Technology — and Policy — Transforming American Energy Outlook

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It’s no secret that the American energy picture is undergoing a transformation. The advent of multi-stage hydraulic fracturing combined with horizontal drilling has enabled independent producers to reach deeper, wider, and into once impenetrable shale rock, unleashing millions upon millions of barrels of new oil and natural gas supplies. This technology has allowed producers to tap into new plays such as the Marcellus in Pennsylvania and the Bakken in North Dakota.

IPAA’s oil education campaign, the Declaration of Independents, has been profiling the most prominent shale plays in the U.S. Most recently, they gave the history and the current outlook of the Permian Basin in West Texas. This is a region that encompasses plays upon plays, or “stacked plays” such as the Bonespring, Cline, Spraberry, Wolfcamp, and the combination plays nicknamed the “Wolfberry” and the “Wolfbone.”

What’s most notable about this play is its rich history. The first commercial well in the Permian was drilled in 1921. As the analysis noted, “This [first] discovery set off further drilling activity, with several notable finds, including Yates Field (1926), which is still producing today, and is still one of the top 50 fields for proved oil reserves in the United States. A number of major fields discovered in the 1930s, such as Wasson, Slaughter, and Seminole are still producing today, and are still ranked by the Energy Information Administration among the top 20 in the U.S. for remaining proved reserves.” 

Permian map 5-1-13

The Permian truly exemplifies the renewed life cycles that new technology and new generations of industry minds have given to these historic plays. As the profile concludes, the Permian Basin “is a story about combining the various talents of independents, majors, and service companies in using advancing technologies to sustain the lifespan of existing fields, to tap into zones that were previously uneconomic or inaccessible, and to increase the Permian’s proven reserves in a remarkable fashion.”

Check out these recent news articles that exemplify the state of shale in the United States.

  • Associated Press: Oil Drilling Technology Leaps, Clean Energy Lags. Technology created an energy revolution over the past decade — just not the one we expected…Oil companies big and small have used technology to find a bounty of oil and natural gas so large that worries about running out have melted away. New imaging technologies let drillers find oil and gas trapped miles underground and undersea. Oil rigs “walk” from one drill site to the next. And engineers in Houston use remote-controlled equipment to drill for gas in Pennsylvania.
  • Bloomberg News: Oil Shockwaves From U.S. Shale Boom Seen by IEA Ousting OPEC. The International Energy Agency (IEA) reported this week that North America will provide 40 percent of new supplies to 2018 through the development of light, tight oil and oil sands, while the contribution from the Organization of Petroleum Exporting Countries (OPEC) will slip to 30 percent.
  • CNBC: US Oil Production Nearly Even With Imports. The amount of oil produced in the U.S., now at a 21 year high, is nearly even with the amount being imported, and the gap is narrowing. The Energy Information Administration said Wednesday in its Short-Term Outlook that U.S. oil production averaged 7.1 million barrels per day in the first quarter, and that should rise to 8.5 million barrels per day by the fourth quarter of 2014.

The U.S. is in a critical position. Policymakers have a choice – either encourage this amazing rebirth of homegrown energy that the industry is safely developing or choose to turn away from this hopeful energy picture. Two critical issues are facing the Obama administration this month: the future of natural gas exports and hydraulic fracturing regulation on federal lands.

President Obama has said that he must make a decision soon (and we agree) on the future of LNG exports. Radical environmentalists urge to ban natural gas exports because it will increase the use of hydraulic fracturing. It’s no coincidence they are targeting the very technology that has spurred this shale revolution and expanded development of fossil fuels across the nation. Putting an artificial ban on the market of natural gas would hurt not do any favors to the American people, because it would restrict expanded development of natural gas. It would especially hurt independent producers, who seek a larger market for America’s natural gas supplies. Additionally the Department of Energy has stated in a report released in December that exporting natural gas to U.S. allies would be a net economic positive for the United States. It’s thought that the White House will adhere to DOE and approve at least some LNG export facilities in the coming weeks.

