sure in california you talked for a minute about the tragedy with the bp blowout in the gulf of mexico being from texas let's talk a little bit about the gulf of mexico if you wouldn't mind the us oil companies aren't the only ones drilling the gulf of mexico are they i don't believe so but i have to be honest with you our purview includes only the western united states and i'm not familiar with who's operating in the gulf of mexico i believe as a lawyer i don't ask a question i provide the answer to and you've actually got the china drilling off the coast of cuba you've got the state oil company in mexico that's drilling in the gulf of mexico as well so regardless of what amount of regulation we put on our domestic oil companies we're not gonna have any effect on what china and mexico are doing we can't change the way they drill would that be an accurate statement i think that's correct sir i think that the chairman mentioned too that while we are seeing the prices at these very high levels apparently related to the unrest in the middle east the longer term picture is the not just these other emerging economies are very actively and aggressively out in the world market looking for new production opportunities they're buying a tremendous amount of oil and it's creating upward pressure so do you think a better regulatory scheme or better wade for the taxpayers to spend their money rather than making it more difficult for y'all to drill in the gulf and compete and make permitting and all these regulations might be to invest a little bit of time and money in some response training and technology so in the event something happened in a well owned by or operated by another country we'd be able to respond to that as well as if something happened locally i lost the question i followed up i know rather than putting excessive regulation on our domestic companies making it difficult for them to compete let's say in the gulf of mexico and where you've got mexico and china also drilling if something happens on a mexican or in a chinese drilling rig and there's a blowout or a leak or something wouldn't be better off rather than spending our time and effort regulating domestic companies coming up with responses that would benefit any worldwide oil company i think the us oil and gas industry has led the world in developing those kinds of responses in california of course we have a huge resources on standby two hundred and forty seven to respond and have developed along with other regions of the country this technology that really is used worldwide to respond to any accidents that occur all right well i'm overtime i'll let everybody else get their turns but i would like another round of questions i assure you we will as long as our witnesses are willing to indulge us we would like to learn all we can mr mccarthy well i thank all the witnesses for their testimony and it really comes down to why we're having the hearing why we're having this challenge we use more energy than we produce in this country having said that that means we have to get it from somewhere else so we pay for it's from where else the challenge that i've always faced in this job is there's many times we think in california we realize other states compete with us we had the ability to say which state produces more than others we watch every day maybe a company leave california somewhere else cause they maybe get a little better place we never really think that america competes with other countries but we do and energy is probably the number one industry that you can find that to happen if we make it harder here we will still buy it somewhere else now this country has faced a lot of challenges and normally when we face a challenge we meet a goal and we go forward we've done that in world war ii we achieved our goal when we found it that russia went to space first we made a goal for us in a decade we will go to the moon and we faced our attention on that for too long in energy we only face our attention when the problem gets too big and then we'll put our attention there then we forget about it when it comes down so you don't have the ability to go there if anybody's ever lived in a community that has oil you've seen the booms in the bust if you lived in this community you watched a time where the cost to lift it was more than the barrel you could even sell it for but you could not shut it down so you had to maintain it i have found that the country gets very divided now a time that we all get united is usually during the olympics why because we cheer for our country we never ask them whether they're republican or democrat but the other reason why we cheer so strong is because america gets a level playing field if we do a hundred yard dash we all start at the same starting line and we all have the same finishing line so we've gotta think from that mindset too when we make stuff more difficult here someone else can still be drilling someplace else but have different protections on the coast than we would have and so taking some of that i thought some of this ability of what i saw here today i loved the presentation where you actually shown how it was going now technology has changed and probably the best analogy i've heard from somebody if you think of a bath tub and you fill it with water picture that underground that that's a natural resource our old way of doing it was putting a lot of straws into the bathtub and trying to get that water out horizontal is fundamentally different now we get to just go to the drain and use one so that's one over the land and that's one ability to bring it up in a different capacity and it's environmentally safer when oil was first discovered in kern county it was out in taft it was a lake there's pictures of people in a