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[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

 
           OUTER CONTINENTAL SHELF (OCS) OIL AND GAS ISSUES

=======================================================================

                        OVERSIGHT FIELD HEARING

                               before the

                       SUBCOMMITTEE ON ENERGY AND
                           MINERAL RESOURCES

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                 May 14, 2001 in New Orleans, Louisiana

                               __________

                           Serial No. 107-27

                               __________

           Printed for the use of the Committee on Resources

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house
                                   or
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                               ------

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                         COMMITTEE ON RESOURCES

                    JAMES V. HANSEN, Utah, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska,                   George Miller, California
  Vice Chairman                      Edward J. Markey, Massachusetts
W.J. ``Billy'' Tauzin, Louisiana     Dale E. Kildee, Michigan
Jim Saxton, New Jersey               Peter A. DeFazio, Oregon
Elton Gallegly, California           Eni F.H. Faleomavaega, American Samoa
John J. Duncan, Jr., Tennessee       Neil Abercrombie, Hawaii
Joel Hefley, Colorado                Solomon P. Ortiz, Texas
Wayne T. Gilchrest, Maryland         Frank Pallone, Jr., New Jersey
Ken Calvert, California              Calvin M. Dooley, California
Scott McInnis, Colorado              Robert A. Underwood, Guam
Richard W. Pombo, California         Adam Smith, Washington
Barbara Cubin, Wyoming               Donna M. Christensen, Virgin 
George Radanovich, California            Islands
Walter B. Jones, Jr., North          Ron Kind, Wisconsin
    Carolina                         Jay Inslee, Washington
Mac Thornberry, Texas                Grace F. Napolitano, California
Chris Cannon, Utah                   Tom Udall, New Mexico
John E. Peterson, Pennsylvania       Mark Udall, Colorado
Bob Schaffer, Colorado               Rush D. Holt, New Jersey
Jim Gibbons, Nevada                  James P. McGovern, Massachusetts
Mark E. Souder, Indiana              Anibal Acevedo-Vila, Puerto Rico
Greg Walden, Oregon                  Hilda L. Solis, California
Michael K. Simpson, Idaho            Brad Carson, Oklahoma
Thomas G. Tancredo, Colorado         Betty McCollum, Minnesota
J.D. Hayworth, Arizona               
C.L. ``Butch'' Otter, Idaho
Tom Osborne, Nebraska
Jeff Flake, Arizona
Dennis R. Rehberg, Montana

                   Allen D. Freemyer, Chief of Staff
                      Lisa Pittman, Chief Counsel
                    Michael S. Twinchek, Chief Clerk
                 James H. Zoia, Democrat Staff Director
                  Jeff Petrich, Democrat Chief Counsel
                                 ------                                

              SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

                    BARBARA CUBIN, Wyoming, Chairman
              RON KIND, Wisconsin, Ranking Democrat Member

W.J. ``Billy'' Tauzin, Louisiana     Nick J. Rahall II, West Virginia
Mac Thornberry, Texas                Edward J. Markey, Massachusetts
Chris Cannon, Utah                   Solomon P. Ortiz, Texas
Jim Gibbons, Nevada,                 Calvin M. Dooley, California
  Vice Chairman                      Jay Inslee, Washington
Thomas G. Tancredo, Colorado         Grace F. Napolitano, California
C.L. ``Butch'' Otter, Idaho          Brad Carson, Oklahoma
Jeff Flake, Arizona
Dennis R. Rehberg, Montana
                                 ------                                

                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on May 14, 2001.....................................     1

Statement of Members:
    Cubin, Hon. Barbara, a Representative in Congress from the 
      State of Wyoming...........................................     1
        Prepared statement of....................................     3
    Gibbons, Hon. Jim, a Representative in Congress from the 
      State of Nevada............................................     3
    Jefferson, Hon. William, a Representative in Congress from 
      the State of Louisiana.....................................    14
    Vitter, Hon. David, a Representative in Congress from the 
      State of Louisiana.........................................     4

Statement of Witnesses:
    Abercrombie, James D., General Manager of Offshore 
      Production, Dominion Exploration and Production, Inc.......    44
        Prepared statement of....................................    45
    Baiamonte, Melvin J., Jr., Independent Petroleum Association 
      of America.................................................    32
        Prepared statement of....................................    34
    Bedell, Charles, Manager, Environment and Government Affairs, 
      Murphy Exploration and Production Company..................    81
        Prepared statement of....................................    84
    Caldwell, Hon. Jack C., Secretary, Louisiana Department of 
      Natural Resources..........................................     7
        Prepared statement of....................................     9
    Davis, Mark, Executive Director, Coalition to Restore Coastal 
      Louisiana..................................................    56
        Prepared statement of....................................    58
    DeHoratiis, Guido, Acting Deputy Assistant Secretary for 
      Natural Gas and Petroleum Technology, U.S. Department of 
      Energy.....................................................    15
        Prepared statement of....................................    16
    Downer, Hon. Hunt, State Representative, State of Louisiana..     5
    Drago, C. Grady, Chairman, Lincoln Heritage Institute........    74
        Prepared statement of....................................    76
    Falgout, Ted M., Executive Director, Greater Lafourche Port 
      Commission.................................................    19
        Prepared statement of....................................    20
    Golder, G.D. (Dave), Senior Vice President, Commercialization 
      and Development, Marathon Oil Company......................    48
        Prepared statement of....................................    51
    Hare, Ben, Ph.D., Chairman, Committee on Resource Evaluation, 
      American Association of Petroleum Geologists...............    67
        Prepared statement of....................................    69
    Kelly, Paul L., Senior Vice President, Rowan Companies, Inc..    89
        Prepared statement of....................................    91
    Schoeffler, Harold James, Conservation Chair, Delta Chapter, 
      Sierra Club................................................    96
        Prepared statement of....................................    98

            OUTER CONTINENTAL SHELF (OCS) OIL AND GAS ISSUES

                              ----------                              

                          Monday, May 14, 2001

                     U.S. House of Representatives

              Subcommittee on Energy and Mineral Resources

                         Committee on Resources

                         New Orleans, Louisiana

                              ----------                              

    The Subcommittee met, pursuant to call, at 2:35 p.m., in 
Room 101, TRAC Building, University of New Orleans, 2000 
Lakeshore Drive, New Orleans, Louisiana, the Honorable Barbara 
Cubin, Chairman of the Subcommittee, presiding.
    Ms. Cubin. The Committee on Energy and Mineral Resources 
will please come to order.
    I would like to start off by asking unanimous consent that 
our colleague, David Vitter, sit at the table with us today and 
be allowed to ask questions as a member of the Subcommittee.
    We have a lot of people to talk to and to hear from, so we 
are just going to get started right away. I would like to 
introduce Congressman Jim Gibbons from Nevada. Right now there 
are two Representatives from Nevada; one is Las Vegas and Jim 
is all the rest.
    [Laughter.]
    Mr. Gibbons. 99.8 percent of the State.
    Ms. Cubin. That is right. And how many thousand square 
miles?
    Mr. Gibbons. 110,000.
    Ms. Cubin. And I am Barbara Cubin, I represent the entire 
state of Wyoming. We have one Congressman. We do have three 
Senators--
    [Laughter.]
    Ms. Cubin. We are the least populated state, but we have 
three Senators, we have two that were elected and then the Vice 
President, so you know, that is three. But it only takes one 
woman to do the job so it is not a problem at all.
    [Laughter and applause.]

   STATEMENT OF THE HON. BARBARA CUBIN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF WYOMING

    Ms. Cubin. Anyway, it is time to get started, we have a lot 
of work to do.
    I want to thank all of you for being here.
    Today's hearing is the sixth in a series of oversight 
hearings which The Energy and Mineral Resources Subcommittee 
has conducted to examine issues concerning energy supplies from 
our public lands, including the outer continental shelf.
    We have come to New Orleans at the invitation of members of 
the Louisiana delegation, including my dear friend Billy 
Tauzin, who would be with us today but he is ill. He is in 
Washington with a sinus and ear infection and cannot go up in a 
plane with the pressure. Also, David Vitter, I am delighted 
that he is here with us today and we are here in large part 
because of his invitation as well.
    Several of our hearings that we have held in Washington, 
D.C. have included testimony about the energy contribution of 
submerged lands of the outer continental shelf, or the OCS, as 
you know it. But we have not dedicated an entire hearing to 
learning about the potential for new oil and gas supplies, as 
well as the constraints upon their development, which certainly 
in the land where I live, I am very aware of those constraints 
and very aware of those prohibitions to access. So that is why 
we are here today, I want to be able to learn as much as we can 
so we can put this in the mix and try to meet our nation's 
energy needs.
    We have invited a large number of witnesses to testify 
today about these matters, so I will be brief.
    I would like to say to those of you who do not know that 
much about Wyoming, Wyoming is the leading Federal mineral 
royalty recipient in the country. I think we get about $280 or 
$290 million a year in Federal mineral royalties, primarily 
from coal, but we are also a large oil producer and a big gas 
producer as well. Coalbed methane is another unconventional gas 
project that really is putting Wyoming on the map as far as on-
shore hydrocarbon exploration. So I am not without knowledge on 
these issues but we do it on dry land, often very dry land.
    [Laughter.]
    Ms. Cubin. Louisiana's energy contribution to the nation is 
enormous, especially when the Federal waters off your coastline 
are factored in. I appreciate what it means to your economy and 
I appreciate what it means to your environment, as you struggle 
to try to help give an energy hungry nation the supplies that 
it needs, while maintaining the infrastructure at the same 
time--it certainly is a challenge. And yes, I do agree that the 
coastal states which host oil and gas production off their 
shorelines ought to receive a portion of the Federal revenues 
generated by this activity in the same manner that public 
states like mine share in the gross receipts with the Federal 
Government.
    I mention this because, as Congressman Tauzin knows, I was 
opposed to the broader effort of CARA to redistribute 
royalties. I cannot, in my wildest imagination, understand why 
we should make Iowa a coastal state.
    [Laughter.]
    Ms. Cubin. But I do believe that a portion of the royalties 
that are produced offshore ought to go to the states that have 
exploration and production so they get some of that money to 
deal with the environmental issues that they have, the 
infrastructure issues that they have. And I will work for that 
with Representative Tauzin and with Representative Vitter.
    The other thing that--well that is enough as far as--we 
will talk about CARA later.
    We are here today to learn about how the OCS can supply 
additional oil and gas to stave off an energy supply and demand 
imbalance, and what we can do in Congress to help do this in a 
timely manner, and what we should not do if our goal is to be 
self-sufficient in gas from our North American sources. These 
are simple questions, but they have tough answers.
    [The prepared statement of Mrs. Cubin follows:]

  Statement of The Honorable Barbara Cubin, Chairman, Subcommittee on 
                      Energy and Mineral Resources

    Today's hearing is the sixth in a series of oversight hearings 
which the Energy and Mineral Resources Subcommittee has conducted to 
examine issues concerning energy supplies from our public lands, 
including the outer continental shelf. We have come to New Orleans at 
the invitation of Members of the Louisiana congressional delegation, 
including my dear friend Billy Tauzin, a valued member of the 
Subcommittee, and the chairman of the Energy and Commerce Committee 
upon which I also serve.
    Several of our hearings in Washington, DC, have included testimony 
about the energy contribution of the submerged lands of the outer 
continental shelf or OCS. But, we have not dedicated an entire hearing 
to learning about the potential for new oil and gas supplies, as well 
as constraints upon their development, in the various regions 
surrounding our Nation's coastline. Until today, that is.
    We have invited a large number of witnesses to testify about such 
matters, so I will be very brief in these remarks, such that we will 
have time to listen to these experts. I would like to say to those who 
don't know me, that I represent the energy-rich state of Wyoming. We 
lead the nation in coal production most years, and oil and gas 
production has been very important to our economy in the Cowboy State 
for decades. Coalbed methane and other ``unconventional'' gas projects 
are putting Wyoming in the forefront of onshore hydrocarbon 
exploration. So, I am not without some knowledge on these issues, but 
we do it on dry land - often very dry.
    Louisiana's energy contribution to the nation is enormous, 
especially when the Federal waters off your coastline is factored in. I 
appreciate what this means to your economy and your environment as you 
struggle to give an energy-hungry nation what it wants while 
maintaining the infrastructure to do so.
    So, yes I do agree that coastal states which host oil and gas 
production off their shorelines ought to receive a portion of the 
Federal revenues generated by this activity, in the same manner that 
public land states like mine share lease receipts with the Federal 
Government. I mention this because Congressman Tauzin knows I opposed 
the broader effort to redistribute royalties in legislation which 
passed the House last year known as CARA. But I did so for other 
reasons, one of which was the issue of rewarding coastal states which 
oppose exploration and development off their coastlines with a portion 
of OCS receipts derived from the central and western Gulf of Mexico.
    But, I digress. We are here today to learn about how the OCS can 
supply additional oil and gas to stave off an energy supply and demand 
imbalance. What can Congress do to bring this potential to bear in a 
timely manner? And what should we not do if our goal is to be self- 
sufficient in natural gas from our North American sources? Simple 
questions with tough answers, no doubt.
                                 ______
                                 
    Ms. Cubin. So with that, I would like to recognize the Vice 
Chairman of this Subcommittee for any opening comments that he 
might have.

STATEMENT OF THE HON. JIM GIBBONS, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF NEVADA

    Mr. Gibbons. Thank you, Madam Chairman. It is indeed a 
pleasure to be here.
    And since you were bragging on Wyoming, it is only my fair 
share to brag on Nevada a little bit, but as the only geologist 
in Congress--
    Ms. Cubin. I am the only chemist.
    [Laughter.]
    Mr. Gibbons. I want to share with you my--
    Mr. Vitter. I am the only lawyer.
    [Laughter.]
    Mr. Gibbons. That is one too many.
    Ms. Cubin. We wish you were the only lawyer.
    Mr. Gibbons. But I wanted to say that Nevada is not a 
coastal state either, but we will be, just as soon as the San 
Andreas fault moves California up north off the Oregon coast.
    Ms. Cubin. And if you will allow drilling off your shores, 
I will see to it you get some money too.
    Mr. Gibbons. Then we will allow drilling off our shores for 
oil and gas.
    Nevada is not richly abundant in oil and gas. We do have 
some oil and gas. As a measure of pride, we have the largest 
producing single oil well I think in the United States, but we 
only have one of those, so it does not help out a lot. We have 
a lot of gold.
    Ms. Cubin. Yes, you do.
    Mr. Gibbons. And we will trade gold for your oil.
    But anyway, it is great to be here, and I do not want to 
take up a lot of time because I know the time is short and we 
have a lot of people who are spending their day here listening 
to us.
    Ms. Cubin. The Chair now recognizes Mr. Vitter.

    STATEMENT OF THE HON. DAVID VITTER, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF LOUISIANA

    Mr. Vitter. Thank you, Madam Chairman. Thank you for 
including me in this hearing, I appreciate the invitation. I 
have been looking forward to being here.
    When you were talking about the three Senators from your 
state, I was not even thinking of the Vice President, I assumed 
you meant yourself, since you were elected statewide and do the 
work of those two other guys in the other chamber. But it is a 
pleasure to be here.
    I wanted to make a few very brief points. I am absolutely 
convinced that this issue of development of the outer 
continental shelf, and specifically OCS Lease Sale 181 is 
absolutely crucial as we begin this debate about a national 
energy policy. And if we do not effectively move forward as is 
planed with OCS Lease Sale 181, in particular, I think we have 
no credibility to talk or act about domestic production in any 
other region, because here in the Gulf is where it has been 
proven to work and to be able to be done in a responsible and 
ecologically careful manner. So if we are not going to move 
forward here, I do not know we can even begin to talk about 
ANWR or anything else. And that is why I think this is so 
important, for not only the Gulf region, Louisiana and other 
states, but for our national energy policy. I also think it is 
extremely important in terms of our national security. Steven 
Ambrose is from this university, UNO, great author--Undaunted 
Courage, Eisenhower, many other books. Before he wrote those 
books and became more famous, he wrote a book called A Rise to 
Globalism, which compares America in 1988 to America in 1939.
    In 1939, we produced all of our own oil, all of our own 
automobiles, all of our own electronics. But we had a minuscule 
standing army, the 18th largest in the world entering World War 
II before we built up for that. And the fact that we had this 
incredible industrial base allowed us to virtually overnight go 
from the 18th largest army to something that literally saved 
the world.
    Today, the situation is reversed, and we should ask 
ourselves in which situation are we really at more peril. 
Today, of course, we have an enormous military and the most 
effective on earth, but over half of the fuel that military 
uses comes from foreign countries--56 percent of our oil supply 
comes from overseas, a 20 percent increase from the 1973 Arab 
oil embargo levels and 10 percent more than just in 1991, with 
the outbreak of the Gulf War.
    So which situation is more perilous, that situation or in 
1939? And also, you know, I am very sensitive and concerned 
about ecological issues, but those people who raise them about 
OCS Lease Sale 181 in particular should come down here and go 
fishing off the Louisiana coast, because you know what, the 
best spots are right under oil rigs and other associated 
structures in the Gulf of Mexico. And that, in a very simple 
but straight-forward and vivid way makes the point that we can 
and are doing this very responsibly.
    So with that, let me stop and I look forward to the 
comments of our witnesses.
    Ms. Cubin. Thank you, Congressman Vitter.
    I would now like to introduce our first panel. We have with 
us today, the Honorable Hunt Downer, State Representative for 
the State of Louisiana; the Honorable Guido DeHoratiis--I hope 
I am saying these names correctly and if I am not, please 
correct me--who is the Acting Deputy Assistant Secretary for 
Natural Gas Petroleum Technology with the Department of Energy; 
the Honorable Jack Caldwell, Secretary of the Louisiana 
Department of Natural Resources; Mr. Ted Falgout, Executive 
Director of the Port Fourchon. I will start now--well, first of 
all, I would like to remind the witnesses that your oral 
testimony is limited to 5 minutes, signaling lights will be 
running. But your written statement will appear in its entirety 
in the record.
    Mr. Downer.

