special presentation full committee will come to order this field hearing is on pathway to energy independence and particularly on hydraulic fracturing and other new technologies the americans deserve an efficient effective government that works for them our duty on the oversight government reform committee is to protect these rights our solemn responsibility is to hold government accountable to taxpayers because taxpayers have a right to know what they get from their government we will work tirelessly in partnership with citizen watchdogs to deliver the facts to the american people and bring genuine reform to the federal bureaucracy this is our mission and this is what we are here for today this weekend national gas prices surpassed four dollars a gallon that's no surprise to the people of california who are tiptoeing on high steps toward five dollars a number of factors are included in this our committee will in fact look at all of them let there be no mistake today is not about only one part of the cost of natural gas oil and other  sources of energy consumption from china and india are rising thus stressing a world that had a norm of supplying mostly europe and the united states with its fuel many of the  wells that produce oil and natural gas have been operating for decades or even here a hundred years here in bakersfield we discover an early set of wells that still produce and can produce much more we're here today to talk about sorry to talk and listen to experts who can help us understand how we can safely extract more not less energy from this region it is very clear that america suffers from a willingness to buy a willingness to consume but not nearly enough willingness to produce domestically fracking is largely responsible for the increase in natural gas production the proven technology has revolutionized the extraction business particularly in natural gas but let me make it very clear hydraulic fracturing or fracking is not new it is the improvements in a yearold technology that we are so interested in in north dakota we have a stunning example where horizontal fracking for oil production has increased seven thousand five hundred percent in just five years pennsylvania one of the areas first used for oil has the same potential as does california but to recognize that potential we are going to have to listen to all the concerned citizens we are going to have to recognize that in america today there are safe ways to do things and then there are shortcuts our committee is interested in making sure that no industry ever again takes shortcuts as we believe occurred in the gulf at the same time oil and natural gas will be produced somewhere in the world to meet our consumption needs our goal is to make sure that the safest possible activity goes on in the u s and the maximum amount that can be extracted is extracted safely america has the highest standards for drinking water epa is to be commended for what they've done  at the same time clean water without in fact an economy operating are mutually exclusive most of what we do in the way of clean air clean water are the result of a vibrant economy that is able to support technologies that make these clean air and clean water more available and more abundant not just here but around the world so as we look at this issue today let me make it clear we will be looking at the entire group of issues including ways in which we can produce more and consume less president obama has set goals for increased production and increased safety we as onehalf of onethird of the government seek to make sure that his goals of clean safe and abundance of american fuel is able to be met by his administration through the work of this congress and oversight before i recognize other members for the opening statements i would like to add one more thing for the record i'll be including a comment of the committee on the announcement of the president's fracking advisory panel secretary chu has appointed a panel we've reviewed it i guess i'll ask any of you hear about it in time to be included in that commission no from what we can find this is a commission that lacks operators it lacks people with the experience in the production and appears to be a combination of if you will intellectuals and opponents of all natural gas oil and other fossil fuel production so we're hoping through this letter in the record and a followup to the administration that this commission can be expanded so that its consensus is a consensus of the entire industry and beneficiaries and not simply those who have already decided they don't want the end product and with vibrancy a feeling you get and i was commenting to jessica blake who was with me a member of my staff who actually grew up in midland texas and we both agreed wow this is west texas with the mountains in the background and a few degrees cooler so i'm honored to be here and i feel right at home we have created a situation in this country where gasoline prices are so high that it's affecting every area of our economy the food that we eat every good or service that we purchase is affected by the increasing cost of gasoline and the increasing costs of energy we are producing we are importing the bulk of our oil and gas from foreign countries many of whom are not our friend energy independence increased domestic oil and gas production is an important economic issue it's an important jobs issue and it is also an important national security issue so i would like to thank our panel here for taking the time to come talk to us and let us explore and understand better the technologies that have been used in use for over sixty years safely for increasing oil and gas production here in california at home in texas and now throughout the united states of me great pleasure to recognize your hometown hero one of my heroes someone who i knew when he was in leadership in the statehouse and was pleased when he came to congress