boat not of water but of oil it's a fundamental different place of where we have it now and how our protections but i wanna take that technology a little further and i wanna follow up with mr witson when you do the fracking you had shown in your graph cause there has been some people bring up the issue about the water table and the protection if you can walk me through that one more time to show where fracking goes and where the water table is and what protections we have and going using the technology great question congressman water tables or the aquifers that are drinkable are essentially shallow and with very few exceptions as i indicated a few hundred feet below the surface the states require and we with our practices implement a very strict regimen of sealing off those water sources at the surface or close to the surface with multiple layers of steel and cement and then the frack job is done through those layers that seal off the water and when you normally do the fracking how further down is that from the water table itself thousands of feet in most cases certainly fifteen thousand feet is not uncommon we at devon are doing eight to ten to twelve thousand feet and so you're well below far below the water sources in canada i will mention too and this goes to other things we're doing to try to protect both water quality and quantity and quality we actually in our heavy oil operations in canada have found ways to use nonpotable water so we use now fresh water to generate steam and we're trying to find areas where we can do things like that all the time because we are very much in tune with concerns that are very legitimate particularly in the west about water issues we also try recycling where we can we do it where we can and we also blend water so we use flowback water to put in the next job if we are able to do that and we're making progress on that technology all the time as well now we all know that one form of energy is not gonna get us out as we also know that as advancements goes we will have renewables that have great potential for the future but we need that bridge the challenge that we have is that we have to have a policy that allows us with the ebbs and flows of the cost to actually bring the cost down because our economy seventy of is based on consumption with the price of oil rising so rapidly what happens is people are still paying that cost of the business and they're taking the consumption out of the economy so our economy drops but that price still goes someplace else and it goes out to another economy so rock you brought up inside talking about the taxes that they are very similar in the same taxes based upon any other business i wish if you could explain that a little further well there's been a lot of discussion about whether or not oil companies received subsidies and i was trying to make the distinction between a subsidy and a tax treatment in fact first of all the actual components that are within the administration's budget that they wanna eliminate target independent producers not major oil so that's the first distinction most of those tax treatments are not available to the major integrated oil companies they're only for the independence but the second and more important point that i was trying to make is a subsidy is a cash payment from the government for doing some sort of activity it's quite different if you are having a debate within the irs about how to treat a certain expense and we'd be happy to have that debate but keep in mind the only way that you have this debate and the only way that you have these expenses if you're deploying capital and that's exactly what our companies are doing is they're deploying capital and the question is how best can they redeploy the new capital and that's what a lot of these tax treatments were designed for given the fact that this is highly risky it's very expensive and our energy security depends on it the taxes in the 10s and 20s a hundred years ago were designed in order to encourage the rapid reinvestment of this capital back into new oil and drilling programs and that's exactly what we experienced so if you do not invest the risk you cannot get the tax that's correct governor can i just add one point here please sir yes we will just inject four for devon and we are a large independent exploration production company the recent proposals by the administration just on the intangible drilling costs which are the real cost as rock has pointed out of drilling a well it's clearing the land during the environmental remediation if those proposals were put in place it would cost devon about a billion dollars in the first year and that would equate to our complete drilling program in the barnett shale that i mentioned was where the shale revolution really started and it's the most prolific area in the country to us we have to say what is that all about that looks to us like it is totally a wrongheaded policy that actually would penalize the companies that are most efficient at producing domestic resources that power this nation i wanna go to assembly we've engraved because she has witnessed one and kind of all your presentation from the redundancy of regulation not just with oil with renewables trying to find from wind and solar out in east kern but from our own personal in a business finding out because of what california does where you're setting a business in another state i wonder if you could touch on one the redundancy that what you are viewing outside into the district as well for the our ability to produce more energy in america thank you in all due respect i'd like to address just one thing prior to we talked about taxes or a tax that you guys were just addressing industry meaning the oil industry pays an average of four hundred