 STATEMENT OF THE HONORABLE HUNT DOWNER, STATE REPRESENTATIVE, 
                       STATE OF LOUISIANA

    Mr. Downer. Madam Chairman, thank you and welcome to 
Louisiana and welcome--thank you for the pronunciation 
correctly of all of those names, including Billy Tauzin. So you 
did good.
    [Laughter.]
    Mr. Downer. Let me just be brief. We are in session, so I 
will have to excuse myself after. We are doing the 
appropriations bill as we talk and you know how that is if you 
are not there, something happens, generally not good to you.
    I thought I would just speak to you just very briefly today 
as a 26-year veteran of the state legislature, coming out of 
south Louisiana, the area that is impacted most by oil and gas 
exploration, and is probably the only legislator in the State 
House who is a former roughneck, roustabout--I did any job in 
the oil field I could in order to work my way through college. 
With that in mind, I have seen it.
    What has happened to us in Louisiana, as my former 
colleague, Congressman Vitter, knows, our infrastructure is 
taxed to the max. We can no longer handle it. If we could do 
more oil and gas drilling offshore--we are already doing over 
80 percent of it--we just cannot get it to the market. Our 
highway infrastructure is really seriously lacking. It needs to 
be modernized. We cannot build the roads fast enough, but 
furthermore, we cannot afford them--that is, our state budget. 
At one time, we were getting over 40 percent of our state 
general fund revenue from oil and gas. We are now down to under 
9 percent. A lot due to inflation, but with oil and gas prices 
waxing and waning, you know, long term commitment on bonds and 
infrastructure for that takes time.
    What we see is pretty much what you were laughing, sir, 
about the San Andreas fault. I explain to my colleagues when we 
need money in the southern part of the state that if they do 
not give us the money to protect our land loss and to work with 
our coastal restoration, that my legislative district will be 
moving north, and I do plan to run again. Which helps them 
understand why they should put money in the south.
    [Laughter.]
    Mr. Downer. And we actually are looking for a partner. 
Louisiana, from the state perspective--during my tenure as the 
Speaker of the House, I traveled the state. We have oil and gas 
in the northern part of the state, but nothing like the 
southern part. What we need is a partner, we want to 
partnership with the Federal Government in order that we can 
work together to address the natural--the energy problems and 
issues of this country. It is a shame to say when we have to 
depend so much on foreign oil and gas, and we look every day at 
the newspaper to see what is the price of oil in OPEC to 
determine for us our state budget, number one; and then 
secondly, to see whether or not we are going to have enough oil 
and gas at the pumps, what are the prices.
    I guess my concern is more from the need. As we address oil 
and gas exploration, not only do we need a national energy 
policy, we need to formulate state energy policies that 
complement and work with the overall energy policy. No longer 
can we think parochial. It is in our backyard. No longer can 
Louisiana, as one of the seven or eight states--and I am sure 
Secretary Caldwell will give more on that--can Louisiana bear 
the brunt of producing the oil and gas for the rest of the 
country. We need help. Now we can try to meet those needs, but 
to do that, we will need some help in that partnership.
    Congressman Vitter was one of those who, even though his 
district when he was in the state legislature was from the 
city, he understood our needs and worked with us. He was, as we 
said, one of the friendly votes when we got to those issues.
    You will hear from Mr Ted Falgout, who let me tell you, he 
is where it is happening at Port Fourchon, and what is 
happening offshore. It must come through them.
    Secretary Caldwell hails from Lafayette, Louisiana, former 
oil and gas attorney before coming to the state as the 
Secretary.
    We all speak from practical experience. And I must 
apologize first to your Committee for not having written 
comments. In the state legislature, if someone asks you for 
written comments, you sure would not let them be a witness, 
because you knew they would talk too long. We want to keep them 
short and brief.
    But I guess my whole thrust is we need help in a 
partnership, in an infrastructure. You have seen it on dry 
land, you ought to see it offshore. Once you pull it out of the 
ground, you have got to move it, it has got to go either 
through a pipeline, through a barge or some way. And then once 
we get it to land, not only is it the oil and gas, it is the 
support services, which is a large segment of our energy 
industry--it is the support services, but you have got to have 
a jumping off point and that is--for example, Port Fourchon, 
our port, the LOOP, Louisiana Offshore Oil Petroleum, the 
largest port to bring in those super-tankers. But they are not 
bringing super tankers in with U.S. produced products, it is 
foreign crude oil. And with that, of course, in your 
infrastructure, you need your refineries. You have got to be 
able to get a product to a refinery and then after it is at the 
refinery, you have got to get it out to the distribution 
points, to the supply points. All of that takes highways, rail 
or inland barge or waterways.
    Be glad to answer any questions. Want to thank you for your 
time. Good to see you again, David and I will take care of your 
district. Thank you.
    Ms. Cubin. Thank you, Representative Downer.
    The Chair now recognizes Secretary Caldwell.
    Mr. Downer. With your permission, may I be excused?
    Ms. Cubin. Yes, and thank you for being here.
    Mr. Downer. And welcome again, to Louisiana. We would love 
to take you around and show you more of our state.
    Ms. Cubin. Wish we had the time to do that.
    Mr. Downer. Thank you.
    Ms. Cubin. Thank you.

STATEMENT OF THE HONORABLE JACK CALDWELL, SECRETARY, LOUISIANA 
                DEPARTMENT OF NATURAL RESOURCES

    Mr. Caldwell. Madam Chairman, members of the Committee--
    Mr. Downer. Your budget is all right, Mr. Secretary.
    Mr. Caldwell. Thank you. Glad I got one vote anyway.
    [Laughter.]
    Mr. Caldwell. --as Secretary of the Louisiana Department of 
Natural Resources, I also have the honor to serve on the 
Minerals Management Service Policy Committee and more 
specifically on the Natural Gas Subcommittee, which has 
recently submitted recommendations concerning natural gas 
policy on the OCS and we are hopeful that some of our 
recommendations may be incorporated into the President's energy 
policy, which is coming out this Thursday, as you know.
    So we see, as many people do, that natural gas is the fuel 
of the future. It is not only fuel efficient, it is 
environmentally friendly and the demand is increasing 
tremendously and is predicted to increase even more. The 
prediction is in the next 10 years production of--demand for 
natural gas is going to go up by 50 percent from 20 Bcf per 
year, a trillion cubic feet, up to 30.
    The problem is we are falling behind. Since 1993, the 
number of wells drilled has gone from 10,000 a year to 15,000 a 
year, that is a 50 percent increase but they are not finding as 
much gas. And the gas reserves have only increased from 61 
billion to 67. So at that rate, we are not going to get it 
done.
    So something must be done. What is it? The answer is 
obvious, as Representative Vitter has mentioned. We must drill 
on the rest of the OCS. Louisiana alone cannot provide the gas 
that is going to be needed. At the present time, up to date, 
offshore Louisiana has provided 88 percent of all of the oil 
produced on all of the offshore. Also, Louisiana offshore has 
produced 82 percent of all of the natural gas that has ever 
been produced.
    So what our gas policy committee has recommended is that in 
order to enlighten the debate in the other states, in the other 
offshore areas, that the Federal Government should begin a 
seismic exploration program to develop pilot seismic studies so 
we can find out what is out there and what can be done, and 
also to develop and continue to improve the environmentally 
friendly methods of drilling, which is getting better all the 
time.
    Right here on Lake Pontchartrain, Louisiana has a 
moratorium on drilling in the lake, but we are studying 
environmentally safe methods of doing directional and 
horizontal drilling from the shore and we hope--we are going to 
base that on seismic exploration of the lake so we can make 
informed decisions about it.
    So what can be done offshore? There are still tremendous 
reserves of gas offshore, even on the shelf, but they are deep, 
deep sands. And we must have incentives to develop the deeper 
sands on the shelf as well as the deep water sands offshore.
    Now the MMS has recently adopted a royalty incentive 
program whereby the first 20 billion cubic feet is royalty 
free. But it needs to be strengthened. That is not enough 
because it taps out when the price hits $3.50. That is just not 
enough incentive and we must develop those reserves. Also, the 
tax problem you mentioned on the coal bed methane tax relief 
program, that was highly successful and that should be adapted 
for natural gas drilling in the OCS area.
    The other thing I want to emphasize today is the need for 
infrastructure that Mr. Downer mentioned. If you look at the 
map, this is a 1986 map that shows the pipelines crossing the 
coastline. Today it looks like a bowl of spaghetti. I have 
attached today's map to my testimony and the number of 
pipelines is enormous. At the same time, the coast is receding 
and all of this infrastructure is being exposed to tremendous 
danger from hurricanes. Twenty percent of all the U.S. 
production of oil, both by tanker, barge or pipeline crosses 
this coast. So I welcome your support, Madam Chairman, for 
additional help to the producing states to address the looming 
catastrophe of failing to do anything on our eroding coast.
    Thank you.
    Ms. Cubin. Thank you, Secretary Caldwell.
    [The prepared statement of Mr. Caldwell follows:]
    [GRAPHIC] [TIFF OMITTED] T2337.011
    
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    I would like to welcome Congressman William Jefferson. I am 
sure you all are familiar with him.
    If you would like to give an opening statement, 
Congressman, we will take time to do that now or we can 
continue with the testimony and you can do it after the panel 
is finished, whatever you prefer.

STATEMENT OF THE HONORABLE WILLIAM JEFFERSON, A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF LOUISIANA

    Mr. Jefferson. Thank you, Madam Chair, let me speak very 
briefly.
    I am, as you know, not a member of this particular 
Committee or Subcommittee, but this is an area that I have a 
vital interest in because it is so important to our state's 
economy, so important to our nation's energy security.
    I, of course, am on the Ways and Means Committee and we are 
exploring important alternatives, I believe, to the way we now 
go about taxing this industry, to see if we cannot find ways to 
incentivize those who invest in drilling and seeking more 
opportunities for our own energy security. So we are looking at 
things like immediate expensing of drilling costs. We are 
looking at things like taking off the AMT. We looking at things 
like accelerating depreciation for capital expenses. Because we 
noticed that although prices have increased since 1999, I 
guess, there has been no appreciable increase in drilling 
activity, largely because there is still deep concern about the 
security of investing in this area. And we want to incentivize 
those who--we know a lot of the money that goes to drilling 
comes from folks who are not necessarily in the business, but 
who are investing in the business. And so we have to 
incentivize them to get more involved in it.
    And from where I stand on the Ways and Means Committee, I 
just wanted to let you know that we are already holding 
hearings on our Select Committee on Revenue, already looking at 
these issues and going to make, I think, some important 
statements about them fairly soon. So I hope they will address 
some of the needs that are going to be talked about here today.
    I am talking almost breathlessly, both because I have to 
consider the admonition of the Chairwoman to get things done 
here quickly, but also because I have to catch a plane to 
Washington. So all these things at one time. But I wanted to 
come by and let you know that we are definitely committed to 
working in an area where I work trying to find some answers 
that can get some immediate relief and some immediate 
incentives to develop more energy in deep water in Louisiana. 
So thank you very much for letting me make those remarks. Thank 
you.
    Ms. Cubin. Thank you, Congressman.
    Mr. Jefferson. And forgive me if I leave before this is 
over.
    Ms. Cubin. You will not be the first one to have left.
    [Laughter.]
    Ms. Cubin. The Chair now recognizes the Honorable Guido 
DeHoratiis.

  STATEMENT OF THE HONORABLE GUIDO DEHORATIIS, ACTING DEPUTY 
   ASSISTANT SECRETARY FOR NATURAL GAS PETROLEUM TECHNOLOGY, 
                      DEPARTMENT OF ENERGY

    Mr. DeHoratiis. Thank you for the opportunity to appear 
before you today. I represent the Office of Natural Gas and 
Petroleum Technology in the Department of Energy. My office is 
responsible for natural gas and oil technology research and 
development as well as policy analysis. We manage the RD&D 
program of new and improved technologies to help industry--the 
U.S. industry--develop the nation's oil and gas resources in a 
more cost-effective manner and also in an improved 
environmentally protective manner.
    My comments today are going to focus on the insights we 
have gained over the years in the development and deployment of 
improved technologies and in the evaluation of policy 
initiatives to support the nation's energy supply objectives. 
As a result of this experience, we have found that technology 
changes in the U.S. oil and gas industry can be characterized 
as a history of continuous innovation, going back to the first 
oil well drilled by Colonel Drake in Pennsylvania in 1859. This 
trend extends to today, to the latest advances in technology 
that allow for exploration in waters of the Gulf of Mexico that 
are over two miles deep. In fact, finding, developing and 
producing oil and gas today are extremely high tech ventures 
requiring cutting edge technologies that rival the most 
sophisticated technologies of any of our most advanced modern 
day industries.
    Technological advances have led to impressive gains in 
productivity and efficiency. Industry is now able to explore 
and develop prospects in ever more diverse and challenging 
settings. Moreover, these same advances have contributed 
something else of profound importance to the nation--
significant benefits to the environment.
    To expand public awareness of the environmental benefits 
associated with advanced exploration and production technology, 
the Department published a report in 1999 entitled 
``Environmental Benefits of Advanced Oil and Gas Exploration 
and Production Technology.'' You have a copy of it available to 
you. This report provides more detail than I can present today 
on this remarkable story of environmental progress in this 
technology, but I am going to briefly review a few key points: 
First, this record of technological progress is critical to 
many national objectives, including:
    Ensuring secure, affordable energy supplies;
    Fostering responsible development by industry, by 
emphasizing the importance of environmental stewardship and 
ensuring that government policies stimulate, rather than 
stifle, technological innovation;
    Facilitating continued U.S. technological leadership, and 
its associated economic and environmental benefits; and,
    Inspiring future technologists, to ensure a skilled 
workforce that can implement new ideas and pursue further 
progress in science and technology.
    Oil and natural gas provide most of the energy America uses 
for transportation, industrial, residential and commercial 
applications. Moreover, domestic production enhances our 
nation's energy security, provides public revenues and other 
benefits. And as our economy continues to expand, the demand 
for oil and natural gas is expected to grow.
    In terms of oil and natural gas, the U.S. is the most 
explored and developed region of the world. Despite this, 
industry has continued to add new supplies of oil and gas to 
replace what has been produced. The reason is continuous 
technological development.
    Technological progress has allowed industry to keep pace 
with the effects of resource depletion. As technology and 
understanding of our nation's resource endowment advance, 
previously lower quality, higher cost resources become 
accessible and economic, thereby making a larger contribution 
to our domestic supplies.
    These types of technological advances have allowed 
producers to access new frontiers, including deeper waters, 
deeper horizons within the earth, cold frontiers of the arctic 
as well as new resource settings such as coal bed methane, 
which has been discussed earlier.
    We also find oil and gas more efficiently. Drilling 
successes have doubled in the last two decades resulting in 
fewer dry holes.
    Additionally we are finding more oil and gas per well 
drilled, reducing costs and extracting more oil and gas from 
discovered fields and leaving less oil behind.
    And the environmental benefits are that we need fewer wells 
to produce the same amount of oil and gas; we have lowered the 
amount of drilling waste; lower volumes of produced water; 
smaller footprints for facilities; reduced air pollution and 
greenhouse gas emissions; and enhanced worker safety.
    Examples of the technologies we are talking about are:
    Three and four-dimensional seismic technology that allows 
us to image the reservoirs and to pinpoint the areas that we 
want to explore;
    Remote sensing that we can upgrade the areas and pinpoint 
the areas of higher potential;
    Directional drilling and other advancements.
    In summary, I would just like to say that there are three 
main reasons why we need to continue to adopt advanced 
technology.
    First, the cumulative effects of technological advances are 
key to yielding the greatest benefits.
    Second, a comprehensive R&D portfolio and sustained 
investment in new technology are key to yielding significant 
energy and environmental benefits, and
    Third, advanced technology applications are often 
situation-specific and need to be applied where they can be 
best utilized.
    This completes my statement and I will be happy to answer 
any questions.
    Ms. Cubin. Thank you very much.
    The Chair now recognizes Mr. Falgout.
    [The prepared statement of Mr. DeHoratiis follows:]

 Statement of Guido DeHoratiis, Acting Deputy Assistant Secretary for 
    Natural Gas and Petroleum Technology, U.S. Department of Energy

    Thank you for the opportunity to appear before you today. I 
represent the Office of Natural Gas and Petroleum Technology, in the 
U.S. Department of Energy (DOE). My office is responsible for natural 
gas and oil technology research and development and policy. We manage 
the research, development, and demonstration of new and improved 
technologies that can enable the U.S. petroleum industry develop the 
Nation's oil and gas resources in a more cost effective and 
environmentally protective manner.
    My comments today focus on the insights we have gained over many 
years in the development and deployment of improved exploration and 
production technologies and in the evaluation of policy initiatives to 
support the Nation's energy supply objectives. As a result of this 
experience, we have found that technological change in the U.S. oil and 
gas industry can be characterized as a history of continuous 
innovation, going back to the first oil well drilled by Colonel Drake 
in Pennsylvania in 1859. This trend extends to today, to the latest 
advances in technology that allow for exploration in waters of the Gulf 
of Mexico that are over two miles deep. In fact, finding, developing, 
and producing oil and gas today is an extremely high-tech venture, 
requiring cutting edge technologies that rival the most sophisticated 
technologies of any of our most advanced modern-day industries.
    Technological advances have led to impressive gains in productivity 
and efficiency. Industry is now able to explore and develop prospects 
in ever more diverse and challenging settings. Moreover, these same 
advances have contributed something else of profound importance to the 
Nation: significant benefits to our environment.
    To expand public awareness of the environmental benefits associated 
with advanced exploration and production technology, DOE in 1999 
published a report entitled Environmental Benefits of Advanced Oil and 
Gas Exploration and Production Technology. This report provides more 
detail than I can present today on this remarkable story of 
environmental progress in E&P technology, but let me briefly review 
some of its key points:
    First, this record of technological progress is critical to many 
national objectives, including:
     LEnsuring secure, affordable energy supplies;
     LFostering responsible development by industry, by 
emphasizing the importance of environmental stewardship and ensuring 
that government policies stimulate, rather than stifle, technological 
innovation;
     LFacilitating continued U.S. technological leadership, and 
its associated economic and environmental benefits; and,
     LInspiring future technologists, to ensure a skilled 
workforce that can implement new ideas and pursue further progress in 
science and technology.
    Oil and natural gas provide most of the energy America uses for 
transportation, industrial, residential and commercial applications. 
Moreover, domestic production enhances our Nation's energy security, 
and provides public revenues and other benefits. And as our economy 
continues to expand, the demand for oil and natural gas is expected to 
grow in the foreseeable future.
    In terms of oil and natural gas, the United States is the most 
explored and developed region of the world. Despite this, industry has 
continued to add new supplies of oil and gas to replace what has been 
produced. The reason is continuous technological development.
    Technological progress has allowed industry to keep pace with the 
effects of resource depletion. As technology and understanding of our 
Nation's resource endowment advances, previously lower quality, higher 
cost resources become more accessible and economic, thereby making a 
larger contribution to oil and gas supplies.
    Technological advances have enabled oil and gas producers to:
     LAccess new frontiers--drilling in deeper waters, deeper 
in the earth, in the cold frontiers of the arctic, and new resource 
settings, such as coal seams, thought uneconomic not too many years 
ago.
     LFind oil and gas more efficiently--Drilling success rates 
have doubled in the last two decades, resulting in fewer dry holes.
     LFind more oil and gas per well drilled--Today, fewer than 
half as many wells must be drilled to locate the same amount of oil and 
gas reserves as two decades ago.
     LReduce costs--In inflation-adjusted dollars, wells can be 
drilled today to the same depth 20 percent cheaper than in the 1980s.
     LExtract more oil and gas from discovered fields--Enhanced 
recovery now allows industry to produce a higher proportion of the 
hydrocarbons in discovered reservoirs, leaving less behind.
    And, these same technological advances have yielded considerable 
environmental benefits:
     LFewer wells to add the same level of oil and gas 
reserves;
     LLower drilling waste volumes;
     LLower volumes of produced water;
     LSmaller footprints for oil and gas rigs and other field 
facilities;
     LReduced air pollutant and greenhouse gas emissions; and
     LEnhanced worker safety.
    Examples of the technology advances that have enabled this success 
include:
     LThree and four-dimensional seismic technology now provide 
the capability for virtually ``seeing '' the formation--including how 
the reservoir changes over time. This, in turn, allows better targeting 
of exploration prospects and improved recovery in discovered fields;
     LRemote sensing technologies now include satellite imagery 
and aeromagnetic surveys that boost exploration success.
     LDirectional and multi-lateral drilling now enable 
industry to access oil and natural gas resources miles away from a 
surface drill site. Multiple boreholes can now be drilled into 
different producing horizons from a single wellbore--again minimizing 
surface disturbance.
     LAdvances in dynamic positioning now employ thruster units 
and sophisticated computer and navigation systems that can hold 
offshore drill ships, floating production, storage, and offloading 
systems, and survey vessels on location without anchors and mooring 
lines in deep water.
     LNew, high performance synthetic drilling fluids can be 
safely discharged without harm to the environment. These new fluids 
greatly improve the economics of drilling, allowing the pursuit of 
resources in complex geological settings.
     LDevelopments in offshore platform technology now take 
advantage of advances in materials and computer-aided design. This has 
resulted in lower cost, modular production facilities that enable 
producers to pursue smaller prospects in deepwater settings.
    Many of these technologies have been developed and demonstrated as 
a result of partnerships among government, industry, and academia. 
Examples of work supported by the Department include the demonstration 
of four-dimensional seismic in the Gulf of Mexico, near Eugene Island. 
The analysis showed that the field was being drained of oil over time, 
except for an area in the reservoir where no depletion was occurring, 
despite recovery from nearby wells. Suspecting that the anomaly 
represented an untapped pocket of oil, the team drilled a well into the 
area and recovered an estimated two million barrels of additional oil.
    Another example was the development of cross-well seismic imaging 
technology first developed at a National Laboratory. This work expanded 
the use of seismic waves to image the reservoir by applying the 
technology downhole between wells rather than from the surface. This 
new seismic system generates images with much greater clarity, for 
example, surface seismic can detect features as small as fifty feet, 
cross-well imaging can detect features as small as five feet. This 
technology can be used to increase natural gas recovery, as well as 
increase the effectiveness of enhanced oil recovery technologies
    In the DOE report I mentioned earlier, we describe 35 distinct 
categories of technological advances, and the energy supply, economic, 
and environmental benefits that each of these has provided.
    From the insights gained in DOE's technology research and 
development programs, let me conclude my testimony by sharing three 
observations concerning the reality of industry's adoption of advanced 
technology:
     LFirst, the cumulative effects of technological advances 
are key to yielding the greatest benefits. Advances in technology take 
place along a continuum, from scientific and technology concept, to 
applied research and development, to demonstration and early 
deployment, to market saturation. Moreover, each new advance often 
fosters new concepts with even greater potential.
     LSecond, a comprehensive R&D portfolio and sustained 
private sector investment in new technology is key to yielding 
significant energy and environmental benefits. The benefits 
characterized do not result from just one or a few ``breakthrough '' 
technologies, but often are the result of squeezing more efficiency and 
cost effectiveness from existing technologies.
     LThird, advanced technology applications are often 
situation-specific. New technologies are rarely applicable everywhere, 
for use by everyone. Their applicability depends on site conditions, 
project economics, and operator sophistication and financial 
capability.
    Innovation in exploration and production technology will be 
critical to the Nation's energy and environmental future. And while the 
challenges to the domestic oil and gas industry over past decades have 
been significant, the future could be even more challenging.
    This completes my statement. I will be pleased to answer any 
questions Members of the Subcommittee may have.
                                 ______
                                 