and even pleased when he passed me by he's been going up and down throughout the nation kern county is not new to him he's been throughout here but the work that he's done through his committee his committee is government house oversight and for too long government has not had the oversight we have passed a lot of different pieces of legislation but we've never gone back and had the accountability and his is the one committee that brings accountability back to government and he's done an extraordinary job with it so far and the one thing i want to thank him  coming to the nd congressional district and when you look at the challenges when blake talked about the security of america and jobs from the ability to have energy independence there's probably no better district in the in san luis obispo you can go out to find geothermal in ridgecrest as kern county knows we produce more than seventy percent of all the oil in california ten percent of the nation one percent of the world it's more than a hundred years so the technology has to be different but as technology has changed our life as i look across into this field of individuals they all have different forms of canvas when we landed on the apollo with the apollo landing on moon there is more technology in my blackberry today than there was on the apollo it has made our life better and just as that technology has improved it has improved our ability to use the resources of america instead of paying someone else for when we send our money someplace else we send our jobs someplace else but we also constrain our economy now we are the saudi arabia of natural gas but do we have the ability to bring it up we've watched fields more than a hundred years old and there are independent representatives here in the oil business that many have sold them and moved on we find in kern county you have oxy is based here well government sold them their field for three billion and they thought they got a really good of it because they didn't think anything would extract one of the largest finds discovered in the last little bit is out there so there's new potential each and every day our decision has to be as americans do we want to control our own future do we want to invest in america and do we want to use that technology to protect our environment at the same time and make it better than we're using it today and it's almost every week i'm able to go out and see a new form in kern county our oil happens to be thicker so we have to enhance it to get it even to come up but we have now used new technology where we are first in the world putting in solar panels out there to put the steam in it is a new approach a new style and that's what we believe in america reaching new opportunities winston churchill always said about america you can always count on them to do what's right after they've exhausted every other option i think that's right when you look at our energy policies we put in an energy department because we want to become energy independent we import more today than when we created that department we have to be honest with ourselves we have the resources in america we have the ability if we make the decision that we do not want to utilize our natural resources that doesn't mean we're not going to get it from somewhere else it just means we're going to pay somebody else somebody else is going to have the jobs and it's going to cost our own economy and we've watched that and we watch the world continue to grow that's what today's hearing is about we want to protect our environment we want to do it in a common sense sound way that makes the investment right here and we want to utilize the technology that allows us to do it it's a little ironic that the chairman of this committee probably knows technology better than anybody else inside congress he was very successful in business based upon technology and he continues to enhance that ability and apply that but also he understands accountability and that's what he wants to apply to government as well that's why he goes out across the country and has a hearing and goes directly to where it can have an effect so i want to thank the chairman and i want to thank the committee and  gentleman just another reminder we've probably got the third highest ranking republican in half the time that i've been in congress we now recognize our panel of distinguished witnesses assemblywoman shannon grove represents the  district of california and is also an entrepreneur and a very successful one at that rock president of devon energy which is the largest u s based independent oil and gas producer and as i was reminded both a californian and an oklahoman and we miss you here mister steve layton is president of e and b natural resource management corporation of california a californiabased independent oil and natural gas exploration company thank you for being here and  issa hull is vice president of the western states petroleum association which represents large and medium oil producers and a frequent testifier on these kinds of important issues pursuant to the understand the formality of washington it's a little different here you're not going to see adversarial questions and can we get you in twenty questions and cut you off as you're answering anyone that comes to a field hearing republican or democrat generally comes to listen so although we would like you to try to stick to more or less five minutes because your entire opening statements are going to be placed in the record as we go through the questioning don't be surprised if blake comes in and says a followup to what i say or kevin comes in the idea is we're here to listen and we're here to learn at the same time if one is answering and you want to pipe in don't wait to be asked we want to make the record complete with the knowledge that you chairman and thank you congressman mccarthy and members and guests i'm assemblywoman shannon grove but before