Additionally, the Department of Interior is set to release the Bureau of Land Management’s hydraulic fracturing and well construction rules for federal lands. IPAA came out strongly against the first version of the rule, originally released last May, which would cause unnecessary confusion for independent producers who are already struggling to operate on federal lands. The rule is expected to take into account some of industry’s concerns, but IPAA holds that any federal rule to regulate hydraulic fracturing, when the states are already successfully doing so, is burdensome and duplicative. Different plays in different states have varying geology and environmental issues – putting a one-size-fits-all blanket rule on top of the existing state regulatory regimes makes no sense, will only cause more bureaucracy and confusion, and will certainly further drive producers from federal lands. That rule is set to drop this week (possibly today).

Good News for Offshore Development, So Why Block Access?

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Today, the Department of Interior held a lease sale for the Central Gulf of Mexico. The sale garnered a great deal of enthusiasm from the industry, attracting 407 bids from 52 companies. The total bids for today’s sale exceeded $1.2 billion dollars—one of the highest sales since leasing began in 1983.

This huge amount of federal revenue begs the question: Why are legislators in Congress and the administration calling to raise taxes on the oil and natural gas industry when the industry is garnering a huge deal of revenue for the country? Repealing critical tax deductions would undoubtedly curtail this enthusiasm in the Gulf and onshore. It’s vital that Washington doesn’t mess with tax deductions and an investment plan that are clearly working.

The revenues are so great that states want in on more of the bounty. Today, Senators Mary Landrieu (D-LA) and Lisa Murkowski (R-AK) introduced legislation that enables states currently open for offshore production (Gulf states and Alaska) to keep more of the revenue generated by offshore energy development. The Fixing America’s Inequality with Revenues (FAIR) Act provides up to 37.5 percent of all revenues from offshore development to coastal states. Of this percentage, states would automatically receive 27.5 percent of these revenues, 25 percent of which would go to the coastal communities most impacted by offshore development. They’d also be eligible for additional 10 percent if they establish funds to support projects relating to clean energy or conservation.

 

Although the IPAA supports efforts to increase American offshore oil and natural gas production, we believe the real solution to increasing offshore production would be to increase access to areas in the Eastern Gulf of Mexico and the Atlantic.  Rather than limiting offshore exploration to a few areas across the nation, the federal government should allow the states along the eastern seaboard and elsewhere to begin the process of exploring for additional energy resources off their coasts. 

What independent producers – and states – really struggle with is access. We need to open up the eastern Gulf of Mexico – to explore for the resources that are undoubtedly lying beneath the waters there. When the federal government refuses to allow producers to explore for American energy, it not only hurts the industry, but it does the American people a disservice. More American energy means more American jobs, more revenue for depleting government budgets, and more growth for our economy.

The oil and natural gas industry supports efforts to remove these federal roadblocks to American development. So do many legislators in Congress. Today, more than 40 legislators sent a letter to President Obama, urging his administration to complete the long-delayed Environmental Impact Statement (EIS) for the conduct of a safe, environmentally protective seismic assessment of the oil and natural gas resources offshore the Atlantic outer continental shelf (OCS). As the letter expressed, it’s been more than two generations since the last seismic testing was done on the eastern seaboard. Clearly, the technology has advanced greatly since then. We didn’t even have 3-D seismic testing at that point. The letter expressed that this testing “represents a critical step toward making science-based decisions with regard to any future commercial or recreational activities in the federal waters off our Atlantic coastline that could provide the nation much needed energy, economic, and environmental benefits.”

 It’s time to let states that have been barred from offshore development explore this opportunity for jobs, economic growth, and energy security. It’s time to let industry get excited about developing the eastern seaboard and the Western Gulf of Mexico. The economic potential of this energy opportunity is so large that the industry, states, federal government, and the American people can all share in the bounty.

Don’t Hold Oil & Gas Hostage for Political Points

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Washington is buzzing about the upcoming deadline for sequestration on March 1, which is just a little over one week away. Sequestration refers to a number of automatic spending cuts that will be made across the board unless they are renewed by the House, the Senate, and the White House.

The effects of sequestration are no joke. They would mean real cuts to programs and budgets that would translate into a loss of jobs for thousands of workers employed by the federal government. However, this deadline is being used inside the Beltway as a political contest – a game of chicken, if you will – whose ultimate end is to deflect blame onto the other political party. The White House and Democratic leaders in the Senate and House want to paint the Republicans as obstructionist and have called for a plan to raise taxes, again. Speaker John Boehner and House Republicans, by contrast, are trying to demonstrate to the American public that the Democrats are crying wolf – bemoaning a budget crisis that their spending policies got the U.S. into in the first place.