  STATEMENT OF TED FALGOUT, EXECUTIVE DIRECTOR, PORT FOURCHON

    Mr. Falgout. And you say that so well.
    [Laughter.]
    Ms. Chair, Committee members, I am going to focus my 
remarks on a specific area in south Louisiana that is playing a 
dominant role in supporting this country's energy supply. 
Representative Downer mentioned this area, of course, that is 
Port Fourchon, Louisiana.
    This port is far removed from the limelight of the 
California energy crisis or the drilling issue in ANWR, but 
this little dot on the map, as the commercial says, is ``where 
the beef is.''
    The post Royalty Relief shift to deepwater has been 
significant. It is a decision of this nation that has been very 
rewarding, with record lease sale revenue, reduction in the 
growing dependency on foreign oil and an offset of the 
escalating trade imbalance.
    Nowhere--again I repeat, nowhere--is the impact of OCS 
activity more evident than in Lafourche Parish where Port 
Fourchon has become the focal point of intermodal transfer for 
support of over 75 percent of the deepwater projects in the 
Gulf of Mexico. In addition, Port Fourchon serves as the land 
base for LOOP. This is the nation's only offshore oil port. 
LOOP handles 15 percent of the country's foreign oil and a 
rapidly increasing amount of domestic oil as well. It is 
connected to over 30 percent of the U.S. refineries by 
pipeline.
    When you combine Port Fourchon's ever-increasing role in 
the deepwater Gulf of Mexico and LOOP's role in the domestic 
and foreign oil supply, all of a sudden, this tiny area in 
south Louisiana is playing a leading role in producing and 
transporting nearly a quarter of this nation's energy supply--
one fourth of its energy supply.
    The most alarming part about this situation is that you 
would think this country would have some kind of energy policy 
that would recognize the extreme significance of such a 
strategic area and would spare no cost so it could continue 
reaping the bounty of more than $3 billion a year, annually, in 
royalty payments. The reality is that this country's energy 
policy--or lack of it, I should say--has allowed and even 
encouraged a stampede to the lucrative Gulf of Mexico and 
really has virtually done nothing to prepare the coastal 
communities for the surge of activity that has totally consumed 
us.
    Today, over 90 percent of our business at the port is 
directly tied to the Federal OCS. Like a boom town, our port 
has tripled in size since Royalty Relief and 1000 trucks a day 
are winding down a 30-mile stretch of substandard highway, 
making it twice as deadly as similar highways.
    This thread of a highway, which meanders through the most 
rapidly eroding wetlands in this country, extremely vulnerable 
to total destruction by a hurricane, is now forced to carry the 
burden of supporting OCS activity.
    The U.S. Minerals Management Service recently completed a 
study which concludes that as a result of the heavy usage 
resulting from increased deepwater oil and gas development, 
Louisiana Highway 1, the only road access to Port Fourchon, 
will not be able to provide the level of services needed and 
will become increasingly strained. The study projects an 80 
percent increase in truck traffic over the next decade, when 
the national average is 3 percent a year.
    This same agency, in an environmental impact statement, 
cites impacts on landside infrastructure, especially in focal 
point areas like Port Fourchon. The EIS includes statements 
like, and I quote, ``OCS program activities will continue to 
have a significant impact on infrastructure in south Lafourche 
Parish, due to increases in deepwater activity'' and other 
statements like, ``The cumulative impact is expected to result 
in the potential for increased strain, deteriorating conditions 
of existing infrastructure and difficulties in delivering 
satisfactory levels of public services.'' If this is how our 
country treats the friends of OCS production, how can we blame 
others for not wanting a piece of this action?
    I appeared before this Committee 2 years ago in support of 
CARA and said many of the same things. The Federal agency in 
charge of managing offshore oil and gas recovery in Federal 
waters puts the impact in black and white; yet, very little has 
happened to rectify this injustice. The Federal Government just 
keeps collecting three to four billion dollars a year with 
little or no consideration for the landside activities that 
help to generate this revenue.
    Now we find ourselves in a national energy crisis. One can 
hardly wonder why when we ignore those who are willing to 
produce the energy.
    I again ask this Subcommittee to develop, as part of its 
national energy policy, a mechanism to mitigate the landside 
impacts of OCS oil and gas development and that it especially 
recognize and mitigate threats to strategic focal point areas 
like Port Fourchon. If the U.S. fails to address these threats, 
we will soon find ourselves in an energy crisis of disastrous 
proportions.
    I thank you and I will be glad to answer any questions.
    [The prepared statement of Mr. Falgout follows:]

Statement of Ted M. Falgout, Executive Director, Greater Lafourche Port 
                               Commission

    Experts have informed you about the growing significance of the 
Gulf of Mexico to the United States' energy supply.
    I'm going to focus my remarks on a specific area in South Louisiana 
that is playing a dominant role in supporting this activity.
    This area is Port Fourchon, Louisiana. Far removed from the 
limelight of the California Energy Crisis and ANWR drilling issue, this 
little dot on a map is, as the commercial says, ``where the beef is.'' 
Unlike many states, Louisiana has embraced the offshore oil and gas 
industry, and we do it well with very little fanfare.
    In 1995, with the passage of the Royalty Relief Act and the 
advancement of new technology, the Gulf of Mexico has transformed from 
what was once called the Dead Sea to what is now America's New 
Frontier. This transition occurred seemingly overnight and made way for 
the Black Gold Rush to deepwater.
    The post Royalty Relief shift to deepwater is significant - a 
decision of this nation that has been very rewarding, with reduced 
foreign energy dependence, balance of trade, record lease sales, and 
fat bonuses.
    Much like the Gold Rush of the 1800's, this country has pursued the 
Golden Gulf with virtually no policy and very little concern about the 
landside infrastructure needed to retrieve this bounty.
    Nowhere is the impact of OCS activity more evident than in 
Lafourche Parish where Port Fourchon has become the focal point of 
intermodal transfer for support of over 75% of the deepwater projects 
on line today.
    In addition, Port Fourchon serves as the land base for LOOP, this 
nation's only offshore oil port. LOOP handles about 15% of this 
country's foreign oil and is connected to over 30% of this nation's 
refining capacity.
    When you combine Port Fourchon's ever-increasing role in the 
deepwater Gulf of Mexico and LOOP's role in both domestic and foreign 
oil, all of a sudden, you have this one tiny area in South Louisiana 
playing a leading role in producing and transporting nearly a quarter 
of this country's oil supply.
    Port Fourchon, Louisiana is quietly providing the necessary support 
services to meet this nations energy demands, a job that nobody else 
wants to do.
    The most alarming part about this situation is that you would think 
this country would have some kind of energy policy that would recognize 
the extreme significance of such a strategic area and would spare no 
cost so it could continue reaping the bounty of more than 3 billion 
dollars annually in royalty payments. But the United States has no such 
policy.
    The reality is that this country's energy policy, or lack of it, I 
should say, has allowed and even encouraged a stampede to the lucrative 
Gulf of Mexico and has done virtually nothing to prepare coastal 
communities for this surge of activity that has totally consumed us.
    Today, over 90% of our business at the Port is directly tied to the 
Federal OCS. Like a boomtown, our Port has tripled in size since 1995 
from 40 to over 120 companies, and a thousand big trucks a day are 
winding down a 30 mile substandard 2 lane highway, making it twice as 
deadly as similar highways.
    This thread of a highway built for our grandparents to go visit 
each other on Sundays is now forced to carry the burden of OCS 
activity. It also happens to meander through the most rapidly eroding 
wetlands in this country and is extremely vulnerable to total 
destruction by a hurricane.
    The U. S. Minerals Management Service recently completed a study 
which concludes that as a result of heavy usage resulting from 
increased deepwater oil and gas development, LA Highway 1, the only 
road access to Port Fourchon, will not be able to provide the level of 
services needed and will become increasingly strained. The study 
projects an 80% increase in truck traffic over the next decade, when 
the national average is 3% per year.
    This same agency (U.S. MMS) in an EIS, describes the impacts on 
landside infrastructure, especially in focal point areas like Port 
Fourchon. The EIS includes statements like ``OCS Program activities 
will continue to have a significant impact on infrastructure in South 
Lafourche Parish, due to increases in deepwater activity'' and other 
statements like ``The cumulative impact is expected to result in the 
potential for increased strain, deteriorating conditions of existing 
infrastructure, and difficulties in delivering satisfactory levels of 
public services.'' If this is how our country treats the friends of OCS 
production, can you blame others for not wanting a piece of this 
action?
    I appeared before this committee 2 years ago in support of CARA and 
said many of the same things. The Federal agency in charge of mining 
puts the impacts in black and white. Yet very little has happened to 
rectify this injustice. The Federal government just keeps on collecting 
its 3-4 billion dollars annually with little or no consideration for 
the landside activities that help generate this income.
    Now we find ourselves in a national energy crisis. One can hardly 
wonder why. When we ignore those who are willing to produce energy, 
then we add insult to injury by failing to pass legislation such as 
CARA which would assist in mitigating OCS impacts.
    I again ask that this subcommittee develop, as part of this 
nation's energy policy, a mechanism to mitigate the landside impacts of 
OCS oil and gas development, and that it especially recognize and 
mitigate threats to strategic focal point areas like Port Fourchon 
before we truly witness an energy crisis of disastrous proportions.
                                 ______
                                 
