ninety nine point five percent of what goes into these wells is basically sand and water and of course most of that obviously would be water and the fluids are not all that mysterious in fact there's a very robust web site that has been in operation now for a little over a month called fracfocus that was actually created and is operated by state regulators under the groundwater protection council and the iogcc on which producers are beginning to post what goes into every hydraulically fractured this is a shot of the actual screen the forum that you can call up you can search this by well location by company by coordinates by api well number lots of different ways and find out what's in any well that's hydraulically fractured once this site is fully operational and all postings are on it the site is also extremely good and i'll say this to the residents in the audience and to others because it  actually has wonderful explanations in a very robust way about what i've talked about in terms of why we hydraulically fracture wells how it's done what the additives are what they're used for and a lot of other information that i think takes some of the mystery about hydraulic fracturing away so we conclude by saying that hydraulic fracturing has been as the chairman pointed out in use for many decades our first well in oklahoma was layton good morning my name is steve layton the president of e and b natural resources management corporation and it is an honor to appear before this committee as a representative of the independent oil and gas producers operating here in the san valley e and b is a californiabased privately owned independent oil and gas company we produce approximately seven thousand barrels of oil each day and have one hundred and forty employees our primary objective is growth and the replacement of our reserves it is important to note that e and b along with many other independent oil producers as rock mentioned reinvest virtually every single  dollarandsome that they earn in order to replace produced reserves and hopefully grow our prospective companies this significant and ongoing reinvestment of cash flow by oil and gas companies is a vital but often overlooked part of the way this industry must manage its business in order to stay in business this is exactly what has happened to e and b as well as many other companies in the united states over the past five to ten years particularly in two thousand and three e and b produced approximately one thousand five hundred barrels of oil per day but by reinvesting cash flow along with the financial support of banks we implemented a growth strategy that led led by field redevelopment and acquisitions today our production is in excess of seven thousand barrels of oil a day and our employee count has grown from about twenty to one hundred and forty i  also like to mention that this production growth being matched by the job growth is something that we're very proud of at e and b today i would like to focus on development also known as organic growth to some because it is this type of production growth that is important to all of us given the universal concerns about energy security the industry's ability to grow production has been enhanced significantly by advances in exploration drilling production and completion technology including the fracking that we've heard about just now  but these gains as great as they are can be offset to a considerable degree by the ever increasing burden of statutory and regulatory impediments that we face california's and most onshore fields are very mature having produced in some cases for more than a hundred years the easily captured easily produced oil has already been exploited for this reason the application of new technology has been a critical part of our efforts to increase the production in these mature fields perhaps the greatest evolution of technology in the san joaquin valley involves the use of steam to heat and mobilize oil that would otherwise be almost impossible to extract steam has been used for over forty years yet the technology continues to be refined augmented and improved and continues to unlock large volumes of previously inaccessible reserves more specifically i would like to reference a small parcel that e and b owns in one of the nearby heavy oil fields five years ago this acre lease was producing just a few barrels a day in two thousand and seven we made a significant investment in the property and now have drilled more than twenty wells and implemented a modern steam drive with the help of new drilling completion and thermal technology this little acre parcel is now producing  hundred barrels a day and will produce in excess of a million barrels of oil before it is depleted that equates to one million barrels of energy security from just five acres in other fields we have benefited greatly from the use of horizontal drilling to sweep and capture large untapped areas of very mature oil producing reservoirs the use of horizontals has given us the ability to access substantial new reserves in these old fields one of these fields happens to be the primary driver of e and b's growth and it is the site of a significant and ongoing drilling and redevelopment program in the s this field was on its last legs and appeared to be headed for abandonment about five years ago we began the redevelopment program that started with redrills and eventually new vertical wells and with the help of advances in well completion technology i'll mention fracking again and improvements in artificial lift systems our redevelopment efforts proved successful last year we stepped things up a notch with the addition of a horizontal wel development program not only now are we able to access reserves that would have been left behind but after just one year we're now generating over ten percent of our production with less than three percent of our wells we do expect this trend to continue and ultimately lead to a production rate in excess of five thousand barrels a day this is from a field that was almost abandoned fifteen years ago finally when it explore for new oil and gas fields but it is also a very valuable tool to help hunt for untapped reserves in and around many of the tired old oil fields that are all over california and many other states it has been said by many that the best place to find oil is in an old oil field well with the help of d seismic and numerous other technological assets we have at our disposal that statement is more true than ever moving on to the impediments in a nutshell just as technology unlocks new oil and gas resources for companies such as e and b to exploit new rules and regulations and permitting delays combine to hamper that effort while unregulated and environmentally destructive practices have no business within our industry i would like to point out just a few examples of what i view as burdensome regulations that have directly impacted our ability to produce more oil the first concern is federal permitting and multiple federal agencies in our case permits necessary to proceed with one of our d surveys were delayed substantially by