Yesterday, Rep. Markey, a liberal Democrat from Massachusetts known as an unceasing assailant against oil and natural gas development, used sequestration as a political flamethrower. He called Republicans “hypocritical” for not adhering to the White House’s proposal to avert the sequestration, because, he argued the effect of looming budget cuts would hamper the Department of Interior’s ability to issue permits for drilling. The White House affirmed this argument and has pushed to increase taxes on the industry.

edward-markey

“Republicans say they want to ‘drill baby drill’. Yet by letting the sequester go forward, Republicans in Congress will put the brakes on oil and gas development on public lands in America and reduce our ability to protect against another offshore drilling disaster.”

First of all, when has Markey been concerned about the Interior Department’s faulty record on issuing permits to drill? Markey is probably the most vocal opponent of natural gas and oil development in Congress.

Second of all, let’s address the as of now fully-funded Department of Interior’s record under President Obama. (Thanks to the House Natural Resources Committee on this one). Mind you, this is all according to government data from the Energy Information Administration.

  • Oil and natural gas production on federal lands is down by more than 40 percent compared to 10 years ago. The real increase in oil and gas production has occurred on private land, from the Eagle Ford in Texas to the Marcellus in Pennsylvania to the Bakken in North Dakota.
  • Under the Obama administration’s watch of the Department of Interior, 2010 had the lowest number of onshore leases issued since 1984.

The Democrats’ logic (ahem, politics) has a third fatal flaw. Markey, President Obama, and other Democrats in Congress have ignored the fundamental link between oil and natural gas development and government revenues. Just last week, Louisiana State University economist Joseph Mason published a study commissioned by the Institute for Energy Research that found that opening up restricted drilling areas on federal lands and offshore waters would add $35.8 billion dollars in the short run, and $99 billion dollars in the long run to the federal government. This is thanks to the millions of dollars paid by America’s oil and natural gas companies each day in taxes and royalties to the federal government from exploration and production of U.S. oil and natural gas. Republican leaders touted the study as a reason to utilize energy development to help raise revenue for the federal government.

To put the icing on the cake, President Obama announced today that he will speed up the permitting for renewable energy projects despite the looming sequestration and budget cuts. You decide where the hypocrisy stands in this round of politics.

Holding our nation’s energy supply in hostage to score a political point is a dangerous policy move. Instead of demonizing the oil and natural gas industry and blaming policymakers who want to avoid raising taxes on the American people and small businesses, President Obama should expand access to America’s vast oil and natural gas reserves. This would raise much-needed federal revenue to help avoid the sequester. Not to mention, it would create millions of jobs and add billions to the U.S. economy in the process. Any real solution our nation’s budget crisis includes a hefty policy pillar that encourages U.S. oil and natural gas development.

New Year Brings Opportunities and Obstacles for Industry

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IPAA President & CEO Barry Russell’s reflects on the opportunities and challenges of the year ahead:

“As 2013 begins, IPAA is optimistic that the great benefits of natural gas and oil development are gaining traction with leaders in Washington. Despite political gridlock that Washington seems to be characterized by these days, leaders on both sides of the aisle are recognizing that energy development environmental protection can and do work together to the benefit of the American people. IPAA has had several productive meetings with Congressional leadership and the White House on how development of oil and natural gas resources, particularly from shale, is boosting jobs, government revenue, and economic growth all across the nation. Below are some of the issues that IPAA will be working with Congress and the administration on.

TAXES.         

“Although major bills will likely be stymied in Congress, IPAA’s major area of legislative concern is taxes. Although comprehensive tax reform may not be undertaken immediately, tax policy will inevitably be in the spotlight. The call to end industry’s provisions of intangible drilling costs and percentage depletion and the passive loss exclusion will inevitably resurface. This is a dangerous political rallying cry that ignores the enormous risk that independent producers face in exploring for energy and threatens the continued investment in America’s vibrant and growing energy sector. IPAA continues to educate lawmakers and their staff on why these provisions are in the tax code. We will continue to warn against the unintended consequences that eliminating these provisions would have on future oil and natural gas production.