    Ms. Cubin. Thank you very much.
    Now we will start with a round of questioning of the panel 
and I would like to remind the Members that the Committee rules 
limit our questioning to 5 minutes each. I will begin with the 
questioning.
    Mr. Falgout, I really do understand how passionately you 
must feel about the conditions that you described in your 
testimony. I opposed CARA and continue to oppose CARA because, 
as I alluded to earlier, Indiana is not a coastal state, 
Wyoming is not a coastal state. And one of the things that I 
think CARA does, because it made so many states coastal states 
that really are not coastal states, is it encourages the other 
states that are coastal states to not explore in their waters.
    Also, it put a lot of money in the Land and Water 
Conservation Fund, the purpose of which is to acquire more 
Federal lands. My state is 50 percent owned by the Federal 
Government, Mr. Gibbons' is 87 percent owned by the Federal 
Government. And we do not think that is a good use of those 
funds.
    There are other reasons, but the point I am trying to make 
is I absolutely understand that you have a problem, not only 
with the infrastructure, but with also losing the coastline. 
And I am totally committed to trying to do what I can for the 
states that are producing, to make sure that they have the 
money that they need out of the royalty revenue stream. I 
talked with Mr. Tauzin about this and I am prepared to do 
whatever this Committee can do to see that that happens.
    Does that position satisfy you, short of CARA?
    Mr. Falgout. Well, I would like to hear that yes, we are 
crafting an energy policy as we speak, and in this energy 
policy we promise we will direct and take care of situations 
like Port Fourchon, take care of the infrastructure that we 
have that is producing the minerals that we need, and focus on 
these as part of our energy policy, not necessarily have to be 
a CARA or any other side type of legislation. It should be part 
of our energy policy. And I think we will have a much more 
favorable policy and people willing to go out and explore and 
develop more energy.
    Ms. Cubin. Well, certainly when the President's task force 
reports later this week on proposed energy policy, 
infrastructure maintenance and development will be part of 
that.
    Mr. Falgout. Thank you.
    Ms. Cubin. Now, I would like to ask Mr. DeHoratiis a 
question. Already, before it is even out, people are describing 
the President's energy policy as drill, drill, drill. But my 
recollection is that drilling peaked in the United States 
decades ago, at least with respect to the number of wells that 
were spudded. Could you give us a true picture of what historic 
exploration is like versus today?
    Mr. DeHoratiis. Well, most recently, drilling has picked up 
since the low prices of 2 years ago, but obviously we are still 
way below the peaks that we have had in the past.
    The good news is that technology has enabled the industry 
to find and develop more by drilling less. But it still has not 
been able to keep up with the increased demand that we are 
seeing in both oil and natural gas.
    We think that technology can play a key role in helping to 
do that, but it is not going to do it alone. There needs to be 
other policies enacted in order to push forward to help our 
domestic oil and gas situation.
    Ms. Cubin. Another quick question, because my light is 
still green. The fossil energy folks at DOE clearly have a lot 
to offer technology-wise to DOI's OCS planning efforts. Can you 
describe the involvement that the DOE has had with MMS in 
developing the next 5-year plan?
    Mr. DeHoratiis. Sure. We work very closely with all the 
agencies within the Department of Interior, including MMS. We 
will be there at the OCS Policy Committee meetings and I have 
made several presentations myself to that committee concerning 
energy policy. We will definitely put in official comments to 
the Department on the 5-year leasing plan and we will continue 
to promote OCS development. I think that the Department has 
gone on record many times stating the importance of the outer 
continental shelf to domestic supply and it is going to play an 
even bigger role in the future.
    Ms. Cubin. Thank you. The Chair now recognizes Mr. Gibbons.
    Mr. Gibbons. Thank you, Madam Chairman. And I do appreciate 
all the witnesses taking time out of their busy day to be here 
to help enlighten us and educate us on these very important 
issues that face a nation that is itself facing a crisis in its 
energy needs.
    Secretary Caldwell, I was taken by your statistics of the 
increase in the number of wells from 10,000 a year to 15,000 a 
year, but not much gas is being found, even with that increase 
in the number of wells.
    Let me say that you talked about the deeper drilling 
efforts, deeper water off the Gulf, but it is my understanding 
that most of those areas are more oil prone than they would be 
gas prone. Would that not indicate to you that perhaps we 
should be looking at more shallow or shelf type drilling, 
perhaps even into the eastern area of the Gulf or up into the 
mid and north Atlantic states, into some of those areas, for 
gas production?
    Mr. Caldwell. That is correct. A lot of gas is below 15,000 
feet and particularly below 20,000 feet. But we are not 
drilling it fast enough. Last year, I think there were only 30 
wells drilled in the OCS on the shelf below 20,000 feet and 
that is just not going to get it. That is why I was emphasizing 
both the royalty incentive and the tax incentive to do the deep 
drilling.
    But with respect to deepwater off the shelf, you are 
correct that it is largely going to be oil, but there is also 
anticipation there will be large gas reserves as well. This is 
told to me by the president of Shell Oil Company recently and 
they are the biggest player out in the deepwater and that is 
where they see the future. So yes, there is hope.
    Ms. Cubin. If you cannot believe the president of Shell 
Oil, who can you believe?
    Mr. Gibbons. That is right.
    Mr. DeHoratiis, thank you for being here today as well. 
Your Energy Department, of course, that you represent, has 
talked a lot about technology development, technology 
advancements and my question would be getting that message out 
to states that have potential, like Florida, as to the 
environmental benefits and for the ability to drill without 
environmental detriment, I should say. Where is your Department 
with regard to putting that message out, interfacing with 
Florida or other states for that matter, California, Atlantic 
coast states--what efforts have you been attempting to 
demonstrate the technology and the development of drilling to 
enable us to develop those resources in those areas?
    Mr. DeHoratiis. Well, I would like to point out two things. 
One is that a couple of years ago, we realized that there was 
not any information out there that would enable you to actually 
make that point. And that was one of the reasons why we put the 
environmental benefit study together, and that is this study 
that you have available to you. And we thought that that was a 
good first step in trying to get the word out.
    We have been promoting this study over the last year and 
will continue to speak about it when we speak about the energy 
policy. We think an important part of any future energy policy 
is responsible environmental management.
    Another smaller point is that our Department also put 
together an assessment of Florida's energy needs and we put 
together an assessment of how much the state uses and how much 
they produce and the difficulties of trying to put that all 
together. We put that together and I know that it's been used 
extensively. So we try to bring the science and the technology, 
we put it out on the table, we make it available, we try to 
promote it as much as we can wherever we speak, and hopefully 
it will be heard more and more in the future.
    Mr. Gibbons. What has been the reaction of those states to 
your report.
    Mr. DeHoratiis. You know, it is always a mixed bag. I think 
that you get a few people that do not realize these issues and 
it makes them pause and think a little bit more, but it is very 
difficult, it is a slow process of converting folks to the 
realities of oil and gas. They have the wrong image of what the 
oil and gas industry even looks like. They do not realize that 
small independents with a dozen employees drill 85 percent of 
the wells in this country. So those are the types of 
information we try to get out to the public.
    Mr. Gibbons. Are you doing any public information programs?
    Mr. DeHoratiis. We have both a technology transfer program 
and also an outreach program where we go around to the various 
states. I will be speaking at the Permian Basin Society of 
Petroleum Engineers later this week, but we also try to get out 
into the non-producing states also so that they can hear the 
message of oil and gas.
    Mr. Gibbons. Madam Chairman, my time has expired, but I 
thank you for the opportunity.
    Ms. Cubin. Yes, it is.
    I would like to ask Mr. DeHoratiis, if you could provide 
for the Committee for the record, that study of Florida's 
energy needs.
    Mr. DeHoratiis. Sure.
    [The information referred to follows:]
                         FLORIDA ENERGY PROFILE
    Florida, like other highly populated states, is a large energy 
consumer. Florida consumed 3.4 quadrillion British thermal units (Btu) 
of energy in 1994 (most recent data available), ranking it 8th in the 
Nation in energy consumption. 80 percent of this energy came from 
burning fossil fuels (Figure 1). 1 In 1994 the State 
consumed:
---------------------------------------------------------------------------
    \1\ DOE/EIA-0214 (93), State Energy Data Report, 1993, p.9. ``Imp. 
Elec'' is electricity imported from out of State.
---------------------------------------------------------------------------
     L1.7 quadrillion Btu of petroleum, most of which was used 
as transportation fuel and to generate electricity,
     L642 trillion Btu of coal, largely consumed by coal-
burning electric utilities,
     L544 trillion Btu of electricity, 2 most of 
which was generated by burning petroleum and coal, and
---------------------------------------------------------------------------
    \2\ Electricity sold to end users, not including the losses 
incurred in the generation, transmission, and distribution of the 
electricity.
---------------------------------------------------------------------------
     L393 trillion Btu of natural gas, mostly consumed by gas-
burning electric utilities and industrial consumers.
Fossil Fuel Production
    Florida produces few of the fossil fuels on which it heavily 
depends.
     LIn 1994, the State produced 7.7 Bcf of natural gas, 
barely two percent of its annual consumption.
     LWhile it produced 6 million barrels of crude oil in 1994, 
3 Florida's crude oil production is steadily decreasing. In 
1981, Florida was the Nation's 8th largest producer of crude oil. Today 
it ranks 21st. 4 Moreover, Florida has no crude oil 
refineries. All of the crude oil Florida produces is shipped out of 
State, refined, and returned as petroleum products. 5
---------------------------------------------------------------------------
    \3\ The Oil and Gas Producing Industry in Your State, 1995-1996, 
Independent Petroleum Association of America.
    \4\ Information provided by Florida Geological Survey.
    \5\ Crude oil produced in Northern Florida goes by pipeline to 
Mobile, Alabama. Crude oil produced in Southern Florida is transported 
via pipeline across the State to Port Everglades where it is shipped by 
tanker to refineries in Texas and Louisiana.
---------------------------------------------------------------------------
     LFinally, while Florida consumes about 26 million short 
tons of coal, 6 it produces none.
---------------------------------------------------------------------------
    \6\ DOE/EIA, Coal Industry Annual 1994, p. 131.
---------------------------------------------------------------------------
    This imbalance between consumption and production makes Florida one 
of the Nation's largest net fossil fuels consumers.
    Petroleum is the fossil fuel on which Florida most heavily relies 
(Figure 1). The State is the Nation's 3rd largest consumer of petroleum 
products. In 1994, it ranked 1st in consumption of residual fuel oil, 
7 3rd in consumption of motor gasoline, and 5th in 
consumption of jet fuel. Most of the residual fuel oil is used to 
produce electricity.
---------------------------------------------------------------------------
    \7\ Residual fuel oil is the heavier oil that remains after the 
lighter or distillate fuels are distilled away in refinery operations. 
Distillate fuel oil is a general classification for several types of 
lighter oil including: fuel used for space heating, on-and-off highway 
diesel engine fuel and some fuel used in electricity generation.
---------------------------------------------------------------------------
Electricity Consumption
    Florida is also a leader in electricity consumption. In 1994 it was 
the 3rd largest electricity consumer in the Nation. Most of this 
electricity was generated by burning petroleum products (residual fuel 
oil), natural gas, and coal (Figure 2). Florida Power & Light Company, 
the Nation's top residual fuel consumer, used nearly 5 times the amount 
of residual fuel as the Nation's next highest utility consumer, 
Consolidated Edison of New York. 8 In addition, Florida 
Power & Light Company, Gulf Power, Jacksonville Electric, and Tampa 
Electric consumed more than 60 percent of the 4.9 million short tons of 
coal imported into the United States in 1994. 9
---------------------------------------------------------------------------
    \8\ DOE/EIA-0191(94), Cost and Quality of Fuels for Electric 
Utility Plants, 1994, p.114
    \9\ Ibid., p.37.
---------------------------------------------------------------------------
Air Quality Impacts
    Relatively large amounts of sulfur dioxide, nitrogen oxides, carbon 
dioxide, and particulates are released when electric utilities burn oil 
and coal. In 1994, out of all the petroleum-burning electric generating 
units in the U.S., Florida's ranked highest in sulfur dioxide emissions 
at 250 thousand short tons. This was nearly half of the total U.S. 
sulfur dioxide emissions from petroleum-burning utilities. Florida's 
petroleum-burning utilities also ranked number one in the Nation for 
nitrogen oxide emissions, at 50 thousand short tons.
    Although Florida's coal-burning electric generating units have 
lower emissions compared to other states, the emission amounts are 
substantial. Sulfur dioxide emissions from coal-burning electric 
generating units totaled 444 thousand short tons, ranking it 12th in 
total sulfur dioxide emissions in the U.S. in 1994. Florida's nitrogen 
oxide emissions amounted to 192 short tons in 1994, ranking it 11th in 
total nitrogen oxide emissions from coal-burning electricity 
generation. 10
---------------------------------------------------------------------------
    \10\ Florida's emissions of nitrogen and sulfur dioxide would be 
even higher if it weren't for several DOE Clean Coal Technology 
projects in the State. One, the Tampa Electric Company Project, is 
employing the Integrated Gasification Combined Cycle System to remove 
nearly 98 percent of sulfur pollutants from high sulfur coal being used 
at a new 250 megawatt power plant in Lakeland. A second, the Selective 
Catalytic Reduction (SCR) Project, applies ammonia to flue gases 
exiting the boiler at Gulf Power Company's Plant Crist in Pensacola. 
Since operations began in 1993, nitrogen oxide emissions have been 
reduced over 80 percent. DOE has spent over $140 million on these 
projects.
---------------------------------------------------------------------------
Oil Spill Risks
    Because Florida has no refineries and is not served by any 
interstate petroleum product pipelines, nearly all of the petroleum 
products consumed in state are imported from overseas 11 or 
from out-of-state refineries 12 (Figure 3). Moving these 
imports in and out of Florida seaports, and off-loading them at onshore 
terminals, does not come without risks. For example, on August 10, 
1993, two tank barges carrying jet fuel, diesel, gasoline, and fuel 
oils, collided with a freighter south of Mullet Key near the entrance 
to Tampa Bay. Over an 18-hour period 32,000 gallons of jet fuel and 
330,000 gallons of No. 6 fuel oil spilled from the tank barges into 
lower Tampa Bay. Some of the spill initially came ashore at Ft. Desoto 
Park but winds and tides carried much of the spill out into the Gulf of 
Mexico. Two days later, however, a storm with strong west winds carried 
the oil ashore and into Boca Ciega Bay. Over 16 miles of shoreline were 
affected as were large areas of Tampa Bay, the Gulf of Mexico, and Boca 
Ciega Bay. Damage to the environment (mangroves, sea grasses, birds, 
sea turtles, salt marshes, shellfish beds, beaches, and bottom 
sediments) was extensive. 13 Moreover, the tourist, fishing, 
shipping, and associated businesses in the area were seriously hurt by 
the spill. The impact of the spill on the Tampa/St. Petersburg economy 
was substantial.
---------------------------------------------------------------------------
    \11\ Florida Department of Commerce, Bureau of Economic Analysis.
    \12\ DOE/EIA Form 817, Monthly Tanker and Barge Movement Report.
    \13\ Damage Assessment and Restoration Plan for the August 10, 
1993, Tampa Bay Oil Spill, prepared by: Florida Department of 
Environmental Protection; National Ocean and Atmospheric 
Administration; and, U.S. Department of the Interior, December, 1995.
---------------------------------------------------------------------------
Comparisons with Other States
    As noted earlier, Florida is the Nation's 3rd largest consumer of 
electricity. To generate this electricity, Florida consumes huge 
amounts of energy. From 1960-1994, the amount of energy Florida 
consumed to produce electricity increased nearly 700 percent. Figure 4 
compares this growth with that of fiveother of the Nation's most 
populous states. In 1994, 42 percent of the energy consumed in Florida 
was used to produce electricity while California used 19 percent, Texas 
used 26 percent, and New York used 32 percent of the energy they 
consumed to produce electricity.
    Most of the energy consumed to produce electricity was obtained 
from fossil fuels. Between 1960 and 1994, Florida increased its use of 
fossil fuels in electrical generation by 551 percent. By 1994, 80 
percent of Florida's electricity was produced by burning fossil fuels. 
By way of comparison, California relied on fossil fuels for 45 percent 
of its electricity, and New York used fossil fuels to produce 43 
percent of its electricity. Alaska, the Nation's largest producer of 
fossil fuels, relied on fossil fuels for only 74 percent of its 
electricity--6 percent less than Florida. 14
---------------------------------------------------------------------------
    \14\ DOE/EIA-0214 (93), State Energy Data Report, 1993, pp. 53-292.
---------------------------------------------------------------------------
Future Energy Demand
    To this point, we have presented a profile of Florida's energy 
present. But what of its future?
    Keep in mind two important facets of Florida's energy profile:
     LFlorida has a limited supply of non-fossil (nuclear and 
renewable) energy, and,
     LFlorida's consumption of electricity is a function of the 
State's population growth and commercial development, not the demands 
of the State's heavy industries.
    Ordinarily the second point would not be a concern, because demand 
side management, increasing imports (gas, electricity, coal, 
petroleum), peak loading, etc., could meet the higher electricity 
demands of a slowly increasing population. However, over the next 30 
years, Florida's population is expected to soar. The population of 
South Florida, almost 40 percent of Florida's total population, is 
projected to double to 8 million by the year 2010 and triple by the 
year 2050. 15 Further, the use of renewable (hydroelectric) 
and non-fossil (nuclear) fuels is expected to decline. The Governor's 
Commission for a Sustainable South Florida has unofficially 
acknowledged that there will be no increases in the number or size of 
Florida's nuclear power plants. In addition, environmental concerns are 
expected to prevent the initiation of new hydroelectric projects.
---------------------------------------------------------------------------
    \15\ Initial Report of the Governor's Commission for a Sustainable 
South Florida, p. 26.
---------------------------------------------------------------------------
Renewable Energy Alternatives
    On the national level, renewable energy sources are not likely to 
replace fossil fuels by significant amounts in the near future. 
Although the Energy Information Administration (EIA) estimates that 
solar electricity generation will increase somewhat in the U.S. during 
its 1996-2015 forecast, most applications will be on a small scale. In 
2015 solar reaches its highest level in EIA's forecast, but it still 
accounts for less than 1 percent of electricity generation in the U.S. 
Even if most of the Nation's projected solar power is produced in 
southern states such as Florida, the small amount of electricity 
generated from solar power will not be enough to replace fossil-fuel-
fired generation.
    Turning to another renewable, wind power, EIA predicts moderate 
growth in electricity generation from this source over the forecast 
period. However, the higher price of wind energy remains less 
attractive to electric utilities than inexpensive fossil fuels, 
particularly natural gas. Most of the growth in windpowered electricity 
generation is expected in the western U.S., where resources are 
favorable. In EIA's forecast, electricity generation from wind will 
reach its highest level in 2015, accounting for about 1 percent of 
total generation in the country.
    The largest renewable source of electricity generation in the U.S. 
is conventional hydropower. In 2015, hydropower is expected to account 
for 77 percent of all renewable energy sources of electricity 
generation. In the same year, total electricity generation from 
renewable sources and generation from hydropower reach their highest 
levels in EIA's forecast. Even at its peak, hydropower accounts for 
only 8 percent of the Nation's electricity generation by 2015. The vast 
majority of this hydropower continues to be generated in the western 
and northwestern U.S.
Fossil Fuel Demand Will Surge
    Instead of relying on limited renewable energy sources, Florida may 
be tempted to increase the amount of electricity it imports from other 
states (since 1960, Florida has gone from a net exporter of electricity 
to an importer of 266 trillion Btu). But this would leave the State's 
consumers vulnerable to price increases and supply disruptions. Based 
on its continued reliance on fossil fuels to produce electricity and 
its projected population growth, Florida's demand for coal, oil, and 
natural gas can be expected to surge over the next 30 years.
    Florida is already committed to increase gas-fired electricity 
generation. From 1995 to 2004, twenty-four new electricity generating 
units are projected to be added, producing 3,614 megawatts of 
electricity. Twenty-one of these units, producing 2,691 megawatts of 
electricity, are expected to be gas powered. 16 In addition, 
Florida's end-use market for natural gas is extensive. By 2005, the 
annual consumption of gas in the residential and commercial sectors may 
increase as much as 19,218 billion Btu (107 percent) and 10,297 billion 
Btu (19 percent) respectively, over 1991 levels. 17
---------------------------------------------------------------------------
    \16\ DOE/EIA-0095(94), Inventory of Power Plants in the United 
States, 1994, p.32.
    \17\ Natural Gas Growth Potential in the State of Florida, Draft 
Report prepared for the Florida Energy Office by Tellus Institute, 
August 1995.
---------------------------------------------------------------------------
Natural Gas as an Alternative
    As a fossil fuel, natural gas has far fewer harmful effects on the 
environment than coal or petroleum. It has virtually no sulfur 
emissions, lower emissions of nitrogen oxides, and extremely low 
particulate emissions. Natural gas has approximately 30 percent lower 
carbon dioxide emissions than oil and 45 percent lower carbon dioxide 
emissions than coal, on an energy-equivalent basis, and natural gas 
does not generate solid waste. 18 In addition, increased use 
of natural gas in the residential and commercial sectors could, by 
2005, avoid the need for approximately 962 megawatts in electric 
utility peak capacity. Combined, the increased use of natural gas in 
electricity generation and end-use markets would result in significant 
reductions in the emissions of carbon dioxide and nitrogen and sulfur 
oxides.
---------------------------------------------------------------------------
    \18\ Department of Energy, Sustainable Energy Strategy, 1995, p. 
3940.
---------------------------------------------------------------------------
    Florida can meet this increased demand for natural gas by tapping 
into the resource reserves off its Gulf coast. Studies by the 
Department of Interior, U.S. Geological Survey indicate that Florida 
has 40 million cubic feet of undiscovered natural gas resources in its 
State offshore waters. Meanwhile, the Minerals Management Service (MMS) 
estimates that the outer continental shelf off Florida's Gulf coast 
contains reserves of .537 trillion cubic feet (Tcf) of natural gas. 
Further, MMS estimates that vast amounts of hydrocarbons, nearly 8 Tcf 
of natural gas, remain undiscovered in this area. This equates to 
nearly nine quads of energy or Florida's projected total natural gas 
demand for the next 40 years. 19
---------------------------------------------------------------------------
    \19\ Table E(1), Summary of the 1995 Assessment of Conventionally 
Recoverable Hydrocarbon Resources of the Gulf of Mexico and the 
Atlantic Outer Continental Shelf.
---------------------------------------------------------------------------
Economic Benefits
    Exploring for, producing, and processing the natural gas off its 
coasts would not only help Florida meet its future energy requirements 
but also could significantly help the Florida economy. The South 
Florida Regional Planning Council notes that personal incomes have 
declined over the last two decades and that throughout the State, 
earnings from wages, salaries, and professional fees have been lower 
than the national average--and are falling. To reverse this trend, the 
Council recommends that Florida's current economic base must be 
broadened and shifted toward higher value-added industries. 
20 The oil and gas industry, and its associated service, 
refining/processing, and petrochemical industries, is one of the 
Nation's leading value-added industries. It is an important source of 
capital formation, technological development and high paying jobs. 
Exploring for, producing, and processing this gas could be expected to 
create thousands of jobs in Florida and the nearby Gulf States. 
Further, the Bureau of Labor Statistics reports that these jobs pay 
wages 30 percent higher than those paid the average U.S. worker.
---------------------------------------------------------------------------
    \20\ South Florida Regional Planning Council, Strategic Regional 
Policy Plan Part Two; Goals and Policies, pp 17-18.
---------------------------------------------------------------------------
Summary
    Florida is one of the fastest growing states in the Nation. Its 
population and, as a result, its energy consumption are increasing at a 
substantial rate. To satisfy its appetite for energy, especially 
electricity, Florida will consume increasing amounts of fossil fuels. 
The burning of these fuels, as well as their movement in and out of 
Florida's ports, pose a serious threat to Florida's environment and, as 
demonstrated by the 1993 Tampa Bay Spill, to Florida's economy and 
tourist industry.
    Florida could improve both its environment and its economy by 
developing the vast natural gas resources that exist off its Gulf 
coast. These resources could be used to displace coal and residual 
fuels in Florida's power plants, cleaning the State's air and creating 
thousands of high-wage jobs. Moreover, these natural gas resources 
could be explored for and produced in a way that poses less of a threat 
to Florida's coast and coastal waterways than does the continued annual 
import of more than 250 million barrels of petroleum products.
[GRAPHIC] [TIFF OMITTED] T2337.031