and fourteen of tax and if california liberal politicians have their way what we're fighting up in that building right now and they get a one hundred and twenty five oil severance tax it'll increase the industry's tax to five hundred and thirty nine now to give that number some perspective if you take apple in two thousand and ten they paid twenty eight of its revenue or profit to the government apple did and while it generated more profits than chevron so in perspective industry is being punished on a tax base than other employment agents or industries and if you go back to mr chair you had a question earlier about the average products are good and profit and those of us that have been business know that somebody could say well you run a twenty five million a year corporation but after you pay payroll taxes workers comp liability insurance and you go down to the net profit it's around a hundred thousand dollars not in the millions so if you take apple for instance again in a comparison the average product sold are about twenty five above the cost of materials and production for marketing and sales and then if you use that for the same in comparison to with exxon exxon's profit margins in comparison were about eighty seven and that's hardly the windfall that people are proclaiming if you take the oil industry as a whole they have one hundred and fifteen basic on profits and making that 45th most profitable industry of the year that is hardly close to the top ten so just to clarify those two things and then back to your question mr mccarthy i'm sorry from a business standpoint being a third sometimes fourthtier contractor for the oil industry the job multiplier that we have and i ran on jobs we have twenty five million people unemployed in the state of california which affects our federal revenue as well and when i ran on jobs and you look at what industry can place in these jobs you talk about the job multiplier a lot of the individuals in this testimony have referenced the oil industry jobs and i'm gonna name a few local companies if you take one oil field job and a platform you have engineers that and you have site engineers you have chemical engineers you have mechanical engineers you have people that are the job multipliers what i call em if you build a site you have an excavation crew a site crew a gravel crew the gravel is produced someplace mainly in one of the facilities that we have either on the great vine or in mojave you have a trucking companies that transport that gravel to the site you have everything from all those companies that are supported by oil or big oil small oil independent oil these are small businesses that thrive on this industry you have people that supply more paper and pencils and product like from stinson's or o'leary's you got simple things like monuts speedway market where ninety of the people that go to work in the oil field stop and purchase stuff from her for their daily consumption of food and breakfast so when you look at the small business that thrives on this industry the jobs that are created and not created from private business because of the limitations with permit delays and through the division of oil and gas or i've seen projects delayed out in the oil industry where a blunt nose leopard lizard is onsite and they cautioned tape it off and everybody sits around and waits for this lizard to leave mr layton talked about a description of a job that's being delayed where the activity of this blunt nose lizard is in certain times of the year so you just have to stop working until this lizard finds its way to another location or goes into some type of hibernation those things don't make any sense when it comes to job creation the oil industry and job creators are very conscious of things that need to be done to protect our environment and our land but california and department of fish and game and federal epa is way overreaching and have become completely unreasonable to the hindrance or full out assault against private sector job creation assembly woman if i could follow up on that is there really any difference in your estimation between the crazy or the excesses you're describing in oil and the same excesses that are occurring that are delaying green energy rollout because this is also an area of the state that has the potential to provide an awful lot of solar and other energy don't you find the same thing to be true that the same selfinflicted wounds are hurting our ability to reach any reasonable goal of renewables it's exactly true and it's not only in renewable in the energy you take in east kern which i represent as well there was a solar plant that wanted to put a solar facility in the mojave desert where the sun is and it was not able to do that because of a mojave ground squirrel you look at industry just private business industry across from development i have a developer in taft who's had a certain piece of property who cannot develop that property and provide affordable housing in taft where we have a large oil production area because of squirrels that live on that property and he has to tag em and put a little lantana on em and transfer em to double the amount of property it's so the environment we saw that on animal planet it was very impressive the tracking just not very productive for mankind i guess it isn't it is not and not productive for job creation in our state and in our nation i recently had the opportunity to go to texas and it was very interesting you'd see the governor i understand i did i got to meet governor perry and what was interesting is that we talked to the department of railroad oversees their permit process in texas for some i'm not really sure about that cause the railroad and the permit process and i'm keeping the same