REGULATION.

“Due to the standstill in Congress, environmental issues will be addressed by regulations.  In fact, the legislative gridlock could embolden the Obama administration’s agencies to take major steps to federalize oil and natural gas regulation, with particular focus on hydraulic fracturing. Traditionally, the states have had jurisdiction of energy regulation and, time and time again, have proved themselves more than capable of doing so. From the EPA’s proposed national source performance standards to BLM’s drilling regulations to EPA’s regulatory guidance and studies on hydraulic fracturing rules, IPAA will be keeping a close watch on the administration’s actions in regard to oil and natural gas development.

ESA.

“In particular, the Endangered Species Act, which the anti-development activists use to try to shut down development of all kinds, is a top priority for IPAA in 2013. Specifically, IPAA will be pushing back against the listing of the Lesser Prairie Chicken. A listing could threaten oil and natural gas production in resource-rich states, states which have already made special conservation coalitions to protect this species.”

 

Regulatory Actions are a Dime a Dozen

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There are three major regulatory actions by the Obama administration that should be developing in the coming weeks.

President Obama visiting TransCanada Stillwater Pipe Yard in Cushing, Oklahoma

1. Keystone XL. The Obama administration made the infamous decision last January to reject TransCanada’s application to build the Keystone XL pipeline. The pipeline would start in Canada’s Alberta Oil Sands and go down to the refineries in Texas. This pipeline would create thousands of new blue-collar jobs, relieve the bottleneck from Bakken crude oil in Cushing, Oklahoma, and provide energy supply from our closest ally, Canada. To approve the pipeline should have been a no-brainer and the initial rejection revealed an anti-development bias in the Obama administration – which he got a lot of flak for. TransCanada has re-submitted its application with an alternative route, and the administration is set to make a decision in the coming weeks. This decision will give us an inkling of how anti-industry that administration’s second term may look like.

2. BLM Hydraulic Fracturing Rule. In May, the Obama administration released a proposed rule on hydraulic fracturing and well construction on federal lands. This sets a new precedent as the states historically handled the regulation of oil and natural gas development. This is due to the diverse geology and environmental issues that state regulators have better capacity to manage (both budget-wise and experience-wise). IPAA submitted comments expressing our concern about the federal scope of the rule that threatens to drive even more producers from federal land. More than 59,000 comments were submitted to the Bureau of Land Management on this proposed rule, from both sides of the issue. The administration will likely make a decision on BLM HF (as it’s been coined) before Christmas. Due to the controversy surrounding the implications of this broad rule, the rumors are right now that the administration will take into consideration the comment recommendations and propose a revised rule. We shall see what ends up happening (after all, rumors are only rumors) but this federal lands issue is of paramount importance for IPAA.

3. EPA Hydraulic Fracturing Study. The EPA has undergone a study of the impact of hydraulic fracturing on drinking water supplies. Industry has long had problems with this study. For one, it is retroactive in nature – which means it is looking at sites with history of hydraulic fracturing. It is hard to make causal assumptions when the study is putting together pieces of history. Second, the EPA’s methodologies in the past have been extremely flawed, undoubtedly political in nature and quest, and have contained serious faulty science. (Think Pavillion). The study was requested in 2010 and isn’t supposed to be released until 2014, but EPA plans to give a preliminary progress report by the week’s end. Also, at the end of the day, the EPA, Interior, and other top officials of the administration have said repeatedly that there has never been one case of groundwater contamination in the over 1 million wells that have been fracked since 1947. It looks like the EPA is trying to find a ghost that doesn’t exist yet won’t rest until it comes up with some sketchy, hastily-drawn conclusions. The report will give us some indication of the motives of EPA and will give us a preview about how political the full report will be.

Again, just this week, industry is dealing with three different federal agencies with three different high-profile examples of attempts to regulate oil and natural gas development. This is a good microcosm of the fact that in total, there are 14 different federal agencies trying to regulate the industry. These are just the high-profile regulatory cases that are on the top of IPAA’s agenda this week.