    Ms. Cubin. Also, I am always a little careful about--and I 
realize the circumstances are not the same, but for example, 
comparing Florida's consumption of energy with its production. 
If Wyoming had to produce a share of oranges, we would be in a 
lot of trouble.
    [Laughter.]
    Ms. Cubin. Congressman Vitter.
    Mr. Vitter. Thank you, Madam Chairwoman.
    Secretary Caldwell, I wanted to follow up on Congressman 
Jefferson's comments about tax issues, and you touched on that. 
I happened to be talking by phone with Pat Taylor this morning, 
he is a leading independent oil man in this area. He 
specifically talked about the alternative minimum tax issue as 
a big, big issue particularly for independents.
    If we were to make a list of three or four or five key 
royalty or tax issues at the Federal level that we should act 
upon to spur production, what do you think they would be?
    Mr. Caldwell. AMT would be number one. Number two would be 
to craft a policy applicable to natural gas that is based on 
the tight gas sands legislation and the coal bed methane 
legislation, would be a starting point for the tax incentives.
    But I think the AMT would be number one on the list.
    Mr. Vitter. Okay, thank you.
    Mr. DeHoratiis, this is not a question really, just a 
comment. I really want to encourage the Department and other 
folks involved in the effort to continue these education 
efforts. What I find most stunning and most depressing about 
our fledgling national energy debate is the amount of 
misinformation out there, particularly about environmental 
issues. People talk about production in the Gulf like this is 
some risky cutting edge thing. It has been going on there very 
responsibly, very carefully for decades. And as I said, where 
is the best fishing? Underneath those platforms. And if there 
is any way to increase environmental risk, it is to increase--
which we are doing--the amount of oil that needs to be 
transported around in tankers versus produced and put in 
pipelines. That is exactly what we are doing by increasing 
moratoriums and decreasing domestic production and everything 
else. So just want to encourage the Department in those 
efforts.
    And Mr. Falgout, of course, I have been to Port Fourchon 
several times, I have driven Highway 1, I have flown in a 
helicopter above it. I can tell you, when you drive it, it is 
very vivid because it is a little highway that is literally 
linking the connection to a quarter of our nation's energy 
supply to the rest of the nation. It is even more vivid when 
you look at it from a helicopter because it is a little highway 
surrounded by water, it is basically going out into the Gulf. I 
mean it is marshland, but it looks like it is going out into 
the Gulf.
    I wonder if you could describe some of those images for our 
guests today, because this is an amazingly important and 
vulnerable link in terms of the whole national energy supply.
    Mr. Falgout. I guess when people ask me about this, I raise 
the question of how long can you tread water, because 
actually--and Secretary Caldwell knows this more than anybody--
the coastal land loss issue the way it is in Louisiana and 
geographically there are very few places where you can access 
the Gulf of Mexico in Louisiana by highway, and this is one of 
them. The other is in extreme southwest Louisiana. So in the 
central part of the Gulf of Mexico where the oil and gas energy 
is being produced, this is the only place--geographically, 
environmentally. There is just no better place for it to occur.
    So you would ask why would we not move this inland or some 
other question of that nature, it just cannot happen. Imagine 
moving 200 to 300 vessels a day that move through this part, 
moving that inland, the environmental problems of that. So it 
is very strategic to have this location on the Gulf of Mexico. 
It saves dollars, it saves oil and gas costs, it saves numerous 
things.
    So the connection to it, to inland, coming back to your 
question, is the highway. There is no rail, no other method of 
transportation other than this two-lane highway system to 
service all of this energy.
    What would you do, how would you restructure it, of course 
an elevated highway--this is an on-the-ground highway, no part 
of it is above a plus-four elevation. Most of it is about a 
plus-two and a half elevation. Just during tropical season, it 
goes under water. So, you know, we are not talking about inland 
areas here.
    So you would have to build an elevated highway system. Of 
course, that would be ideal for hurricane evacuation. There are 
13,000 people working on oil rigs in the Gulf of Mexico on any 
given day that have to go through this highway to get to their 
vehicle and go back to Mississippi and Indiana and Wyoming and 
anywhere, back to their regular homes. Because it is conducive 
to doing that when you work 21 days on and seven off. So they 
come from all over the country and they add insult to injury on 
this highway because the residents are competing to get out and 
thousands of offshore OCS workers are also--and equipment.
    An elevated highway across about a 13-mile expanse would be 
necessary and then the remainder would be more inland and would 
be on ground, but unless you do that, we are just dickering 
with a time bomb.
    Mr. Vitter. Just to add to the comment, I am convinced this 
is an enormous national need that is going to be recognized 
some day. The question is if it is recognized in advance or if 
it is recognized when a hurricane comes through and cuts off a 
quarter of the nation's energy supply for some significant 
period of time because the highway is gone. And that is going 
to be--if that were to happen, and it is utterly predictable 
when you are on the ground or in the air looking at it--that is 
going to be a major dislocation, not just for LaFourche, but 
for the nation.
    Mr. Falgout. And it will not feel very good to say I told 
you so.
    Mr. Vitter. That is all my comments.
    Ms. Cubin. Thank you.
    I just have one question. I understand the financial status 
of the State of Louisiana has been like a lot of energy 
producing states, and there has not been a lot of tax money to 
go around to meet the needs. But what are the attempts that 
have been made at the Federal level to get funding for this? Is 
there legislation--has anybody proposed doing anything? I am 
speaking, anybody in Congress, in the House or in the Senate.
    Mr. Falgout. Very good question. In the last TEA-21 bill, 
we did get about $7 million to do some initial studies. We are 
conducting an EIS, as we speak, it should be finished in the 
next couple of months, on the elevated part. But we do not have 
the big dollars to build it. And the Federal Government keeps 
on going back to say well, how come we give you state money to 
build the highway, and our state, like most states probably, 
has about a billion dollars in backlog on highway bills. And 
how can a state justify building a highway, which is in its 
view a deadend highway going to the Gulf of Mexico and 
stopping, when they are generating no income from this OCS 
activity. If this OCS activity was on state lands, we would 
have built that highway 20 years ago, we would be generating 
two to three billion dollars a year in Louisiana.
    Ms. Cubin. Sure.
    Mr. Falgout. We would probably have a golden laid highway 
by this time.
    [Laughter.]
    Mr. Falgout. But it has not happened. So how can--you know, 
how can we say Louisiana should build this highway when it is 
getting none of the revenues that are generated, one half of 
the people coming out of the Gulf through Port Fourchon are not 
even from Louisiana. They are taking their pay checks out of 
state, Louisiana is getting none of that revenue and then 
nation is truly benefitting from this.
    Ms. Cubin. That is exactly right. Jim wanted to point out 
that the gold lining on the highway would have come from 
Nevada.
    [Laughter.]
    Mr. Falgout. Oh, okay.
    Ms. Cubin. But you know, you make a great point and I think 
the timing is very good to be able to get something done about 
this because like you said in your testimony, if anybody--all 
of you--if anybody has been watching, this is totally 
predictable. And a problem with the highway is totally 
predictable and we need to do something about it now.
    Well, I would like to thank the panel for their testimony 
and for the answers to the questions and I would like at this 
time to recognize the second panel.
    Now Mr. Melvin, is it Baiamonte?
    Mr. Baiamonte. Yes.
    Ms. Cubin. With the Independent Petroleum Association of 
America; Mr. James D. Abercrombie, General Manager of Offshore 
Production of Dominion Exploration and Production; Mr. Dave 
Golder, Senior Vice President of Commercialization and 
Development of Marathon Oil Company and Mr. Mark Davis, the 
Coalition to Restore Coastal Louisiana.
    Thank you very much. Again, I would like to remind the 
panel that your oral comments are limited to 5 minutes under 
the Committee rules, but your entire testimony will be in the 
record.
    So I would like to recognize Mr. Melvin Baiamonte with the 
Independent Petroleum Association of America.

     STATEMENT OF MELVIN BAIAMONTE, INDEPENDENT PETROLEUM 
                     ASSOCIATION OF AMERICA

    Mr. Baiamonte. Madam Chairwoman, members of the 
Subcommittee, I am Melvin Baiamonte, Offshore Land Manager of 
Forest Oil's Gulf of Mexico Business Unit. I am testifying on 
behalf of the Independent Petroleum Association of America, 
IPAA.
    Increasingly, independent producers are bringing offshore 
reserves to market. Not only do independents now hold 80 
percent of the OCS leases--
    Ms. Cubin. Mr. Baiamonte, could you pull the microphone 
closer and speak into the microphone?
    Mr. Baiamonte. Is that better?
    Ms. Cubin. A little more.
    Mr. Baiamonte. Okay.
    Ms. Cubin. Thank you.
    Mr. Baiamonte. Not only do independents now hold 80 percent 
of the OCS leases, but independents have amassed as much 
acreage in the deepwater as have majors and they have 
participated in half the wells drilled in the deep Gulf in 
2000.
    I will summarize my written statement which contains more 
detailed recommendations.
    There is no debate that Federal offshore production, mainly 
from the Gulf of Mexico, contributes substantially to the 
nation's energy supply. However, without new policies, the 
offshore will fail to deliver the oil and natural gas Americans 
will be demanding in a few short years. My remarks today will 
address the issues we face in two broad areas--providing land 
access and providing access to capital through royalty 
incentive policies.
    First, it is important to note that our access is so 
limited offshore that we are allowed in fewer places than we 
are kept out of.
    For new leasing opportunities, we are barred from even 
leasing off the west coast, the east coast and most of the 
eastern Gulf of Mexico, as well as parts of Alaska OCS. We have 
access to only 18 percent of the offshore. We think it is time 
to rethink this policy.
    The MMS' next 5-year leasing plan is a good starting point. 
It needs to support a sound energy policy, but beyond providing 
for important annual sales in the western and central Gulf, we 
need to find ways to find effective state buy-in for targeted 
exploration in top geological places contained in off-limit 
areas.
    Sale 181, scheduled in non-moratorium areas in the eastern 
Gulf is an important step to take this December, and take it we 
must, with all tracts on times, with terms and stipulations 
that will encourage development and production. This sale, 
previously agreed to by all interested parties, has been on the 
drawing board since the mid-1990's. Coastal zone management 
policies could have a chilling effect on offshore land access.
    During the coastal zone reauthorization process, we need to 
reduce risk associated with vague policies, lengthy appeals and 
loss of property rights. Coastal states deserve to be part of 
the process but we need to examine to what extent offshore 
activities are truly impacting their state.
    To aid in the promotion of offshore production, we support 
adequate funding of the MMS offshore program such as the 
President's request for additional $14.7 million in the 
upcoming fiscal year.
    Madam Chairwoman, IPAA applauds your proposal for using 
part of the onshore oil and gas royalty streams to fund those 
BLM offices responsible for generating production. Similarly, 
we recommend that a part of the offshore royalty stream be 
directed to offshore programs. Managers receiving this funding 
should be held accountable for their decisions that affect 
energy supply. In the area of encouraging capital investment, 
IPAA believes that improving the government's royalty policies 
like royalty in kind could foster a better OCS investment 
environment. Deepwater royalty relief policies on a going-
forward basis have all but disappeared with the expiration of 
the Deepwater Royalty Relief Act. MMS' post-Act relief volumes 
in deepwater range from non-existent for water depths from 200 
to 800 meters to a small fraction of what was previously 
extended for water depths greater than 800 meters.
    Some of our members are finding that leases they acquired 
from 1995 through 2000 under the Act's terms do not qualify for 
royalty relief due to MMS' application of relief policies on a 
field basis rather than on a lease basis. This greatly 
restricts the benefit of such relief. We would recommend a 
Congressional review of these policies and support the 
extension of the terms of the Deepwater Royalty Relief Act on a 
lease-by-lease basis.
    But royalty incentive policies should not be limited to 
deepwater. We support an examination of incentive policies to 
all water depths, beginning with high risk exploration on the 
shelf. Our ideas here include wells drilled to 15,000 feet or 
more where there is no current production; subsalt prospects 
and prospects located in abnormal pressure conditions; and 
highly deviated wells off existing platforms.
    Finally, we believe marginal production on the shelf could 
benefit from royalty incentives. All royalty incentives should 
be subject to a price trigger. It is important to encourage 
leasing of offshore today and have them in production tomorrow 
to meet the growing consumer needs.
    In conclusion, providing access to the resource base and 
attracting capital are critical for increasing domestic 
production. It is time for this country to take its energy 
issues seriously and develop a sound future policy.
    Thank you again for allowing me to appear before you today.
    Ms. Cubin. Thank you.
    The Chair now recognizes Mr. Abercrombie.
    [The prepared statement of Mr. Baiamonte follows:]
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STATEMENT OF JAMES D. ABERCROMBIE, GENERAL MANAGER OF OFFSHORE 
        PRODUCTION, DOMINION EXPLORATION AND PRODUCTION

    Mr. Abercrombie. Good afternoon, Madam Chair, and members 
of the Committee. On a personal note, it is a pleasure and a 
pleasant surprise to testify before my personal Representative 
here, Mr. Vitter. I was not expecting that.
    I am here representing Dominion Exploration and Production, 
which is one of the nation's largest integrated electric and 
natural gas companies in the United States. I am also pleased 
to be here today as a representative of the largest independent 
natural gas and crude oil exploration and production company 
comprised of the Domestic Petroleum Council. Together, these 
companies including my own, are strong players in the offshore 
Gulf of Mexico, with almost 3700 total OCS leaseholds, of which 
more than 1100 are in the deepwater areas. Many of those 
companies are also operators.
    I would like to talk about an independent's technical 
ability that we have right now. There has been a lot of 
development over the past 10-15 years of seismic technology in 
the Gulf of Mexico. We are one of the major users of it, as are 
a number of other independents. And that seismic technology has 
allowed us to basically see geological structures and potential 
oil and gas reservoirs below the sea bed of the Gulf of Mexico. 
We have even gone to the extent of going to four-dimensional 
seismic and technology that allows us to even better resolve 
those particular reservoirs in the Gulf of Mexico.
    Combined with that, there has been a number of major 
engineering innovations, which has allowed industry to develop 
deepwater fields where conventional solutions would not have 
been economic. A clear example of that is the design and 
installation of the world's first production spar, FPS Neptune, 
which is a floating cylindrical structure that is anchored to 
the sea floor in nearly 2000 feet of water. That was developed 
jointly by Dominion and Kerr McGee. One of the real unique 
traits of it is when reserves from one portion of the fields 
have been depleted, you can literally move it to another 
portion of the field and produce untapped reserves that are 
there. It is a trail blazing concept that has opened up 
numerous areas in the deepwater Gulf of Mexico to production 
that has not occurred prior to that point in time.
    We need to go where the resources are and we applaud and 
strongly support the efforts of the Bush administration as well 
as the Resources Committee here in hearings like this to step 
back and examine where there are areas in which we should have 
even greater exploration and production access. I am not 
talking about national parks or wilderness areas or marine 
sanctuaries. But the record in the Gulf of Mexico of our 
technology improvements over the past decade should be taken 
into account as we think about the resources that are currently 
off limits off of our coast. It may be time to gather more 
seismic information and other information to revisit those 
access choices. And certainly in areas that have already been 
the subject of careful analysis, they should be available for 
appropriate exploration and production activity.
    Lease Sale 181 in the eastern Gulf of Mexico, which comes 
up in December, provides us an outstanding example of what we 
need to be doing. It alone could make up a significant 400 
billion cubic feet a year contribution to providing natural gas 
for Florida and the surrounding southeastern states. That is 
basically Florida's use of about one-third of their energy 
supplies in the year 2015. Clearly, the administration should 
assure that that sale 181 is held as scheduled.
    We also believe that early approval of floating production 
storage and offloading vessel technology be made so that 
additional deepwater gas and oilfields can be developed more 
efficiently and more cost effectively. In addition, Congress 
should consider extension of the deepwater royalty provisions 
of the Deepwater Royalty Relief Act of 1995.
    In the last Federal offshore lease sale in March, Sale 178, 
the fewest number of blocks offered, 214, and the fewest number 
of bids, 52, were in the 200 to 800 meter water depths. These 
are the depths of which the MMS eliminated automatic royalty 
suspension and of which the Domestic Petroleum Council 
disagreed. Our strong belief is that all deepwater areas would 
have been more robust, seen more robust bidding and will in the 
future, if Congress reinstates a more realistic royalty review.
    While on the subject of royalties, we strongly support the 
administration's efforts to expand and make permanent the 
taking of royalties in kind or the royalty in kind program. It 
makes Federal leases much more attractive to companies like 
ours and eases the Federal Government's burden on 
administrative and potential litigation.
    With that, I would like to answer any questions you have.
    Ms. Cubin. Thank you, Mr. Abercrombie.
    Mr. Golder.
    [The prepared statement of Mr. Abercrombie follows:]

    Statement of James D. Abercrombie, General Manager of Offshore 
Production, Dominion Exploration and Production, Inc., on behalf of the 
                       Domestic Petroleum Council

    My name is James D. Abercrombie, General Manager of Offshore 
Production for Dominion Exploration and Production, Inc.
    I am pleased to be here today as a representative of the largest 
independent natural gas and crude oil exploration and production 
companies in the United States who make up the Domestic Petroleum 
Council.
    Together these DPC companies, including my own, are strong players 
in the offshore Gulf of Mexico, with almost 3,700 total OCS lease 
interests, many as operator. More remarkable, they have more than 1,100 
deepwater lease interests in the Gulf of Mexico, including a number of 
operator designations. They are among the high-tech leaders in finding 
developing and producing the natural gas and oil resources we need to 
generate electricity for our computers, heat and cool our homes and 
businesses and provide the mobility we need to get to our jobs and 
other activities.
    Against that background, let me emphasize that we in the DPC are 
most concerned about meeting the challenge of supplying the dramatic 
increase in gas demand that you will continue to hear about. We at 
Dominion and our counterpart companies are betting our capital everyday 
on our technical ability to find and produce the supplies that we'll 
need from a very substantial gas resource base in the offshore Gulf and 
other areas. But we'll need your help in meeting a number of other 
challenges, principal among them being access to that resource base.
    Let me say a word first about our technical ability. Dominion is 
among the most active and high-tech explorers in the offshore Gulf of 
Mexico. Many of the major petroleum service companies have led in the 
development of innovative geoscience technology that is being applied 
today to enhance our ability to find and produce oil and gas 
efficiently. Seismic technology that allows us to ``see'' geologic 
structures and potential oil and gas reservoirs below the seabed in the 
Gulf of Mexico is perhaps the most exciting area of change, especially 
in view of our need to work in deepwater areas. The conversion from 
analog to digital technology, combined with the development of ``4-D'' 
seismic and ``4-C'' technology has allowed significantly better 
resolution and imaging of reservoirs and has resulted in more efficient 
development plans, utilizing multi-well and multi-lateral completions 
and more cost effective designs.
    Major engineering innovations have also allowed the industry to 
develop deepwater fields where conventional solutions would not have 
been economic. A clear example is the design and installation of the 
world's first production spar, ``FPS Neptune'', jointly developed by 
Dominion and Kerr-McGee.
    The Neptune Spar is a floating cylindrical structure anchored to 
the sea floor, in 1,960 feet of water.
    The hull is 705 feet long, 72 feet in diameter, weighing 12,000 
tons, while the topside is 3,600 tons in weight, supports the 
production facilities and crew accommodations. A unique trait of the 
Spar concept concerns effective field development. When reserves from 
one portion of the field have been depleted, the Spar is moved to 
another area to produce untapped reserves. This is especially useful 
when reserves are located over a wide area. The trail-blazing concept 
has led to the use of Spar type designs in a number of previously 
undeveloped deepwater areas, thus increasing oil and gas supply to the 
U.S. New drilling and well completion technologies have also expedited 
new production in the Gulf of Mexico Deepwater.
    Again, we're willing to spend our money and devote our human 
resources to meeting consumer needs.
    But we need to go where the resource is.
    We applaud and strongly support the efforts of the Bush 
Administration, as well as the Resources Committee in hearings like 
this, to step back and examine whether there are areas to which we 
should have even greater exploration and production access. I'm not 
talking about national parks, wilderness areas or marine sanctuaries.
    But our record in the Gulf of Mexico, and our technology 
improvements over the past decades should be taken into account as we 
think about the resources that are currently off limits off all our 
coasts. It may be time to gather more seismic and other information and 
to revisit the policy choices we are making in selected areas.
    And certainly areas that have already been the subject of careful 
analysis should be available for appropriate exploration and production 
activity.
    Lease Sale 181 in the Eastern Gulf of Mexico, scheduled for 
December of this year, provides an outstanding example of what we need 
to be doing. It alone could make a significant 400 BCF per year 
contribution to providing natural gas to Florida and the surrounding 
region to meet increasing electricity generation needs.
    The development of supply sources in close proximity to key growth 
markets like Florida will result in timely responses to the needs of 
consumers. This is especially important when we consider that projected 
electricity demand in Florida will include a growth of approximately 25 
thousand megawatts. Since almost all of that growth is expected to be 
fueled by natural gas, Florida gas demand (shown below) is expected to 
double over the next 15 years.
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    The chart below illustrates a National Petroleum Council projection 
of the natural gas supply impact of access restrictions in the eastern 
Gulf of Mexico. The Reference Case curve (middle line) assumes that 
Western Norphlet, off the coast of Mobile, Alabama, and MMS Lease sale 
181 will be the only areas in the eastern Gulf that will produce gas.
    Also shown here is the impact if sale 181 did not happen (bottom 
line). As noted a moment ago, this is a potential 400 BCF per year loss 
of valued natural gas resource--or the amount of gas that could meet 
one-third of Florida's projected electricity demand growth by 2015.
    (The top line indicates the NPC study's projection of substantial 
additional gas supplies to feed the country's growing energy demand if 
industry is allowed access beyond the Western Norphlet and Sale 181 
areas.)
    Clearly the Administration should ensure that Sale 181 is held as 
scheduled.
[GRAPHIC] [TIFF OMITTED] T2337.030

    We are also looking forward to early approval of Floating 
Production Storage and Offloading vessel (FPSO) technology so that 
additional deepwater gas and oil fields can be developed more 
efficiently and cost effectively.
    In addition, Congress should consider extension of the deepwater 
royalty provisions of the Deep Water Royalty Relief Act of 1995 that 
spurred much of the activity we have seen in waters deeper than 200 
meters.
    Under the previous Administration, the Minerals Management Service 
proposed, and the current Administration allowed to go into effect, 
royalty incentives for deep gas wells on the OCS, and some relief for 
those seeking gas beneath offshore salt formations. That was positive. 
But, unfortunately, the MMS also significantly increased the royalty 
burdens for deepwater leases in the Gulf of Mexico above where they had 
been for five years under the 1995 law by failing to provide for an 
automatic suspension of royalties.
    In the last Federal offshore lease sale in March, the fewest number 
of blocks offered (214) and the fewest number with bids (52) were in 
the 200-800 meter water depths. These are the depths for which the MMS 
eliminated automatic royalty suspension (action with which DPC 
disagreed.) Most blocks offered were in shallow waters (1305) for which 
deep gas incentives have been put in place (with which we agree) and 
ultra-deep waters (2460) where royalty suspension volumes were 
significantly reduced. There were 338 blocks in shallow waters 
receiving bids that averaged a total of $670,000 per block. There were 
only 47 ultra-deep blocks that attracted bids totaling an average of 
$3.66-million per block. Our strong belief is that all deepwater areas 
would have seen more robust bidding--and will in the future if Congress 
reinstates a more realistic royalty regime as was in place under the 
DWRRA.
    While on the subject of royalties, we strongly support the 
Administration's efforts to expand and make permanent the taking of its 
royalties in kind. This ``R-I-K'' approach, now being extensively pilot 
tested in the Gulf of Mexico, makes Federal leases more attractive to 
companies like ours, and eases the Federal Government's administrative 
and potential litigation burdens. (Currently, 360 million cubic feet of 
gas and 7,000 barrels of oil are being taken as royalties in kind.)
    Finally, we at Dominion and the DPC look forward to continuing to 
work with you to meet the energy challenges ahead.
                                 ______
                                 