i became elected to serve the people of kern county i've been a business owner and my business is primarily a third or fourth contractor to the oil construction and agricultural industries and my hope here today is to bring some common sense regarding our domestic oil production for these two very important reasons the security of our nation and jobs we have a vast supply of fossil fuels oil in california and we barely are tapping into them think about this for every barrel of oil that we cannot produce here we are importing from a volatile foreign nation most of it comes from volatile foreign nations and why are we as americans relying so much on energy from foreign nations when we have the ability the technology and the people who need jobs in our own state our own county and our own nation right here able to do it for example i know one smaller kind of midsized producer that has a platform and if allowed this platform can produce an additional thirty thousand barrels of oil a day so if you think about that and you're conservative if we were allowed to produce one hundred thousand barrels of oil a day additional to what we produce now california could reduce twenty percent or excuse me increase twenty percent of its oil production and you would reduce that from the middle east countries equally important is our national security or jobs private sector nontaxpayer funded jobs our nation has one of the highest unemployment rates ever and here in our energyrich district that i represent it's at an alltime high of seventeen point five percent unemployment some of our kern county cities are close to forty percent unemployment and that's completely unnecessary jobs domestic oil production would produce are great paying high quality nontaxpayer funded much needed jobs so with over two million people out of work in our great state more across the nation our national security and our economic hope of the future must realize its potential that we are leaving in the ground allowing increased domestic oil production begins to solve both of these very important issues our national security and privatesector jobs that are much needed in our nation let the people of the united states and california get back to work reduce our dependency on foreign oil and make america stronger and stop this fullout assault that we have on a very prosperous industry that provides jobs in our nation it's the number one thing that we need people need to get back to work and this industry provides jobs and has provided jobs and technology throughout history california independent petroleum association we're a trade association that represents about four hundred and seventy companies independent oil producer companies royalty owners and service and supply companies that have operations here in california about one hundred and sixty of those are actual oil and gas producers that range in size from small producers with just a couple of wells to large multinational corporations that produce hundreds of thousands the definition of an independent doesn't have to do w size it has to do with the fact that they're not an integrated company they don't refine market transport petroleum products at all independent producers produce seventy percent of california's instate production of oil and ninety percent of its natural gas as a state and fourteen percent comes from alaska but they're also declining and so the rest of the marginal wells have to come from foreign countries primarily saudi arabia iraq and ecuador independents is the main driving force behind exploring for new oil and natural gas reserves over ninety percent of domestic oil and gas wells are drilled by independents in the united states and their role is increasing in one thousand nine hundred and ninety nine major oil companies invested thirty one dollars  ago obviously the numbers are quite larger today which leads us to the next point which is drilling for oil and natural gas is expensive and it's getting more expensive in one thousand nine hundred and ninety nine it cost one hundred dollars per foot on average to drill a well in the united states by two thousand and eight that had risen sixfold to six hundred dollars a foot a recent study concluded that on average independents reinvest one hundred and fifty percent of their net income back into drilling operations that means they have to go out and get equity partners  capital or they have to borrow from banks in order to continue their operations capital budgets by definition are driven by how much capital is available and obviously the market price of oil plays a significant role in determining how much capital is available but other factors such as risk and return on investment also contribute oil and gas operations as with all mining operations are producing a finite resource therefore producers are basically going out of business every day so in order to survive producers drill to find new resources or employ new technology to better extract existing oil fields and that takes money so if your goal is to increase domestic oil and gas production you can't hamper the availability of capital and unfortunately that's precisely what the administration has proposed in their last three budgets the administration claims that big oil is receiving subsidies from the u s government and nothing could be further from the truth and i've listed a number in the record of these tax treatments and i'll just mention two one is intangible drilling costs which by the way are not available to any of the integrated majors only to independents and these are expenses expensing of nonsalvageable items that can be expensed in the current year  that they were incurred just like any other business can if a shoe salesman buys shoes for ten dollars and sells them for twenty dollars he doesn't depreciate the shoe over seven years the expense of it so these debates are about the proper accounting method of  expensing these