the u s fish and wildlife service the first permit to conduct the survey was submitted to the bureau of land management in december of two thousand and seven more than sixteen months later the required biological opinion was finally issued by the fish and wildlife service this delay paralyzed the project for almost two years then in early two thousand and ten we made a decision to expand the project by about thirty percent which did require a modification of the project area upon review the blm in fairly short order i will say notified us that they believed the modified survey area met all criteria of the original permit and approved the plan unfortunately fish and wildlife didn't see it that way and offered no explanation of why they disagreed with the blm the net result of these conflicting messages was a delay in this project for almost an additional year that's a total of three years of delays because of these permitting issues the second example concerns the impact to various environmental laws more specifically the endangered species act this region has numerous threatened and endangered animals and plants regulations are in place that require operators to survey and determine whether any of these species would be impacted by development in new areas this of course is common sense and environmentally sound yet these same laws apply to expansions and development within existing fields for example in one of our largest fields we intend to implement a steam flood that is directly adjacent to a very successful steam drive project operated by a larger company to produce the steam necessary to heat the oil we need to install a gas pipeline to fuel the steam generators as part of the permitting process a biological study is required including one to determine if the bluntnosed leopard lizard lives within the area of the pipeline this actually requires two biological surveys one in april and another in october our concern is that this project is already in a very highly impacted area adjoining existing thermal operations furthermore much of the pipeline route follows existing pipelines yet none of this seems to be given any consideration within the permitting process it will be october before we can complete the survey which could very well keep this project from being developed for over a year finally i want to bring to the committee's attention an example of some impediments we also face on the state level in our case it concerns permitting delays for another steam drive project in july two thousand and ten we submitted an application to the california division  gas to reactivate a previous steam drive ten months later we have yet to receive authorization for this multimillion dollar project even though steam floods are currently underway in sections directly adjacent to ours no explanation has been offered by the division of oil and gas for this delay in summary it is without argument that the san joaquin valley despite its age and regulatory challenges holds significant additional oil and gas reserves that companies like e and b using the latest technology can exploit if we can access these reserves in a timely and reasonable fashion i have no doubt that all of the companies operating here in the valley can  significantly to our nation's domestic oil and gas production and will hire train and provide continued employment to thousands of new workers this will without doubt improve economic growth throughout this region and more importantly will aid in the quest to provide our nation with a secure energy future thank you cha much my name is tupper hull i am representing the western states petroleum association today and we're very pleased to have the opportunity to address you western represents major petroleum integrated petroleum companies that operate in california and other western states that we represent them in as well as some of the large independent producers that rock mentioned and independent refiners as well  we do think it's very important that this hearing is being held in kern county as others have mentioned kern county is responsible for producing about seventy two percent of the oil that's produced in california today and california as you know is the third largest oil producing state in the united states chairman issa i apologize for interrupting you but i talked to the gentleman from alaska and he said as alaska declines he prefers that we mention we're number two now  anticipated for a period of a couple of months earlier this year we were number two now we've slipped back to number three so i had to correct my testimony but we're giving them a run for their money as others have mentioned you know the  technology has played such an important role in california and not just prolonging the life of the oil production but in the livelihood of the tens of thousands of men and women that work in this industry men and women who ear really good salaries and bring a tremendous amount of expertise and diversity to this region as well as other oilproducing regions in california  us to talk about pathways to energy independence with a focus on hydrofracking and i'm going to let others here with a great deal more expertise in hydrofracking address that specific issue but we don't think any discussion about energy independence or we would probably say energy security is complete without mentioning the ten point five billion barrels of oil that the united states geological survey estimates is offshore of california in undiscovered but technically recoverable reserves off the coast to give you some sense as to what andahalf billion barrels would mean to california's energy security if all that could be produced it would and could replace all of the oil we currently import from foreign sources for thirty six years if you just look at our largest foreign source of oil which is saudi arabia that ten point five billion barrels excuse me could replace all saudi imports for one hundred and fifty five years it is a tremendous resource and one that we believe deserves consideration now we're very aware of the tragic event that took place in the gulf of mexico last year we spent a lot of time explaining to the media and others  that and why the production that takes place in california occurs under conditions that are entirely different very different than what is taking place in the gulf of mexico in their  deepwater exploration the reserves on the outer continental shelf in the pacific are in much shallower water the pressures typically are much less than what was found in the deepwater horizon accident and the safety equipment that is employed and the technology that's used is much more accessible on the production facilities in california for the last plus years a billion barrels of oil has been produced of the california coast and during that time according to and i apologize i can't remember boemre's full name it's the former mms estimated or has said that a total of eight hundred and fifty barrels of oil have been accidentally released in the pacific during that plus years now make no mistake that's eight hundred and fifty barrels too many our members