      STATEMENT OF DAVE GOLDER, SENIOR VICE PRESIDENT OF 
    COMMERCIALIZATION AND DEVELOPMENT, MARATHON OIL COMPANY

    Mr. Golder. Yes, thank you, Madam Chairman and members of 
the Subcommittee.
    Previous speakers have been pretty articulate about a 
number of the items I would like to speak about, so in the 
interest of time, I will just focus on one area that is of 
interest to Marathon, where we have a long history.
    Before I do though, I would very much like to second Mr. 
Falgout and his concerns about the infrastructure needs in the 
Fourchon area. As one of the companies who is very dependent on 
the infrastructure there and as the operator and major interest 
owner in LOOP, we certainly understand the strategic 
significance of this area to the country.
    Basically I would like to comment just solely on the 
Deepwater Royalty Relief Act and the continuing need for 
incentives for exploration and development of the OCS.
    Marathon Oil started back in 1992 by distributing a white 
paper to Congress called ``A Proposal to Encourage Development 
of OCS Deep Water Leases.'' This became the genesis of what 
ultimately became the 1995 Deep Water Royalty Relief Act. This 
Act provided limited suspension of royalty payments on 
production volumes in various water depths and had automatic 
provisions for such royalty relief from November 1995 to 2000. 
Unfortunately, these automatic relief provisions expired in 
late November of 2000, but the MMS does retain broad authority 
to offer royalty relief on new leases in deepwater with 
suspension of royalties based on time, volume or value. They 
also have the authority to grant relief on a lease sale basis 
or on a case-by-case basis. The purpose of my testimony is to 
encourage the proactive use of this authority to further the 
intent of the original legislation.
    The Deep Water Royalty Relief Act program was an 
unequivocal success. I have included a graph in my written 
testimony that illustrates the dramatic increase in deepwater 
leases in the 3 years that followed. I think it speaks very 
plainly to the benefits from this program. Rarely has a 
government program been so effective and immediate in obtaining 
its objectives. Positive results were manifold, but primarily 
they resulted in $3 billion of additional deepwater lease 
bonuses over the first 5 years. But further, it stimulated the 
investment of additional billions of dollars for development 
after successful exploration and this has been critical in 
trying to stimulate research and development expertise in our 
domestic industry to help keep us a world leader in technology 
and applications around the world.
    Employment in the U.S. oil and gas sector has fallen by 
more than 50 percent, from 750,000 to around 300,000, since 
1982. The quality of our technology and our personnel still 
leads the world, but it takes cutting edge technology applied 
in areas like the deepwater to maintain that.
    Energy security today, as we have heard previous speakers 
talk about, is limited because nearly 57 percent of U.S. oil 
consumption is supplied by imports. We think the Deep Water 
Royalty Relief Act was a positive first step toward reducing 
our dependence on imports. Long cycle times, however, require 
that we maintain and sustain a program over a long period, 
because you cannot turn things on and off.
    Deepwater was once the nearly exclusive province of the 
super-majors prior to enactment of the Deep Water Royalty 
Relief Act. The oil and gas industry has seen clear benefits 
from having many smaller companies follow the majors. As you 
have heard, many of them have been very successful in 
deepwater. Companies of diverse size allow each to focus on 
projects that suit their corporate risk and reserve goals, 
which in turn allows for more complete exploitation of the 
entire deepwater OCS. Former deepwater players like Mobil, 
Amoco, Arco, Vastar, and soon, Texaco have disappeared from the 
scene as they have been merged into other companies, reducing 
competition and increasing the niches for smaller companies to 
play.
    We think it is important to provide the necessary 
incentives to ensure that smaller companies remain in the 
deepwater, in order to have a viable and competitive OCS. Our 
own experience indicates that royalty relief in deepwater can 
be a key, in fact a necessary factor. We are working together 
with BP, TotalFina Elf and several other companies to jointly 
develop three small marginal gas fields in up to 7200 feet of 
water. This would not have been possible without sharing 
infrastructure in the Canyon Express project, but I can tell 
you, without royalty relief on those three fields, we would not 
be going forward. Today, we expect to have the world's deepest 
water production on line flowing to the U.S. gas markets by the 
middle of next year.
    Although the deepwater royalty relief expired in 2000, 
there are many of us who are urging the MMS to continue to 
offer deepwater royalty relief incentives and to use their 
administrative ability to focus on a number of things. One of 
the areas we have talked about is the shallow water. It is 
critical that we continue to offer incentives in shallow water 
portions of the Gulf for the high risk, high cost subsalt and 
other areas that we have heard referred to. Secretary Caldwell 
has discussed this, so I will skip the details, but it is 
important.
    Finally, our recommendation is that we continue to review 
and revise the current regulatory and administrative policies 
in all water depths and provide additional incentives. 
Specifically, we would like to see the MMS extend 
administrative royalty relief for water depths of 1600 meters 
and greater, for larger volumes than those contained in recent 
sale 178.
    Any relief program must provide incentives that are 
predictable and sustainable over at least 5 years so that we 
can reasonably plan our business. A program that changes from 
year to year will not be effective. A relief program should 
also contain significant relief volumes and other incentives to 
ensure the smaller companies who have been enticed into the 
deepwater can remain viable there.
    It was disappointing that the MMS more than doubled rentals 
on leases awarded at the first lease sale under the Deep Water 
Royalty Relief Act because by doing so, they diluted some of 
the benefits and offset some of the incentives. We hope that 
that will not be a trend in future sales.
    Thank you for the opportunity to appear before you and I 
look forward to answering any questions.
    Ms. Cubin. Thank you.
    The Chair now recognizes Mr. Davis.
    [The prepared statement of Mr. Golder follows:]
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STATEMENT OF MARK DAVIS, COALITION TO RESTORE COASTAL LOUISIANA

    Mr. Davis. Thank you, Madam Chairman, members of the 
Committee. It is a pleasure to be invited here today to share 
in this discussion.
    Clearly energy issues are getting heightened attention in 
this country at this time and we tend to find that here in the 
central and western Gulf of Mexico, when such topics come up, 
we share disproportionately some times in the benefits and 
burdens of whatever decisions are made.
    Let me begin by stating that the Coalition to Restore 
Coastal Louisiana is a non-profit, non-partisan organization 
devoted to the stewardship and restoration of coastal 
Louisiana, which is truly a vanishing national treasure.
    We have no particular expertise on energy policy, we do not 
have any idea what the reserves are in the OCS areas or what 
level of protection would be sustained by them. But what we do 
have, as you heard from Secretary Caldwell and Mr. Falgout, we 
do have extensive experience in dealing with the consequences 
of offshore oil and gas development. Predictably that is a 
mixed bag. Sometimes there is the good and there is the not so 
good. And since we were invited here today to talk really about 
the constraints, I will confine my comments to the not so good 
category, for the information of the Committee.
    We see the impacts from OCS activity falling into three 
basic categories--the environmental, the societal and the 
economic. There are not easy lines between these and I will 
refer to them, for purposes of convenience, but I would urge 
that they be looked at holistically.
    Environmental constraints that OCS activity finds itself 
dealing with, I think are fairly obvious to those of us who 
live on coastal Louisiana. There is no way that you can talk 
about doing the kinds of development that we have at least seen 
here without recognizing that negative environmental 
consequences will ensue. It is not a question of if, it is a 
question of when, where and how much. We bear witness to those 
facts, as again I think Mr. Caldwell pointed out and as did Mr 
Falgout. Our coast is laced with evidence of oil and gas 
activities from wells, production facilities, supply bases, 
access canals, pipelines, fabrication yards, waste pits and 
many more. And while there is some debate as to how much oil 
and gas activity has contributed to our land loss situation 
here in Louisiana, which we currently lose roughly around 25 
square miles of land each year, there is not a debate that the 
oil and gas activity and OCS activity is a contributor. There 
was a study that was completed here at the University of New 
Orleans last year that suggested that, or stated that between 
1932 and 1990, about 36 percent of the land lost in that time 
period was--a significant contributor to which was oil and gas 
activity. That is nearly 250,000 acres in the delta plain 
alone. Now I am not suggesting that all of that land loss 
activity was due to OCS activity or that other states would 
share that same experience, but we do know that future activity 
would continue to affect Louisiana and that other states that 
want to learn from our experience should take note of what 
happens if you do not adequately plan. And I think that, you 
know, taking stock and planning is one of the lessons we think 
should be drawn here.
    To confirm that this is not all just history and that 
clearly we do things much better than we once did, one need 
look no farther than the draft environmental impact statement 
for Lease Sale 181. The pipelines from that proposed lease sale 
are expected to impact over 6000 acres of wetlands in coastal 
Louisiana, particularly in Plaquemines Parish. That is not 
insignificant and is a very major impact. It is also expected 
to create the need for up to three new municipal landfills, it 
is expected to create the need for at least one new non-
hazardous oilfield waste facility. And I would note that the 
non-hazardous designation is one that is of Congressional 
creation and is not one determined by its chemistry. And that 
is a distinction which has not been lost on communities that 
are looking at the prospect of hosting the units.
    The list of other concerns on the environmental front go on 
and include brine and produced water discharges, contamination 
and exotic species that can come from ballast water, flaring 
and air-borne releases and the destruction of coastal 
environments by the building or expansion of transportation 
facilities and support facilities. And of course, there is the 
issue of oil spills. And while no one likes to acknowledge the 
fact that, you know, spills are a fact of life, they are. There 
is no way to do this kind of activity without oil spills 
occurring. Mechanical failure, natural catastrophe, human error 
and a number of other things will contribute. They are not easy 
to clean up and often our ability to remediate the harm from an 
oil spill or from some of these other impacts is limited at 
best and it needs to be understood that avoidance, to the 
extent one can, often is the preferred--is always in our view 
the preferred route.
    On societal constraints, we notice as we look across the 
Gulf--this is not so much the case with Louisiana--that there 
is a trend toward coastal communities becoming not maritime, 
not harvest oriented but increasingly lifestyle oriented. And 
we find in those communities oil and gas activity, particularly 
that supporting offshore, is viewed as being incompatible with 
the lifestyle and economic development plans of those 
communities.
    I am not suggesting that my values should be substituted 
for anyone else's but those are constraints that are very real 
and they are every bit as real from the standpoint of those 
communities and those property owners who appear for their 
quality of life and their property values as is the pump price 
of their monthly utility bill. And we would urge that again, 
those not be viewed as aberrations of Coastal Zone Management 
Act or Clean Water Act or any other particular environmental 
law. Those are societal drivers and they need to be addressed.
    I think the economic constraints have already been 
adequately addressed by Mr. Falgout. I will sum it up merely by 
saying that for coastal states, although offshore oil and gas 
development may be good for the economy of the country, it is 
often a bad deal for the states and communities that host the 
support activities. And until those costs and inequities can be 
addressed, that will continue to be a constraint as to the 
welcomeness of offshore oil and gas from the standpoint of 
those states and communities.
    And with that, I will conclude my testimony and take any 
questions.
    [The prepared statement of Mr. Davis follows:]

   Statement of Mark Davis, Executive Director, Coalition to Restore 
                           Coastal Louisiana

    My name is Mark Davis and I am the executive director of the 
Coalition to Restore Coastal Louisiana. The Coalition is a non-profit, 
non-partisan environmental education and advocacy organization formed 
in the mid 1980s by conservationists, local governments, business, 
environmentalists, civic and religious organizations who shared a 
concern about the fate of the greatest coastal wetland and estuarine 
complex in the 48 contiguous United States and a commitment to the 
responsible stewardship of those natural treasures.
    On behalf of the Coalition to Restore Coastal Louisiana I would 
like to thank Chairman Cubin and the other members of the subcommittee 
for inviting us to be a part of this field hearing on Outer Continental 
Shelf Oil and Gas issues. Clearly, energy issues are getting heightened 
attention at this time. Decisions about how we define and meet our 
energy needs will affect the people, environment and economy of this 
country for years to come. And if past is prelude, they will affect the 
Gulf of Mexico region--particularly coastal Louisiana and coastal 
Texas--more than anyplace else. To the extent our experience can help 
inform those decisions we are pleased to offer it to you.
    Let me begin by stating that the Coalition has no idea of the size 
of the estimated oil and gas reserves in our nation's OCS areas, no 
idea about the level of production that resource base could support, no 
expertise in the energy policy area, and we have no position on the 
President's proposed energy policy. What we do have is experience 
living with the consequences of supporting OCS energy development, 
consequences that may prove to be constraints on further development of 
OCS resources.
    Simply put, it is our experience that the development of offshore 
mineral resources has dramatic impacts--environmental, societal, and 
economic--that need to be considered before our nation decides if and 
how to expand OCS activity. Clearly, those impacts will be a mixed 
bag--some good, some not. Since we were asked here today to help the 
subcommittee understand some of the constraints on OCS activity we will 
focus our comments on those in the ``not so good'' category.
Environmental Constraints
    We know that there has been much discussion recently about whether 
oil and gas activity puts a significant stress on the environment and 
about whether the current state of the art is such that new activity--
particularly OCS activity can be done without significant impacts. From 
the perspective of coastal Louisiana, we believe the record is clear 
that oil and gas activity has had significant negative impacts, that 
those impacts continue to this day, and that future activity will 
likely have major adverse environmental effects. We make this statement 
not to cast blame but make the simple--we believe indisputable--point 
that environmental damage is not a question of ``if'' but of ``where, 
when, and how much''.
    Coastal Louisiana bears witness to those facts. Our coast is laced 
with evidence of oil and gas activity. Wells, production facilities, 
supply bases, access canals, pipeline canals, fabrication yards, waste 
pits, refineries, and other earmarks are regular features of the 
landscape. While there is debate about how much of Louisiana's crisis-
level land loss has been due to oil and gas activity, there is no 
debate over whether it has been a material contributor. Most recently, 
a study done here at the University of New Orleans with the assistance 
of the U.S. Army Corps of Engineers and the U.S. Geological Survey 
concluded that oil and gas activity was responsible for 36% of the 
landloss in Mississippi River deltaic plain between 1932 and 1990. That 
is 249,152 acres of land that is now gone.
    I do not mean to suggest that all of that land loss is due to OCS 
activity or that such dramatic impacts are necessarily indicative of 
what other coastal areas should expect. But it is clear that OCS does 
contribute, directly and indirectly, to the environmental degradation 
of this area and that no one should assume that it will not continue in 
the future or that others would be spared their own version of our 
experience if they do not plan for those impacts up front.
    To confirm this, one need look no further than the Environmental 
Impact Statements prepared by the Minerals Management Service for lease 
sales in the Gulf of Mexico. For example, according to the draft EIS 
for Lease Sale 181 in the Eastern Planning Area, up to seven new 
pipelines will be needed transport oil and gas to shore. Even with 
today's best practices, more than 6,000 acres of wetlands in Southeast 
Louisiana are expected to be impacted. That is not insignificant. That 
lease sale is also projected to create the need for three new municipal 
landfills in coastal areas to accommodate the waste and debris 
generated by the offshore industry and at least one new waste facility 
for ``nonhazardous oil-field waste. I would like to point out that in 
the latter case such waste is deemed ``nonhazardous'' by Congressional 
fiat rather than by its actual nature, a fact that has not made such 
facilities popular additions to local landscapes nor has it boosted 
confidence in the Federal Government's ability to fairly balance 
benefits and burdens when it comes to energy policy.
    The list of other environmental concerns goes on to include brine 
and produced water discharges, contamination and the introduction of 
exotic species from ballast water, flaring and airborne releases, and 
the destruction of coastal environments by the building or expansion of 
the transportation and support facilities needed to conduct offshore 
work. And, of course there is the issue of oil spills. It is important 
to up front and honest about spills. They will happen. Whether due to 
natural catastrophe, mechanical failure, human error, or other causes 
spills will occur and our ability to clean them up and remediate their 
harm is limited at best.
Societal Constraints.
    In coastal areas, there is a close relationship between the 
environment and our local cultures and quality of life. Coastal areas 
have traditionally supported and been defined by local activities such 
as commercial and sport fishing, hunting and trapping, and beach 
oriented tourism. In recent years, however, there has been an explosive 
growth in coastal areas as retirees, ``second-home vacationers'', 
casinos and mass-market tourism have taken hold. A desire for a better 
quality of life and a desire for a ``sun and sea'' lifestyle often spur 
these developments. These trends have redefined the economies and 
cultures of many coastal areas and have taxed the ability of local 
governments, sanitary and transportation infrastructure, and the 
natural environment to support this growth. All of this presents a 
problem for OCS development.
    First, as I just mentioned, many coastal areas are expanding so 
fast that their ability to accommodate the offshore industry may be 
problematic. Waste handling facilities are already being stretched, 
transportation arteries are beyond their capacity and areas that were 
once industrial are now being shifted to other uses. The Gulf coasts of 
Alabama and Mississippi are prime examples of these trends. There are 
limits to what these areas can support and offshore development may be 
constrained by those limits.
    Second, and perhaps more importantly, community values and economic 
development plans for many coastal areas are just not compatible with 
oil and gas activity. Whether these positions are based on hard 
science, is just a matter of perception, or just rooted in self-serving 
NIMBYism (not in my backyard) is frankly beside the point. When people 
feel that their property values, their quality of life, and the 
environment are about to be diminished it matters--, as I am sure all 
of the Subcommittee members are well aware. There are reasons most of 
our OCS areas are presently off limits to energy development and those 
reasons are as much a part of the marketplace of values and costs as 
are pump prices and our monthly utility bills. I won't pretend to 
substitute my judgement or values for anyone else's but I will tell you 
that the belief that OCS development is incompatible with environmental 
stewardship and the best interests of communities is widespread and it 
runs deep. That is, and will remain, a constraint. And I would caution 
that though those objections often find their voice through such 
Federal laws as the Coastal Zone Management Act, the Clean Water Act 
and the Endangered Species Act it would be a mistake to believe that 
those laws are the source of the societal constraint.
Economic Constraints
    The final constraint I will touch on is economic. When OCS energy 
development is discussed in this country the proponents usually point 
to our economy's need for dependable, affordable oil and gas. The 
economic issue that often goes undiscussed, however, is the cost that 
states and local governments incur in supporting that industry. Costs 
that often far exceed any economic benefits produced locally by that 
activity. I know I don't need to belabor that point for the members of 
Louisiana's delegation who recognized that inequity and strove to 
address it through their strong support of the Conservation and 
Reinvestment Act. For the benefit of the other members of the 
Subcommittee, however, let me put it bluntly--though OCS development 
may be good economically for the country, it can be a bad deal for the 
states and communities that serve as its logistical support base. 
Again, the MMS Environmental Impact Statements can be instructive.
    According to the most recent EIS, virtually all waste generated off 
shore must be disposed of in municipal landfills on shore. Managing 
those sites creating new waste sites is left to the locals to deal 
with. When crew boats erode waterways the problems are left to the 
locals to live with or fix. When truck traffic from oil-field service 
ports cause roadways to clog and crumble, it is the state and local 
governments' problem to deal with. When transient oil-field workers 
occasionally run afoul of the law it is local jails that pick up the 
tab. And when a pipeline or spill damages or destroys a wetland it is 
the local fishery and tax-base that take the hit. In return for this, 
the state and local communities do not get a dime from the lease or 
royalty revenues that flow into the Federal treasury.
    Until those economic costs and inequities are understood and 
addressed they will to continue to constrain the further development of 
OCS areas.
Conclusion
    In this brief time, it is not possible to address all of the 
constraints that face OCS oil and gas development. I do hope, however, 
that I have provided some insight into the types of issues you and 
other policy makers will be facing as you try to craft a national 
energy policy. Yours is not an easy task. If we can assist you in that 
task by answering any questions or providing you with additional 
information we would be delighted to do so. Thank you again for 
allowing us this opportunity to appear before you.
                                 ______
                                 