Look to Oil & Natural Gas Industry for Interior’s Contributions to Economy

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Yesterday, the Obama administration released a report on the Department of Interior’s contributions to the economy in 2011. According to the press release, the activities of Interior added $385 billion to the U.S. economy and supported more than 2 million jobs in 2011.

Those are indeed impressive numbers. But it’s a bold move to claim that the activities of Interior contributed these jobs and dollars. After all, what is the source of these jobs?

Energy. The report does acknowledge that “energy development and mining on Interior-managed lands and offshore areas supported about 1.5 million jobs and $275 billion in economic activity.” However – it’s not even just energy development as a whole. An overwhelming amount of those economic benefits stems from the work of America’s oil and natural gas companies.

Where is this federal lands job creation happening? Interior points to Texas, Wyoming, Louisiana, New Mexico, California, and Florida. No kidding! After all, almost all of these are HUGE oil and natural gas producing states. According to IPAA’s Oil & Gas Producing Industry in Your State (OPI), Texas, Wyoming, Louisiana, New Mexico, and California (all except Florida) rank in the top 10 producing states for either oil production, natural gas production – or both. So it’s no wonder that these states have sourced “most of these jobs.”

Western Energy Alliance, which represents Western independent oil and natural gas companies, crunched the numbers. They found that 62% of the total economic value and 56% of the total jobs that the Department of the Interior claims in its report actually comes from America’s oil and natural gas industry. That’s $238.5 billion in GDP and 1.3 million American jobs!

It would be one thing if the Obama administration was touting these jobs while truly creating a national energy policy that encouraged American energy production. But between Interior’s five year offshore plan which restricted offshore access and Interior’s draft rules for a blanket, one-size-fits-all standard for hydraulic fracturing and well construction on federal lands, it seems that this administration falls far short of promoting oil and natural gas development. Instead, Interior is creating an uncertain, burdensome business climate for the very industry whose jobs the department is claiming credit for.

These very jobs and economic growth are exactly what’s at stake in the energy policy battles of 2012. That’s why the oil and natural gas industry has pushed back against Interior’s new regulations. They threaten the future of energy development on federal lands – and the job creation and economic growth that come with it.

On path to chopping block, BOEMRE announces new regs

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Last week, Director Michael Bromwich announced that the Bureau of Ocean Energy, Management, Regulation, and Enforcement (BOEMRE), the federal agency that oversees offshore drilling, will be devolved into two separate entities. As if there wasn’t enough red tape already for oil and gas companies.

 

Before permitting applications and exploration plans were both vetted through BOEMRE. Now, starting October 1, oil and gas companies looking to drill offshore will have to go through two separate agencies: the Bureau of Safety and Environmental Enforcement and the Bureau of Ocean Energy Management. Previously, BOEMRE was previously the Mineral Management Service (MMS).

 

This new administration shakeup is worrisome for oil and gas producers, who have already had a lot of trouble getting permits approved after the Macondo incident. Last month, the administration announced that the first lease sale since Macondo, which occurred in April 2010, will be in December of this year. Yesterday, at a meeting at the Center for Strategic and International Studies, Bromwich blamed the industry for these delays. “Instead of commissioning studies that don’t bother to understand how the process actually works, they would be better served by devoting more resources to improving the quality of their applications.”  Citing the letter that IPAA signed and sent to President Obama last week, Bromwich called industry studies, which demonstrate the economic impacts of the permit slowdown, “politically motivated” and claimed that the numbers were “made up out of thin air.” This includes, of course, the Quest Offshore study, commissioned by the American Petroleum Institute, which demonstrated that the industry could create 190,000 more jobs over the next two years if offshore oil and gas producers were able to ramp up their activity to pre-Macondo levels.

 

In the thick of this shakeup, the Department of Interior (DOI) and BOEMRE jointly announced six new safety regulations on the offshore industry. The rules would require drilling operators to identify and avoid risks in an effort to reduce the number of human and organizational errors that could lead to accidents or oil spills. IPAA, with the offshore oil and gas industry, remains 100 percent committed to promoting the safety of its workers. However, it seems strange to create new regulations at a confusing time for the administration—when BOEMRE is being divided and reorganized. Michael Bromwich himself has admitted that he is “sure there will be some surprises” in the restructuring process.  