get up every morning with a goal to ensure that not a drop of oil spills in any form during their operations but over a year period we believe that's not just a commendable safety record but it reflects the kind of commitment and technologies that ha been developed to protect the environment while providing important energy resources to the nation the issue of energy security is particularly acute in california because as we say california is an energy island we are not connected to other refining and producing areas of the country by pipelines consequently when there are upsets in supply or international events like we're experiencing now that impact oil supplies it's very difficult to shift and move supplies around to balance the markets and so californians volatility and upward pressure on prices because of this isolation and so for that reason we believe oil produced in california is the most secure source of oil for us it is the lowest cost source of oil and we believe this conversation you're having today is the most important conversation from an energy perspective that we can have thank you very much thank you thank you all for your testimonies as i said this is a less formal environment so i don't think we're going to do five minutes i think we're going to go around multiple rounds and i'm going a little bit in reverse order  hull when you said eight hundred and fifty barrels into a billion barrels any guess just with the ships that come into the united states how much was spilled in the same time offloading per billion barrels of imported oil mister hull i wouldn't venture to guess it's not really a number my members would be happy to have me carrying around and talking about i mean obviously chairman issa would it surprise you to know that just the st coming out of bilges that we regulate far exceeds that mister hull i don't think there's any question that the risks associated with tankers and the volumes of oil that are coming into california every day to serve this market  far outweigh the risks of producing here in the state of california in the federal waters offshore chairman issa mister layton i'm going to ask you a question and pretend that i'm representing the other side of the equation for a moment i think it would be helpful isn't it true that you're in an incredibly profitable industry one in which the american people pay far more for their fuel than one would ordinarily figure it takes to extract and deliver it  i guess it depends on how you view it if chairman issa well let me give you the followup for a second whenever you have a really profitable industry one in which foreign competition is not really competition because we need them therefore we must buy from them it's not a question of do we buy from you or do we buy from qatar or any other place whether it's oil or natural gas the fact is we have to import more than half of all we consume in oil and beginning to become a net importer in natural gas if we don't reverse the trend in a sense don't we have a world market such as saudi arabia where their lift cost is about eight dollars that gets into port for eight dollars a barrel we're delivering them the difference between eight dollars a barrel and one hundred and forty dollars a barrel well your margins your lift costs are dramatically higher what would you expect for example the lift cost of a typical bakersfield barrel to extract the oil including the cost of steam chairman issa and if you looked at the regulatory costs or if you will the delays the excess that you spoke about in your testimony how much of that is in fact an additional tax on this lift cost that you have mister layton it is easily another ten to twenty percent on top of our regular lifting costs and it certainly depends on the area it does vary but it is significant the delay and the uncertainty although difficult to quantify in terms of a dollarperbarrel lifting cost it is  y as harmful as high lifting cost because it doesn't allow you to plan in our business as i see it stability equals security stability in the sense that  we need a stable regulatory and tax environment operating and if we have it we can provide additional oil production that does ultimately lead to more energy security for this country back to your question on the profitability as i said it depends on how you look at it if you look at it as a company that takes those profits and puts them in a shoebox and buries it in the reinvestment leads to more energy security and if you look at what's happened with the total production from the united states in the last few years you're going to see a big difference in the production curve we're on the incline now chairman issa i want to go back to that quickly you're on the incline with a forty dollars cost of which probably ten or more is produced by excesses in regulatory costs over your competitors because an eight dollars competitor is getting one hundred and forty dollars a barrel because there's not enough supply is that a fair statement that's what i was trying to get to in that rhetorical question that in fact you triple your production if drop into the sixty seventy dollars what i'm saying in a way is aren't you here asking us to give you the ability to produce enough to actually reduce the price of oil and the excess profitability that exists in the world today  as producers are successful in what i think is a universal quest to grow production we understand the net result will be lower oil prices for the i've worked a lot in engineering but the truth is that my love was economics and there's nothing i like more than figuring out if you drop the price of energy and almost everything we produce and everything we do is leveraged off energy you drop the price of everything else your industry and you're always hearing about dollar amounts but can we talk a little bit about percentage amounts what's the typical percentage on return on y'all's investment fascinating about the periods we go through now because i get to handle a lot of these questions is we never really talk about this when the prices are depressed i think we forget that in two thousand and eight we had a period of extraordinarily high crude oil prices in august by december crude oil was trading at thirty dollars a barrel and the price of gasoline came down by a comparable amount so we think it's important to talk not only about percentages because you're right these are the largest commercial enterprises on the face of the earth the billions upon billions that are invested and required to bring these resources to market are enormous and over a period of time when you balance out the highs and the low investor manufacturing as a whole is generally more profitable than the oil and natural gas business over time mister farenthold and also you're typically publictraded companies  and the owners of those companies typically what pension funds mutual funds those are some of your largest shareholders mister hull absolutely mister farenthold so pretty much probably anybody in this room or watching on the web if they have a retirement plan or own a mutual fund are probably the