environmentally protections protecting our land and being conscious of our planet they issue permits within two to five days project permits where we're sometimes delayed for up to years that and then the environmental delays with species endangered species on these projects and properties causes jobs that we desperately need here in our state and our nation to be delayed as well rock you said something and i want to try to put it in the record in a way that people that are not involved in the oil industry would understand i came from the electronics industry we watched the government come up with is interesting one that our patents if we had a patent and we went through and we paid the legal fees we had to amortize the patent over the life of the patent all the costs we paid to the lawyers so you pay the lawyers today you finally get your patent and by the way if they turned down the patent you could write it off but if you actually had something worthwhile so you got it you had to amortize all then if you had to sue somebody to defend your patent you had to put all of that into if you will a longterm depreciation schedule because the government wanted your profits today even if you had spent them in trying to create profits for the future isn't that basically the same kind of wrong minded thinking that american companies are seeing except in your case it's a drill bit that when you double the drill bit and you break a bunch of equipment as you're drilling down and you set it aside you send it off to salvage it's gone you've spent you bought it you paid for it you spent it and you disposed of it they now want you to amortize that over the useful life of the oil well isn't that essentially what cause you say intangible and to me money out of my pocket that i know i spent that they want me to pretend i didn't spend for twenty years that's not intangible is that the intangible we're talking about here today that's exactly right we're talking about mud cement testing some drilling operations that you're talking about all things that are happening before a well is completed or any production has come online what's amazing is america is a funny place we talk about how we support business we really care about it but people in washington in my position have done some amazing things i was in private business when nafta was passed and whether you're for or against nafta one day i found out nafta had been signed and i found out as a result of nafta i was gonna have to wire transfer weekly my payroll withholding taxes instead of sending in a check and the reason was because your predecessor bill thomas and all the other guys they had a couple of billion they needed in revenue to make nafta pencil out so they got it by accelerating the speed with which every business in america would send money to the government now it only scores a onetime event cause they've just accelerated the speed which they got it from a couple of weeks or a quarter for small companies to immediate we're still doing that today and it's one of the frustrations i have i want your industry to expense everything absolutely that is consumed i certainly want you to capitalize your longterm assets if you've got a casing there it's reasonable to have it over the life but i want your capital be put back to work as quickly as possible i want devon energy to have a smaller bank line or put in more wells and the amazing thing is i can't get my government to go along and i can't even get the ways and means committee to go along but let me go to another question that i wanted to understand because fracking which is not new technology isn't what we're talking about here today what we're talking about is better fracking is that right that's correct and new applications of fracking and if i understood correctly if we're concerned about the watershed we've been concerned about it for sixty years because you've been fracking for sixty years correct and we've sort of we should know we shouldn't need secretary chu to endlessly study something you've been doing for sixty years let me understand something when you go down once but you go far further as far as what you yield the only difference in that is that you only have one area of risk which is that casing for far greater gain is that correct the casing is placed for a couple of reasons the one that we've been talking about obviously is to protect the water sources that's primary and it happens in every well there are other applications of casing to prevent the hole from collapsing and those kinds of things but the fact is and what i think you're alluding to is that we've been doing this for a long time the technology gets better the materials get stronger the knowledge of how we do this and how many times we do it along that horizontal length of pipe it all improves and we are seeing remarkable efficiency gains and one more thing that that is really remarkable today is we're doing much more of what we call pad drilling where we can actually do these multiple horizontal wells from one surface location so that we don't have to disturb the surface multiple places around this gas field so again the technology just continues to improve that's what i was leading to and i appreciate your clarifying my question about question because this is something where i'm still learning what you've spent a lifetime knowing you've got less exposure to the watershed because you're going down less times for the total amount you're getting correct your risk of course always is when you first drill through a water area until you get it sealed and you're comfortable and all the tests have done there's always some risk let's just say hypothetically that you hit oil because something one of the occasions they're well much closer than you