reduces the number of dry wells drilled, thereby reducing the cost to the environment. “We’re not drilling where we don’t have the prospects.”
Rep. Cynthia Lummis (R-WY) asked Shuster if he thinks BOEM’s estimate of 80 percent of undiscovered, potentially recoverable oil and gas reserves captures the OCS resource potential in the Atlantic and Eastern Gulf of Mexico. Shuster said that is a reasonable estimate, but there’s potential for more resources included in the proposed program.
Rep. Lummis asked Hobbs if his experience has found successful development has led to increased energy potential. Hobbs said every time new seismic data is acquired there’s more potential for increased reserves.
When asked if he thinks the Obama Administration is doing enough to keep the U.S. competitive in the Western Hemisphere, Shuster responded, “Based on strong commitments from Canada and in Latin America, we do not believe the current program is doing enough.”
When Rep. Lamborn asked how much seismic acquisition technology has matured since 1970s, Hobbs said the old sensor technology was towed behind the vessels, and the resolution was far lower than today. The technology can now see deeper into the earth and find details that reduce drilling risks. Hobbs stressed the importance of acquiring datasets to understand the broad geological scope. Shuster agreed new data is necessary to characterize the resource and determine where to drill. Improvements in seismic methods would allow the industry to find new exploration potential not seen before.
Rep. Don Beyer (D-VA) asked what has improved in technology, methodology, and science to prevent another oil spill. Shuster said that after the 2010 Macondo disaster, the U.S. established the Bureau of Safety and Environmental Enforcement (BSEE) to improve regulations and enforcement in oil and gas exploration and development. In addition, he said the oil industry formed the Center of Offshore Safety. He also pointed to the formation of new companies exclusively focused on containment technologies.