    Ms. Cubin. Thank you.
    Mr. Davis, I absolutely do not disagree with anything you 
have said. Some of the mineral production booms were so fast 
and so big that people literally sometimes lived in tents 
because they could not build houses quickly enough. And the 
schools are over-crowded and so your point that planning is 
important, I think is key absolutely.
    I do believe, based on my land-lover upbringing, that 
resources can be developed and we can take care of the 
environment in an environmentally sound way as well, but it 
takes money and it takes planning, just like you said.
    When I was reading your testimony, Mr. Baiamonte--let me 
find it where it is in the testimony, you talked about the IPAA 
and some other trade groups feeling that MMS' analysis of the 
field side distribution in the Gulf of Mexico is somewhat 
flawed and that--what makes a field basis more attractive than 
the lease basis. I should know that, but I do not know that.
    Mr. Baiamonte. It is actually just the opposite.
    Ms. Cubin. Oh, okay.
    Mr. Baiamonte. We would prefer lease-by-lease basis rather 
than--
    Ms. Cubin. Sure, that is what it has. Okay, why is that?
    Mr. Baiamonte. Well, a field could comprise several leases 
or several different sections.
    Ms. Cubin. Right, I know that.
    Mr. Baiamonte. You could have competition, you have 
different owners to those leasehold rights. So what we are 
saying is that the owner of one particular lease, whether or 
not the reservoir may continue into another block or several 
blocks, the incentive should be enjoyed by that particular 
lease owners and the economics to drill a well become that much 
greater if he knows he is going to be able to enjoy the relief 
from that. But if the relief is going to be strung out and 
shared among several leases, then the economics become slimmer.
    Ms. Cubin. Oh, I see. So during that sale 187, that was on 
a lease basis, is that right? I mean 178, I am dyslexic. You 
look like a girl to me.
    [Laughter.]
    Ms. Cubin. In your testimony also you said that the failure 
of the United States to recognize the need to respond to low 
oil prices of 1998-1999 resulted in adverse consequences for 
both oil and natural gas. What do you think the proper reaction 
of the government should have been?
    Mr. Baiamonte. To give the industry more incentive. What 
happens, if the price goes down, yes, there is a--it creates 
the immediate economic impact. However, the industry takes 
several years to recover from that impact because we need to 
see where the prices are going to be in the future in order to 
plan on how to make your expenditures. So with the price 
jumping up and down, the uncertainty of that creates havoc on 
any of your plans, on any of your economics and your budgets on 
how to spend your money going forward.
    Ms. Cubin. Mr. Golder, I understand that you or that your 
company and a partner are strongly considering building a 
pipeline for additional Canadian maritime gas flow to the 
United States by way of the Gulf of Maine sea floor route. Do 
you think that there is a good potential for gas discoveries on 
the U.S. side of the OCS that could be tied into this pipeline?
    Mr. Golder. In U.S. waters off New England?
    Ms. Cubin. Yes. Are you scared to punch a hole outside of 
Massachusetts?
    [Laughter.]
    Mr. Golder. Well, speaking as one company that fought for a 
decade to try to get the right to drill on leases that we took 
in good faith back in the 1980's and fought for another decade 
to get the money back that we paid for those leases and just 
received it last week--
    Ms. Cubin. Oh, you did?
    Mr. Golder. We are not terribly enthused about drilling off 
the eastern coast of the United States until we have a clear 
coastal zone management program and a national energy policy to 
back it up.
    We are, however, actively drilling off Nova Scotia and we 
do believe that there are adequate gas reserves there that will 
be found in the short-term to allow us put another pipeline 
into the New England markets and down into New York. We think 
that is an area that needs a lot of gas and that we can get it 
a lot faster from the Canadian side of the border than we can 
the U.S. side. And that is the reality with which we live.
    Ms. Cubin. Mr. Abercrombie, you were talking about new 
technologies in production and exploration and I know that the 
purpose of some of those new technologies is to allow the 
mineral to be produced for lower cost. But are there--is part 
of that technology also that makes it safer for the 
environment? How much environmental technology--how much has 
technology improved for the benefit of the environment, because 
that is a huge issue?
    Mr. Abercrombie. Absolutely. And I think the evolution of 
the environmental awareness and environmental protection taken 
by companies, large and small, in the Gulf of Mexico, has been 
quite a pleasant story to tell. The technology that has evolved 
in the environmental side and also the safety side with the 
type of equipment that is being used, with the type of 
procedures that are in place, process safety management for 
instance, some of the new technologies to take care of 
overboard water that gets discharged to the Gulf, and the 
awareness of those organizations that--those companies that 
have organizations that work on that--has really led I think to 
significant changes since 10, 15, 20 years ago even. It is 
still--the type of equipment that is used nowadays goes far 
beyond just a few years ago.
    Ms. Cubin. Mr. Davis, you referred to that in your 
testimony. Would you like to respond?
    Mr. Davis. Well, we would agree. We see a vast improvement 
over what we saw 20-30 years ago. But in an environment such as 
we have, at least in coastal Louisiana, and again ours is as 
different an environment as you have in virtually any other 
coastal area, that again the impacts are still fairly 
pronounced and they tend to have secondary and cumulative 
effects. And mitigation is difficult to do successfully, 
certainly affordably. And if you look at the experience with 
the LOOP pipeline and the amount of I guess land owner concern 
about whether or not that was done in the most sensitive manner 
and whether the mitigation effectively worked is instructive of 
how difficult it is to do this kind of work to everyone's 
satisfaction, if you will.
    But it is an evolving art and we appreciate that and we 
understand that, and these are things that this country needs, 
but how one does it is often the question. I think again, if we 
plan for this as opposed to letting it be handled on the fly--
an issue such as produced waters, it took litigation to enforce 
the produced water provisions of the Clean Water Act. It took a 
fair amount of litigation to essentially make sure that 
wetlands are being better protected. If those things can be 
worked into the policy on the front side and take some of the 
controversy out on the back, I think it will be a whole lot 
easier to get people to feel comfortable with this. But I would 
agree that there is no question that if you look at the kind of 
practices that are commonplace today, they are a vast 
improvement over what was begun with when we started doing work 
at least in this coastal environment.
    Ms. Cubin. What is your position on the two-lane highway?
    Mr. Davis. You mean to Fourchon?
    Ms. Cubin. Yes.
    Mr. Davis. Yes, every time we mention two-lane here we have 
to be very specific.
    We would agree that the situation on Highway 1 is a great 
example of a necessary corridor that needs to be improved and 
it is one that the problems that are threatening that highway 
are also the ones that are threatening the entire coastal 
ecosystem down there.
    So we view it as being part and parcel I guess of a 
comprehensive solution, if it is done correctly. And we also 
would agree that as long as the state and other states do not 
share in the revenue stream, there is no reasonable expectation 
that they are going to prioritize that kind of investment.
    Ms. Cubin. I agree.
    Mr. Davis. Until an emergency arises.
    Ms. Cubin. Mr. Gibbon.
    Mr. Gibbons. Thank you, Madam Chairwoman.
    Let me add that gold is very resistant to weathering and--
    [Laughter.]
    Mr. Gibbons. --will come up looking quite well. It will be 
a nice addition to that highway and we would be happy to trade 
some our gold for the oil and gas that is produced up here as 
well.
    Ms. Cubin. But you do not pay royalties.
    Mr. Gibbons. We will--we will.
    Mr. Abercrombie, I was going through your testimony and 
there is an issue that the Chairwoman brought up about the 
Florida demand, what is happening in Florida and then of course 
the eastern Gulf restrictions that are there and some of the 
charts that are in your testimony, and I look at the eastern 
Gulf of Mexico chart, the NPC increase with 181 sale in there 
going from I presume about 500 billion cubic feet up to 1.6 
trillion cubic feet. Of course the chart in there also shows 
the demand in Florida of about 1.1 trillion cubic feet over the 
same period of time.
    Do you believe that without 181--and I think that sale is 
supposed to occur in December?
    Mr. Abercrombie. Right.
    Mr. Gibbons. Do you believe without that sale that this 
nation could meet its energy demands over the next few years?
    Mr. Abercrombie. Speaking personally, no, I do not think 
they can. And the reason I say that is when you looked at the 
chart earlier that was up of the 1986 offshore lease area with 
the number of pipelines that were out there, you saw the blocks 
that were leased at that particular time. What you did not see 
is what that looked like in the year 2000, which would show 
those blocks going all the way down to the bottom of the map. 
And there are a number of discoveries that have taken place off 
Louisiana, off Alabama and what-have-you. When you carry that 
map over, everything stops right at the Florida/Alabama line. 
You have a huge potential right there that can certainly add to 
our energy supply that is not being utilized at this time--
great potential.
    Mr. Gibbons. What do you believe it will take to bring to 
reality a recognition that the resources of this country that 
we have available could be developed to meet our needs--or 
should be developed to meet our needs, perhaps would be better 
said. What do you think it would take, is it going to take an 
energy crisis much like we see the electrical crisis in 
California to bring an awareness to this need? What is it going 
to take to move us out of this resistance to not-in-my-
backyard-at-any-cost-anywhere-at-any-time attitude that states 
along the eastern coast have? What do you think it is going to 
take?
    Mr. Abercrombie. That is a good question because you go out 
to California these days, as I have in the past few months, and 
there are still a number of people that ask what energy crisis 
there, even though they have rolling blackouts. My folks and 
family have gone through that and still ask the same question. 
It just makes you wonder. There needs to be a very clearly 
defined energy policy laid out, very clearly defined. There 
needs to be, in my view, a number of steps in that energy 
policy that say these are the steps we are going to take--open 
up new lands, energy conservation measures that need to be 
taking place, incentives for the industry to be able to go and 
have, I think, chances of success in these new areas that are 
opened up, need to be very clearly articulated and very clearly 
expounded to the population at large.
    Mr. Gibbons. Let me say that with regard to the energy 
crisis in California, that Nevada is paying half price. 
California over the last 20 years has refused to build one new 
power plant in the state of California because they did not 
like the idea of destroying a view shed by a power plant that 
would be generating their own electricity. Just within the last 
3 months, since this crisis in California has bubbled to the 
surface, California has come to the State of Nevada and asked 
Nevada to build 12 new power plants in Nevada to generate power 
for California.
    [Laughter.]
    Mr. Gibbons. Because they cannot get it accomplished in 
California due to the resistance of some environmental groups 
that just refuse to have anything built in their backyard.
    Again, I see the same transition in states that have 
resources that refuse to address those issues and that is why I 
asked the question what crisis will it take for this nation to 
make that recognition.
    Do you believe there is a political reality to seeing the 
eastern Gulf developed, whether it is in the Atlantic or the 
eastern Gulf shore or the north Atlantic portion off the United 
States developed for oil and gas?
    Mr. Abercrombie. Yes, there needs to be that. Whether it is 
there or not is a good question. From what I have read in the 
papers, very true, but there absolutely needs to have that 
acreage open for national security and our national supply.
    Mr. Gibbons. Madam Chairman, if you will allow me just one 
final question and I know the time has rapidly gone by.
    Ms. Cubin. Take your time.
    Mr. Gibbons. I just wanted to address Mr. Golder with one 
question about his belief whether or not the re-instatement or 
the re-enactment of the Royalty Relief Act for 5 years, is that 
going to have a measurable benefit to oil and gas industries in 
this area?
    Mr. Golder. I do not believe there is any question. If we 
had a 5-year continuation, for example, of the original terms, 
with the proper recognition for the escalators that were in the 
original legislation, to carry out the original intent, we 
would be far better off as a nation in terms of our supply of 
oil and gas.
    I think we have heard on this discussion here that you 
cannot take energy policy in isolation. You cannot take one 
piece of legislation in isolation. It is a good step forward 
and it needs to take the second step. That is our opinion. But 
it has got to be part of a broader planned approach. You will 
not get buy-in--if I may piggyback on Mr. Abercrombie's answer 
there, you will not buy-in in the Atlantic coast or in the 
Florida waters until you do engage the population, you do 
engage in a planned discussion of how you go about balancing 
the various needs.
    Working around the world over the last 30 years, I can 
assure you that the way we do it here is not the norm in many 
other areas. And although there are pluses and minuses in both 
systems, in this area, I do not think we plan and carry out our 
business and energy policy and the best use of the land as 
efficiently as we could.
    Thank you.
    Mr. Gibbons. Thank you, Madam Chair.
    Ms. Cubin. Mr. Vitter.
    Mr. Vitter. Thank you, Madam Chairwoman.
    I wanted to ask the three industry folks the same tax 
question I asked before, if you made a short list of tax issues 
to help spur production, what would that short list be and let 
me also ask how would those tax issues compare in significance 
to the royalty relief you are talking about?
    Mr. Golder. Well, as one of the larger integrated companies 
represented here, I think our view is a little different 
perhaps than the pure independents'. In our case, the things 
that are most important are access to acreage, having a good 
balance of ability to access that and to go forward with 
development and that means you must have royalty relief and you 
must have certainty of a plan. We are more interested in the 
overall energy policy and having a few key basic principles 
established that are there for a long period of time. That 
gives us the certainty to plan, to go into deeper water or to 
drill the deeper and more challenging wells. It is not at all 
untypical today in the deepwater Gulf of Mexico for your wells, 
your exploration wells, to cost $40 to $110 million apiece. And 
you do not take those obligations on lightly. It takes a 
sustained period.
    In our case, AMT and some of the other things are not as 
critical. They are important to the industry as a whole and 
therefore we do support an across-the-board approach. We tried 
to argue very articulately here about the need for a variety of 
company sizes and types to work even in the deep water and the 
difficult areas, because we believe in competition. So what is 
good for them is good for the industry we feel.
    Mr. Abercrombie. From Dominion's standpoint, a much smaller 
company than Marathon or the majors, the major issues that we 
see for us are royalty relief and royalty in kind. We do not 
have the deep pocketbooks that a company like a Marathon would 
have or maybe Shell or Exxon or Mobil, what-have-you. And we do 
participate in $40 million wells. The obstacles that are 
required to jump over not having royalty relief in that 200 to 
800 meter area are significant for the economics and long-term 
viability of a project.
    Royalty in kind is another area that we spend actually a 
significant amount of time, as does the government, in working 
through the audits and administrative issues to make sure that 
the accounts are accurate. You can save an awful lot of money 
by eliminating that. So we pretty much buttress what Mr. Golder 
just said, in the same type areas, even though we are a much 
smaller company than they are.
    Mr. Baiamonte. I will sound like a broken record. Royalty 
relief is certainly necessary ongoing, in addition to other 
elements. But from a tax standpoint, expensing the G&G costs 
and the intangibles--as was mentioned, wells cost millions and 
millions of dollars to drill. In conjunction with other 
benefits such as royalty relief, if we could perhaps have some 
tax benefits to being able to fully expense these expenditures, 
that would certainly help fund future development and 
exploration.
    Mr. Vitter. Okay, thank you.
    Mr. Davis, I do not disagree with anything that you said, 
obviously none of this can happen with no environmental change 
or cost. But it also seems to me, to look at our coastal 
situation, which is basically the product of the 50 previous 
years and a lot of activity which is very different than what 
we are talking about now, is to sort of compare apples and 
oranges. I mean, would you agree or would you not agree that 
our coastal problems are associated with activity in the same 
industry, but that is very different than most of the activity 
we are talking about here in that it was shallow and swamp 
activity versus OCS and that it was, you know, with technology 
and a level of environmental sensitivity that are on two 
different planets.
    Mr. Davis. Obviously you are dealing with, to some extent, 
apples and oranges. But both the apples and the oranges need to 
be looked at in their own right. Because right now, what we 
still see is, for example, a large number of pipelines coming 
which leave a very deep footprint which facilitate saltwater 
intrusion. We also have a great deal of support activity. 
Again, the boat wakes and things like that from the crew boats 
have been a significant factor, especially in places like 
Freshwater Bayou, and of course, there's the siting of waste 
facilities and things like that. It is not the same kind of 
activity where we saw the Key Hole Canals being put in the 
coastal environment and again, as I say, I am not trying to 
suggest that that is. But I think it is important to recognize 
that it is very difficult to put in a 20-inch pipeline through 
a marsh environment or a barrier, dynamic barrier shoreline, 
without a significant, not only footprint, but secondary and 
cumulative effect. And at least from some of the things I have 
seen in the general media, I do not think that is adequately 
understood. There is a lot of talk about drilling but as was 
mentioned earlier, drilling is not where we see major impacts. 
We do that with greater precision and with far less impact. It 
really is in the transportation, storage and the support of 
offshore oil and gas activity that we see the most dramatic 
landward impacts. And again, we are not trying to fix 
yesterday's problem, but we should make sure that we understand 
that we have not figured out how to do this without significant 
impacts. And we should just again go ahead and plan for that, 
because as Ted mentioned, that is one of the things we do not 
do, we tend to plan for production in the energy policy realm, 
we tend to plan for the remediation in the environmental or the 
fisheries realm and never the twain shall meet and I think that 
that creates needless conflict when it could be harmonized on 
the front end by, you know, policies that are more 
comprehensive.
    Mr. Vitter. And just to follow up, is part of what you are 
saying that the real live environmental issues today are 
coastal impacts that your group focuses on and that is far more 
meaningful and significant than spills really. I am not saying 
spills do not happen.
    Mr. Davis. Right.
    Mr. Vitter. But that is a far more significant impact than 
the spills that most people think about in terms of 
environmental issues.
    Mr. Davis. For us, yes. At least in this environment. First 
of all, it is hard to plan not to have a spill. Everyone plans 
not to have one. I mean when you're putting in pipelines and 
things like that, those are the kinds of things that you 
actually can anticipate the impacts. And for example, we tend 
not to see pipeline corridors here. You can end up with just 
dozens and dozens of pipelines crisscrossing and there is no 
effort made to essentially concentrate those impacts, 
coordinate mitigation and that is the kind of stuff that we 
see. And also it helps you predict where you might have spills. 
Anybody that tells you that they know where all the pipelines 
in coastal Louisiana are, has not been around very long. This, 
again, as Jack Caldwell mentioned earlier, is a spaghetti bowl.
    So those kinds of things, you know, do fuel spills but 
spills are a part of the problem, an inevitable part, but they 
should not be the driver, in our opinion, as to what the 
environmental impacts are going to be.
    Mr. Vitter. Thank you, Madam Chairman.
    Ms. Cubin. I wanted to make just a quick statement about 
royalty in kind and the rule that was adopted for oil and gas 
valuation. I had in the past introduced legislation for royalty 
in kind and we were able to get some pilot projects, as you 
know. We didn't offer that legislation in the last Congress 
because there was no point. The administration wasn't going to 
let it happen and so forget it. But I do think that that is a 
way to save a lot of money for the states, for the Federal 
Government, for the producers and that is something that we 
will probably be pursuing again. And it is a good time with the 
energy crisis such as it is.
    Well, thank you for your testimony and your answers to the 
questions.
    And now the final panel will please come forward. Mr. Ben 
Hare, the American Association of Petroleum Geologists; Mr. C. 
Grady Drago, Chairman of the Board of the Lincoln Heritage 
Institute; Mr. Charles Bedell, Murphy Oil Corporation; Mr. Paul 
Kelly, Senior Vice President of Special Projects, Rowan 
Companies, Inc. and Mr. Harold Schoeffler with the Delta 
Chapter of the Sierra Club.
    Again, I need to remind the panel that the Committee rules 
require the oral testimony to be limited to 5 minutes, but we 
will include your entire testimony in the record.
    So, first, I would like to recognize Mr Ben Hare with the 
American Association of Petroleum Geologists.