 

New regulations announced at a very uncertain time for the offshore drilling agency may not be the wisest move. The agency is already backlogged with the amount of permits that need to be approved offshore. Hopefully the economic benefits our nation could reap are not stifled. We shall see. After all, as IPAA Vice President Dan Naatz warned, the industry is “headed into unchartered waters here.”

Studies: Unlock Energy in Offshore & Onshore U.S.

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Two studies were released this week that demonstrated the enormous potential of the oil and gas industry in the United States—if burdensome regulations are kept from limiting the industry.

The Quest Offshore study, commissioned by the American Petroleum Institute and the National Ocean Industries Association (NOIA), revealed that as many as 190,000 jobs will be created over the next two years if the industry bounces back from the steep decline in activity in the Gulf of Mexico after the oil spill.  Thank the Obama administration’s moratorium for the decline which halted offshore drilling in its tracks. Even after the moratorium was lifted, the administration slowed down the permitting process, making it extremely difficult for companies to put their drills—and their employees—back to work.

The report concluded that offshore oil and gas activity in the Gulf of Mexico could support 320,000 jobs in Texas, Louisiana, Mississippi and Alabama by 2013, if spending on capital and operating expenditures rises from $24.2 billion in 2010 to $42.4 billion in 2013.

However, these jobs and this level of investment will only occur if and only if the permitting process is streamlined—made simpler and faster. Right now, companies are stuck in the red tape of the Bureau of Ocean Energy Management, Regulation, and Enforcement’s (BOEMRE) federal agency for many months to even years. Randall Luthi, of NOIA, said absolutely that “the current pace of permit reviews and approvals will just not get us there.”

The second report, commissioned by the Western Energy Alliance, studied the impact of onshore drilling in the West. Due to technological progress that has “opened the door to a century’s worth of new oil and natural gas” in the West, the ICF international study found that the industry is projected to increase investment in the West by $58 billion annually by 2020—and could support 504,120 jobs in that region.

The study revealed that these investments could generate 1.3 million barrels of domestic oil production a day and has the potential to produce 6.2 trillion cubic feet of natural gas per year by 2020. Combining these oil and natural gas estimates, the supply from the West alone is projected to produce more energy per day than total U.S. imports from Saudi Arabia, Venezuela, Iraq, Kuwait, Colombia, Algeria, Nigeria, and Russia. These are incredible numbers which prove that the key to energy security comes is unlocking our energy reserves here at home.

These two studies report great news for the industry and for our country. However, IPAA cannot stress enough that this great supply of domestic energy, this investment in our economy, and these jobs are all contingent upon avoiding “misguided government action” which threatens American energy viability.

BOEMRE to NOLA for workshop…

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From the Oil & Gas Journal:

The US Bureau of Ocean Energy Management, Regulation, and Enforcement will hold a 1-day workshop on Mar. 25 in New Orleans to discuss standards and requirements for exploration and development plans, with an emphasis on new safety requirements which have been implemented in the last 6 months.

The workshop at BOEMRE’s Gulf of Mexico regional office will provide information on plan submissions related to E&D plans, worst case discharge calculations, the National Environmental Policy Act, oil spill response plans, and spill response and containment, BOEMRE said.

Draft memo suggests Obama Administration may oppose independent offshore safety agency

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Trying not to make a MM...S of things...

From The Times – Picayune:

The Obama administration largely embraces the legislative priorities recommended by the Oil Spill Commission the president appointed in the wake of last year’s BP disaster, but could disagree with the group on a key regulatory proposal, according to a White House draft memo obtained this week by The Times-Picayune.

The memorandum is marked as a “pre-decisional draft” and is being circulated by White House staffers among various federal agencies. It says the administration is “concerned” about the Oil Spill Commission’s request that Congress create an offshore safety agency within the Interior Department. The concern appears to be that an independent agency would impose demands on the oil industry that run contrary to those recently devised by the new Bureau of Ocean Energy Management, Regulation and Enforcement.

In its report last month, the Oil Spill Commission praised Interior Secretary Ken Salazar’s reorganization of the old Minerals Management Service into bureaus to separately handle lease revenues, drilling safety and environmental issues, but said the new oversight structure didn’t go far enough to protect safety and environmental regulators from political and money-making pressures.

For the rest of the story, continue here.