After a year at the forefront of discussions in the media and among consumers, energy remains the dominate subject on Capitol Hill. As Congress gets back to work and prepares for the next administration, one of the first items up for debate will be energy. We believe that a comprehensive energy policy that encompasses both short term and long term solutions to our energy challenge should be evaluated and voted upon. The below issue outline is provided courtesy of our industry association, the Independent Petroleum Association of America (IPAA).
Role of Oil and Gas in America’s Energy Supply
While America’s independent oil and gas industry supports the movement to reduce energy demand through improvements in conservation and efficiency, we strongly believe that this must be done while simultaneously diversifying our supply. We must encourage the growth of all energy sources, including nuclear, clean coal technologies, oil, natural gas, wind, solar and other alternative fuels as well as increased conservation and efficiency. However, when you reduce investment in American energy resources the result is less American production, more foreign dependency and higher prices for Americans.
Offshore Energy Development
Though Congress has allowed the offshore drilling ban to expire, the work on this front is far from over and IPAA is prepared to continue our advocacy efforts to ensure access is made available to this vital source of American energy. Offshore energy development in the Outer Continental Shelf (OCS) can be done safely while protecting the environment. In the face of new energy legislation, this is an important reality, one that IPAA will continue to present to both Congress and the Administration.
Nearly 85 percent of the nation's offshore resources are restricted by the government for exploration. These reserves could replace Persian Gulf imports for the next 50 years. The OCS holds approximately 77 billion barrels of oil and more than 420 trillion cubic feet of natural gas. That is enough oil and natural gas to heat 100 million homes for the next 60 years. Although it may take seven to ten years for new production in the OCS to come online, it should still be considered a vital part of the nation’s long term energy strategy to reduce our reliance on fossil fuels and to serve as a bridge fuel until new alternative fuels become economically viable.
“Do No Harm” – ENERGY TAX BILLS
When determining the best strategy to tackle America’s energy crisis, Congressional members must not rush to pit our energy sources against each other. We will need all sources of energy to move forward and if only for that reason, Congress should remember the last time the windfall profits tax was enacted in 1980, and domestic production fell and imports rose dramatically. Last time our elected representatives tried this: $40 billion in industry earnings was seized;
- Domestic oil production was reduced by more than 1.5 billion barrels; and
- Imports shot up by 16 percent.
A windfall profits tax would discourage investment in American oil and gas production – at a time when we need it most. Access to clean, affordable, abundant and reliable American sources of oil and natural gas are critical components in the formula that will fuel America’s future growth, prosperity and energy security. The energy bills being proposed ignore the stark reality that by 2030, oil and natural gas are projected to account for more than 60 percent of America’s total energy mix.
Onshore Energy Development
A practical short term solution to increase U.S. energy supply is expanding access to onshore oil and natural gas resources, specifically those in the Intermountain West. An overwhelming amount of oil and natural gas resources in the Intermountain West remain unavailable due to government restrictions. In the Intermountain west it is estimated to contain enough natural gas to heat 62 million homes for the next 50 years.
If Congress is in search for another way to stimulate the U.S. economy, it should look to more investments in American oil and natural gas, which will create more jobs at home and move America towards greater energy security and energy self-sufficiency.
Federal environmental laws address the management of risks from the actions of American society. Risk cannot be eliminated, but it can be controlled and reduced.
Most federal environmental laws are predicated on the existence of state programs that become the primary regulator. This essential structure – based on the reality that states have effective regulatory programs – reflects the reality that the federal government cannot manage day-to-day regulation. Many of these state programs – particularly in the oil and natural gas exploration and production arena – predated the federal laws.
Most federal environmental laws were developed based on manufacturing facilities that are large, generally located near urban areas and present concentrated sources of emissions or discharges. Like agriculture and forestry, this model is wholly inconsistent with the nature of oil and natural gas production which is generally rural, comprised of hundreds of thousands of operations and has diverse and small sources of emissions and discharges.
Consequently, federal environmental laws contain separate requirements for oil and natural gas exploration and production.
IPAA is committed to support reasonable environmental and safety requirements and to fight those that are unnecessary, duplicative, ineffective, wasteful or poorly implemented. IPAA will work to ensure that regulations reflect the high-tech advancements made throughout the industry. In addition, IPAA is working hard to help producers comply with existing environmental regulations.
“Use it or lose it” Legislation
Out of the latest round of energy proposals put before Congress, the do called “use it or lose it” legislation may have been the most misdirected and ill-conceived. Such legislation is born of the false argument that the U.S. oil and natural gas industry is not utilizing its entire lease inventory for energy development, whenin reality independent producers are playing a major role in pushing the rig count – the easiest measure of oil and natural gas development activity - to its highest level in 22 years.
Much of this growth is accounted for onshore. Independents are increasingly targeting unconventional targets that require increased applications of technology, from the Bakken Shale in the northwest to the Marcellus Shale in the northeast. According to Baker Hughes data, horizontal wells are up 50 percent compared to a year ago.
Though “use it or lose it” legislation would claim only to want companies to develop federal lease acreage before acquiring new leases, it fails to recognize that there are many reasons for not developing every lease. These reasons may include:
There may not be oil or natural gas reservoirs under the parcel;
- It could be undergoing seismic and geological tests and data gathering;
- It could be under environmental and federal permitting review;
- It could be wrapped up in litigation and protests by anti-development groups (up 700 percent from 2001-2007).
IPAA estimates that independents develop approximately 90 percent of the wells in the U.S. By this count, IPAA members are harnessing all their resources to provide more energy for America. Moreover, independents typically plow back over 100 percent of their cash flow into exploration and production operations according to a study by John S. Herold (IHS). However, the cash does not go as far as it once did. An Ernst & Young study recently revealed that exploration costs have risen by 165 percent since 2003 and development costs have risen by 180 percent.
Clearly the U.S. independent is busy doing its job of exploring and developing oil and natural gas for American consumers. Though some will continue endeavors to turn the industry into a scapegoat, the producer remains hard at work and is putting rigs to work in over 30 states.
YOUR HELP WILL BE NEEDED!
As Congress prepares any action of critical importance to our industry, we will be contacting you through a Grassroots Action Alert to request your help in supporting our position. Our new grassroots program will help you send an email to Capitol Hill, the Energy Department, or other federal agencies with three simple steps on your computer.
ACTION: Please be on the look-out for our Action Alerts that will ask you to take only a few minutes to help preserve important government programs and protect the industry from dangerous legislation.