thought it would be but you've eliminated all that risk before you start going horizontal so in a sense horizontal is getting more from this already mitigated small risk that you had when you first drilled what i guess in oklahoma is what is it twelve million wells they've drilled or something we've drilled a lot of wells and fracked a hundred thousand of them in oklahoma but also the other point i would make to congressmen is that in these shale plays in particular which is really the revolutionary thing now once we are there it's heavy by the way anyone that didn't pick this up when i send it back down you gotta figure it this is pretty darn dense rock it's pretty amazing that we're actually getting the gas to migrate through that rock to the wellbore and what i was gonna say is that also when we are doing this in these shale plays it almost becomes a in those particular areas something that we can replicate with less and less almost zero risk of course there's always some but i think in the barnett shale i don't think we've had a dry hole in thousands of wells for devon but that's because we finally nailed this technology it's right to your point that it's american ingenuity it's innovation trying to put these things together in different ways in these different shale place i'm gonna only have about two more questions but they're gonna probably be ambiguous so steer me through to the right answer on the question of a question when you used to go down and try to find a pocket of gas methane et cetera et cetera all the combinations of what you'd find down there it was hide and go seek and when you found it it could be quite a surprise there was a risk because this is volatile you don't know what pressure you're gonna poke into and so on you're out of that business for the most part you're going into a low pressure depth into rock rather than into big pocket of gas with this technology isn't that true well the pressures do vary there are some high pressure areas and lower pressure areas and i would say too that as was mentioned earlier along with the improvement in the completion techniques that the fracking and the drilling of the wells we have had very significant and continue to have very significant seismic and geophysics type of technology improvements and again it's putting all that together so that we know where we're gonna find resources more accurately and we can drill fewer wells to find them have more success the reason i asked that question is like most people who don't know your technology be watched tv i had watched some years ago about what happens if you hit that pocket and you shatter the impermeable layer that had kept it there for a long time you can in fact have natural gas flowing freely to the surface and that has happened a few times in history at least enough for television to capture it in the case of this technology you're going through the impermeable layer through the sand that was already there back into the core rock that had not released it so in a sense it's a much safer operation because you're you're not up against if you will the great protection against gas free flowing up it's much safer and it's much safer for other reasons as well which is that our materials and our processes and our practices are so much better today as we've learned through the years because of the very incidents that you've talked about now one last question for you and then rock's got an answer for a question that i asked earlier i think this is a heck of a solid piece of rock i looked at your presentation and as i look at you going diagonally here and then there i get the feeling that there's no question you're releasing more than otherwise was released is there available technology or available percentage you could give me what did we used to get when we just caught what happened to bubbled up and was sitting there under the withholding chamber what are we getting today when you frack typically and how much is really down there if you continue to improve your fracking to where you can sort of get it all well i don't know how to answer the first part of the question in a global sense but if you look at that one slide there's a very dramatic representation from one area but i will say that the potential gas committee and these are the resource estimators that are the experts in this country and really known worldwide they've just come out with yet another estimate of more natural gas that's recoverable in this country something on the order of probably in north america two thousand five hundred trillion cubic feet and we use twenty trillion or so a year now so you can see it's well more than a hundred years it continues to grow with technology and that's gotta be exciting for the country well certainly for those of us who heard that we were gonna get our last drop of oil or our last drop of gas and we were going to need renewables already because it was all gonna be gone to find out that there's plenty more and obviously i'm excited about oil because i don't want us importing oil from unfriendly areas but i'm even more excited about natural gas cause all the green lobbyists who have ever come to see me and many have they all talk about how if we could just get off that dirty coal and get onto clean natural gas what the benefit would be thank you for what your company's doing to take us from x carbon per btu to a fraction of what it would be if we go from coal to natural gas and rock you get the last answer to that question well i just wanted to mention another application of the directional drilling and that is offshore california offshore production is a very emotional issue on the west coast but i wanted people to be cognizant of the fact that you can utilize this technology off shore california