things these are not subsidies that are given cash payments from the government for certain activities and as i mentioned a lot of the other ones are listed in the record i'd be happy to address those with any questions but the bottom line is it takes a lot of capital to drill for new oil and gas production so let's not hamper the access to the capital by raising taxes on our domestic independent producers but let the sector continue to create jobs and meet the energy needs of our citizens today they employ about four million people which whitsitt thank you mister chairman thank you to members of the committee for the opportunity today and i want to thank the local residents with whom i had a great conversation before the meeting today and they had a number of good questions what i'd like to do is chat a little bit with you and discuss what is truly a revolution caused by technology the chairman alluded to it and this is the natural gas revolution in the country today the game has changed the revolution is here the paradigm has shifted and there is no going back this is a piece of shale from eight thousand feet below the prairie of oklahoma and i'd like to pass this around to the committee and also it's fine to pass it around to the audience too the natural gas is actually trapped in the pores of this core sample and this is the key to the revolution what i'd like to do is start with a little geology lesson here this is geology for nongeologists and you can follow either in the printed testimony or on the screen but traditionally we were looking for oil and gas that was produced in that lower band that gray area there source rocks these are shales that i'm referring to here and that oil and gas cooked for three hundred and forty million years the little critters and plants  would migrate through porous zones up until they were trapped by an impermeable layer of rock and you can see that shown there toward the right in the small red area well that led us to find or try to find a number of these little trapped areas and that's why you had so many wildcat wells that were less successful or more and then back in the s beginning in texas and i'll have more to say about that george mitchell had the idea that we ought to be able to produce natural gas right from the source rock and he started drilling vertical wells and fracturing them and the economics just didn't work out all that well so in two thousand and two devon energy acquired mitchell began to marry the technologies of hydraulic fracturing and horizontal drilling to begin to produce gas on the barnett shale of texas that's the picture of where it is and we'll go to the next slide and you'll see that in the early part of the last decade the wells were shown on the black line those were vertical wells you can see production rates and the production tailing off out into the future and then look what happened with the blue line there when we started marrying the hydraulic fracturing and the horizontal drilling to produce this gas huge initial production rates in these wells in the last forty or fifty years let's go to the next  slide you can see the history of the shale plays around the country with the use of this marriage of technology and you can go to the next slide to see the projections that eia has in the dark blue there for our gas resource production into the future based on this  technology this is a depiction of the areas around the country where we have shale fairways and the ability potentially to produce a lot more natural gas for this country and if you go to the next slide you'll see that that has already  begun to have a very significant positive effect on consumer prices those are three different projections by the eia over the past three years ending up at that red line on the bottom that show the different price projections based on this increase in supply open and we have a little bit of animation here that will show you what it is that we're doing first of all we drill the well and then we're going to rerun it from the beginning here hopefully and you'll see that the well is drilled obviously from the surface out into a lateral that can be many thousands of feet long and then once we complete the drilling of the well i'll tell you what i'm not sure if that's going to work so well but we'll just talk about it from here you can see that the drill string is pulled out and then the well is actually perforated with a perf gun you see that happening here into the shale formation and after the well is perforated you can see the length of the distance of the perforations then the sand and water with some additives is put in under very high pressure and we begin to  shale formation the frack stages can be multiple here we put a plug and then we'll come back into the well and do the same kind of fracture stimulation treatment along that horizontal part of a well and then the water is flowed out the sand stays holding the fractures open and the surface equipment is by in large removed and only a small amount remaining and the gas is produced so that's basically the hydraulic fracturing process if we go to the next slide you'll see that one of the big concerns about hydraulic fracturing is addressed here by our well construction we under state regulation throughout the country  put pipe or what we call casing through any freshwater zones that usually occur hundreds of feet below the surface and we may be fracking as much as fifteen thousand feet below the surface but we seal off the water zones before we start the operation and you can see that depicted here if you go to the next slide you'll see just a depiction of the equipment that's used on the site that equipment virtually all goes away after the frack job and you see some numbers there with regard to the amount of water we use we can talk about that later if you look at the frack fluid components that have gotten a lot of attention recently the bottom line is