   STATEMENT OF BEN HARE, AMERICAN ASSOCIATION OF PETROLEUM 
                           GEOLOGISTS

    Mr. Hare. Good afternoon and thank you for the opportunity 
to address the Subcommittee on OCS oil and gas issues. My name 
is Ben Hare and I am Chairman of the Committee on Resource 
Evaluation for the American Association of Petroleum 
Geologists. We track the assessments that the various agencies 
do on national resources, things like ANWR, national 
assessments, whatever assesments the agencies perform.
    My good friend Naresh Kummar, Dr. Naresh Kummar, addressed 
this Subcommittee back in March and he stressed two points in 
his presentation:
    (1) Hydrocarbon assessments are a valuable source of data 
and give us an estimate of what resources might be available; 
and
    (2) In order for resources to be converted to proved 
reserves and subsequently to supply, exploration has to occur.
    In regard to assessments, the Minerals Management Service 
published assessments for the OCS in 2000 and including Alaska, 
the MMS estimated mean conventional recoverable resource values 
for the OCS of 362 Tcf of gas and 75 billion barrels of oil. 
Excluding Alaska, the volumes estimated are 240 Tcf of gas and 
about 50 billion barrels of oil. However, as shown by Exhibit 
1, not all of this resource is available for exploration and 
possible conversion to supply.
    In the Pacific, Atlantic and eastern Gulf of Mexico, due to 
restricted access, 76 Tcf of gas and 16.8 billion of oil are 
not available for exploration. In the case of natural gas, this 
equates to about 32 percent of the estimated undiscovered 
resource for those areas (excluding Alaska).
    Now because of the importance of natural gas as a clean 
burning fuel for electricity generation, I will focus my 
comments today on areas where natural gas is the most likely 
resource. Although the Pacific OCS has a sizable estimated gas 
resource, the southern California basins, which we know the 
most about, tend to be oil prone and so I will restrict my 
comments to the Atlantic OCS and eastern Gulf.
    As you can also see on Exhibit 1, the Atlantic and eastern 
Gulf have substantial estimated gas resources and if you will, 
please note the substantial Canadian resource that is in the 
process of being explored for and drilled right now of about 50 
Tcf and 10 billion barrels of oil. I will talk more about that 
later.
    In fact, what I would like to go to now is in the eastern 
Gulf and in the Atlantic OCS, where previous exploration has 
demonstrated that gas has been generated and trapped in the 
U.S. portion of the Atlantic and in the eastern Gulf of Mexico. 
In 1973, a lease sale was conducted in the eastern Gulf which 
resulted in $1.5 billion in high bids. Subsequent exploration 
resulted in the discovery in the Destin Dome area some 40 miles 
south of Panama City, Florida. Estimates for the size of this 
reserve range from 1.3 to 1.9 Tcf of gas. Currently, 
development and production are delayed because of a lawsuit 
between Chevron and its partners against the U.S. government 
over delayed plans, permit and appeal associated with the 
proposed development plan.
    In the Atlantic OCS, geological conditions are also 
favorable for generation and trapping of natural gas. There was 
a round of leasing in the mid- to late-1970's which resulted in 
one discovery. Texaco and partners discovered natural gas at 
Hudson Canyon, some 80 miles off the New Jersey coast. The 
discovery of 290 billion cubic feet of gas was deemed non-
commercial at the time. But perhaps more significantly in 
regard to the Atlantic OCS is what is taking place in the 
Canadian portion of the Atlantic. At Hybernia Field offshore 
Newfoundland where Exxon Mobil is the operator, 150,000 barrels 
of oil per day are being produced. At Sable Island, offshore 
Nova Scotia, 3.5 Tcf of gas has been discovered. In fact, as 
shown on Exhibit 2, this development began delivering in early 
2000, 400 million cubic feet a day to the New England market. 
One of our AAPG colleagues estimates this is enough gas to heat 
over one million homes in the northeast, which currently rely 
on heating oil. If this favorable geology were to extend into 
U.S. waters, it could provide a significant energy supply for 
the eastern U.S.
    Richard Nehring, an AAPG member and a member of our 
Committee on Resource Evaluation, has done extensive research 
on outer continental shelf reserves, production, and rates of 
discovery for oil and gas. He has suggested that present OCS 
policy has forced the country to rely solely on the central and 
western Gulf of Mexico for offshore gas production. This 
reliance cannot last indefinitely. For the past 3 years, gas 
production from the Gulf has declined slightly and although gas 
production from the deepwater is increasing, recent exploration 
activity has indicated that the deepwater area is largely oil 
prone and cannot be counted on for long term high discovery 
rates for new large gas fields.
    Let me conclude my remarks by stating that the U.S. has a 
significant estimated resource in the Atlantic and eastern Gulf 
of Mexico. Previous exploration in the U.S. and Canada have 
shown natural gas to be present and trapped. For those 
resources to be converted to reserves and ultimately to supply 
to meet the nation's energy needs, exploration and production 
must occur.
    Thank you.
    Ms. Cubin. Thank you, Mr. Hare.
    Mr. Drago--tell me how to say that.
    [The prepared statement of Mr. Hare follows:]

     Statement of Ben Hare, Ph.D., Chairman, Committee on Resource 
        Evaluation, American Association of Petroleum Geologists

    Thank you for the opportunity to provide the view of the American 
Association of Geologists on oil and gas issues concerning the Outer 
Continental Shelf. I am Ben Hare, Chairman of the Committee on Resource 
Evaluation of the AAPG.
              american association of petroleum geologists
    The AAPG was founded in 1917 in Tulsa, Oklahoma to advance the 
science of geology, especially as it relates to petroleum, natural gas, 
and energy mineral resources. Today AAPG has a membership of more than 
30,000, with members in virtually every petroleum-producing province in 
the World. It is the largest professional geological society in the 
United States. The membership of AAPG is proud of the contributions it 
makes in supplying the world with reliable and inexpensive energy, in 
developing new ways to do that job better, and in the education of new 
geoscientists to carry on the tradition. The AAPG believes the nation's 
resources can be explored and developed in an environmentally safe and 
sound manner.
    Because much of the membership is engaged, either directly or 
indirectly, in the search for hydrocarbons and the economic development 
of hydrocarbon deposits, the AAPG is keenly interested in understanding 
the amount and geographic distribution of hydrocarbon reserves and 
resources. AAPG advocates a comprehensive national energy policy based 
on sound science and knowledge of the nation's resources and reserves.
                committee on resource evaluation (core)
    In 1993, the AAPG Executive Committee chartered the Committee on 
Resource Evaluation (CORE) to ``provide input and facilitate U. S. 
Government agencies in performing assessments of U. S. hydrocarbon 
resources.'' The charter was amended in 1997 to include international 
assessments so CORE would have a worldwide view of hydrocarbon 
resources. In several instances, CORE has made individual AAPG members 
with specific knowledge of certain geological provinces available to 
various agencies.
    The Committee membership consists of employees of major petroleum 
companies, independent geologists, two directors of state geological 
surveys, three past AAPG Presidents, a member of the Potential Gas 
Committee (Colorado School of Mines), the Canadian Potential Gas 
Committee (University of Calgary), and the USGS. Although the 
membership is diverse, all are very experienced professionals and have 
a great deal of expertise in the science and technology of reserve and 
resource estimation. At most of its meetings, CORE has invited guests 
from the USGS and MMS, as well as other experts who can contribute to 
our knowledge of the nature, amount, and geographic distribution of 
potential petroleum resources, and yet to be discovered resources. CORE 
does not restrict its interest to conventional hydrocarbons but 
includes coalbed methane, shale gas, basin-center gas in continuous 
reservoirs, and to some extent, gas hydrates.
    Since its inception, CORE has reviewed the methodologies and 
scientific methods used for assessments by the U. S. Geological Survey 
(USGS) and has monitored the studies carried out by the Minerals 
Management Service (MMS). CORE has reviewed the methodology utilized by 
the USGS in its 1995 National Assessment of United States Oil and Gas 
Resources, the 1999 Arctic National Wildlife Refuge 1002 Area 
assessment, and the 2000 World Petroleum Assessment. For all of these, 
the Committee on Resource Evaluation has recommended the AAPG Executive 
Committee endorse the methodology and the AAPG Executive Committee has 
publicly done so. However, we have not endorsed any specific numbers 
for undiscovered oil and gas resources.
                      our reliance on hydrocarbons
    I would like to emphasize that fossil fuels supply fully 88% of the 
nation's primary energy requirements. Today, the average U.S. citizen 
uses about 26 barrels of crude oil and 84 thousand cubic feet of 
natural gas per year. Thus, the U.S. with less than 5 percent of the 
world's population consumes about 25 percent of the world's petroleum 
production. Compare that with the Far East with 40 percent of the 
world's population that has a per-capita consumption of crude oil of 
less than one barrel per year and natural-gas consumption that is too 
small to measure. The lifestyle we have runs on energy. To sustain that 
lifestyle in the future, our energy needs will only increase.
    In its Annual Energy Outlook (2001) Report, the EIA made the 
following projections regarding energy supply and demand over the next 
20 years (1999-2020):
     LGDP is expected to increase by 86%.
     LTotal energy consumption will increase by 32%.
     LPetroleum demand will increase by 62%
     LNatural Gas demand will increase by 45%
     LElectricity demand will increase by 45%
     LDespite a 37% increase in energy efficiency, crude oil 
imports will increase 40% to a total 64% of domestic supply, and 
petroleum product imports will increase by 148%
    The National Petroleum Council 1999 study forecasts 2010 demand to 
be 29 trillion cubic feet with only 25 trillion cubic feet of U.S. 
production. Increased use of natural gas to generate electricity is 
driving this increase.
    While we overwhelmingly rely on hydrocarbon resources and see only 
increasing prospects of future demand, the country has seen significant 
decline in domestic production. The oil production has declined by 37% 
since 1973. Domestic gas production declined from 22.6 trillion cubic 
feet per year in 1973 to 15.8 trillion cubic feet in 1983. In the late 
1980s, the industry increased drilling activities, propelled by rising 
commodity prices and the application of new technologies, and by 1997 
gas production had increased to 19.4 trillion cubic feet. Since then, 
it has remained essentially constant. However, demand continued to rise 
to 22 trillion cubic feet in 1999. This increase in demand in excess of 
domestic production has been met with imports, largely from Canada.
                 outer continental shelf as a resource
    The total area of the U.S. Federal offshore, to the 200 nautical 
mile limit, including Alaska, is about 2 billion acres. This is almost 
the same size as the entire landmass of the United States excluding 
Alaska. Only 2 percent has been leased. Today the country receives 26 
percent of its natural gas and 15 percent of its oil from the OCS. As 
you heard from MMS recently, a mean undiscovered economically 
recoverable resource of 46 billion barrels of oil and 168 TCF of 
natural gas exists in the Federal OCS at commodity prices close to what 
exist today ($30/bbl for oil and $3.52/mcf for gas). This is more than 
seven times the proven offshore reserves for oil and more than four 
times the proven offshore reserves of gas.
    Yet, by a 1998 presidential directive, there is presently a Federal 
moratorium on any exploration of the Lower 48 OCS outside of the 
Central and Western Gulf of Mexico until 2012. As shown in Exhibit 1, 
the Atlantic OCS, the Pacific OCS and parts of the eastern Gulf are 
restricted from access. The Atlantic OCS area alone is almost 260 
million acres, an area equal to one and one-half times the area of the 
state of Texas. The total OCS restricted area amounts to more than 400 
million acres. This results in the U. S. spending billions of dollars 
for energy imports every year while foreclosing exploration and 
possible production from an area equal to one-fifth the land area of 
the 48 contiguous states.
    Because of these restrictions, most of these areas have not been 
fully evaluated. The last round of exploration in the Atlantic OCS 
ended over 20 years ago. Very little of the Atlantic OCS, even the most 
prospective parts, have been covered with modern 3-dimensional seismic. 
Therefore, any resources assigned to these areas, may be conservative.
[GRAPHIC] [TIFF OMITTED] T2337.024

    The mean technically recoverable resource in the restricted OCS 
areas amounts to more than 76 trillion cubic feet of gas and more than 
16 billion barrels of oil as shown in the table below.
[GRAPHIC] [TIFF OMITTED] T2337.025

*Figures are estimated to be mean technically recoverable resources.

    In our previous testimony before this committee, we have 
demonstrated the amount of estimated resources tends to grow through 
time. Therefore, we believe that these numbers could similarly grow 
once exploration and development is permitted in these areas.
    Richard Nehring, an AAPG Member and a member of our Committee on 
Resource Evaluation, has done extensive research on Outer Continental 
Shelf (OCS) reserves, production, and rates of discovery for oil and 
gas. He has suggested that present OCS policy has forced the country to 
rely solely on the Central and Western Gulf of Mexico for offshore gas 
production. This reliance cannot last indefinitely. For the past three 
years gas production from the Gulf of Mexico has declined slightly. 
Although deepwater gas production is currently increasing, recent 
exploration activity has indicated the deepwater area is largely oil-
prone and thus cannot be counted on for sustained high rates of gas 
production. AAPG concludes this information warrants considering 
leasing and exploring for the gas resources estimated for the Eastern 
Gulf and Atlantic OCS.
                           the deep offshore
    In 1950, offshore production came from an average water depth of 40 
ft and the maximum water depth for production was 200 ft. Today the 
average producing depth for production is 500 ft and maximum producing 
depths have exceeded 6,000 ft. Modern 3-D seismic, long-reach drilling, 
and floating and sub-sea production systems have made this possible. 
Almost every country with marine waters is promoting exploration in the 
OCS and attempting to attract investment in their offshore, including 
the deep and ultra-deep waters. The 1500-ft water depth for production 
was only reached 20 years ago; today almost 12% of worldwide reserves 
is located in these waters.
    We believe that Canada, Great Britain, Norway, Brazil, India, and 
numerous other nations all rightly understand that oil and gas 
development are vital to their economic wellbeing and can be done with 
minimal environmental impact. That is why all of these countries are 
not only trying to explore the deepwater arena, they are competing in 
the world market for investment dollars for deepwater projects. Whether 
we like it or not, the world is exploring in deeper and deeper waters 
offshore, partly because our own needs demand it. In fact, almost $35 
billion in investments is scheduled for deepwater projects outside the 
US through the year 2004. Given the right environment, a lot of these 
investment dollars could be spent in US waters, providing jobs, helping 
the balance of trade, and enhancing domestic supplies. By exploring in 
our own waters, we could protect the environment commensurate with our 
own standards.
                      implications for natural gas
    Natural gas is a North American regional commodity. The United 
States cannot depend on gas imports from OPEC to meet rising demand. 
The natural gas that we need must come from U.S. production 
supplemented by hemispheric imports. As much as 14% of our supply may 
be coming from Canada over the next 15 years. Mexico is not a likely 
source of supply in the foreseeable future. In fact, we are now 
exporting a small, but increasing, amount of natural gas to Mexico for 
the growing industrial development just south of our border. Gas demand 
is skyrocketing, particularly as a ``clean'' fuel for electric power 
generation. Thus, the OCS as a source of gas becomes even more crucial.
    In the resource figures mentioned earlier, we have not included the 
potential of shallow gas hydrates on the Outer Continental Shelf. 
Although we do not presently have the technology to recover them, gas 
hydrates are another major future potential energy resource. In its 
1995 assessment of gas hydrate resources for the Atlantic OCS, the USGS 
estimated a potential resource in the range of 6,000 to over 100,000 
trillion cubic feet. These figures dwarf any of the conventional 
resource estimates.
    The nation needs to realize that without developing our own OCS 
resources, we will be relying more and more on oil tankers to bring our 
oil and liquid natural gas tankers to import LNG. We will need to 
develop ports to handle all of this traffic and develop long pipeline 
routes to deliver the gas. It may be very difficult to find ports in 
the U.S. that will accept such shipping, given the crowded conditions 
of those facilities. The development of new commercial ports in the 
U.S. will be extremely difficult given the fact that about one-half of 
our citizens live within 50 miles of a coastline, and few are willing 
to accept larger ports and more tanker traffic. An ever-increasing 
fleet of tankers with the corresponding risk of more spills will be 
needed to deliver our petroleum needs. We need to have access to our 
own public lands, including the OCS, which are prospective for natural 
gas.
                     the record of ocs developments
    With more than thirty fields with reserves of 1 trillion cubic feet 
or more, our own Gulf of Mexico is among the top twenty geologic 
provinces in the world. The coastal zone fisheries, tourism and marine 
environment have co-existed here with oil and gas development for over 
fifty years. Our own neighbors to the north, the Canadians, have 
successfully developed their portion of Lake Erie and have been 
producing natural gas there since the 1950's. The US portion of Lake 
Erie has a thicker sedimentary section, and would likely be more 
productive. New Yorkers could use the gas. United States law, however, 
prohibits exploration in the Great Lakes.
    Since 1967 in excess of 300 exploratory wells have been drilled 
within the offshore outer continental shelf waters of the Canadian 
Atlantic. As shown in Exhibit 1, to date, at least 12 trillion cubic 
feet of natural gas and 2 billion barrels of oil have been discovered. 
These discoveries have been off the Scotian Shelf, the Grand Banks and 
the Labrador Sea. The Hibernia platform, 150 miles off the east coast 
of Newfoundland, is now producing more than 125,000 barrels of oil per 
day from a large platform on the prolific fishing grounds of the Grand 
Banks. Natural-gas production began at the end of last year from the 
Sable Offshore Energy Project, off the coast of Nova Scotia, just a few 
hundred miles north of Boston. Currently, 400 million cubic feet of gas 
per day is coming into the New England market from these offshore 
production platforms via the Maritimes and Northeast Pipeline.
[GRAPHIC] [TIFF OMITTED] T2337.026

    Assessments to date of the Eastern Canadian offshore indicate that 
the region contains in excess of 50 trillion cubic feet of natural gas 
and 10 billion barrels of oil. All of this is being accomplished within 
the prime commercial fishing waters and the pristine tourist coastlines 
of Eastern Canada. In fact, for more than thirty years offshore 
exploration and production calmly have co-existed with tourism and 
commercial fishing for the betterment of all concerned. Canada has 
demonstrated that gas exploration and production can be compatible with 
other coastal uses, including tourism
    There is a major new Jurassic-Age deep carbonate-reef discovery 
offshore Nova Scotia called the Panuke Deep Gas Field. If successfully 
delineated, this new field alone could add an additional 400 million 
cubic feet of gas production per day. This is enough to heat over one 
million homes in New England that presently rely on heating oil. 
Petroleum geologists believe that the same types of oil and gas 
accumulations that exist in the Eastern Canadian offshore, may extend 
south along the U.S. Atlantic Coast, from George's Banks to the 
Carolina Trough, a distance of almost 1,000 miles. In fact, the 
carbonate-reef discovery mentioned suggests to many that similar 
potential may extend even as far as the Atlantic coast of Florida. A 
discovery made in 1978 off the New Jersey coast further supports the 
likelihood of these accumulations. This discovery, estimated to contain 
over 200 billion cubic feet of natural gas, was not developed at the 
time of discovery for economic reasons.
    Similar potential exists in the Eastern Gulf. For example, a 1.3 to 
1.9 TCF dry gas discovery has been made offshore Florida. This giant 
gas field has not been able to contribute to the nation's needs because 
of Federal and Florida State restrictions. It is difficult to 
understand why we cannot develop these fields, especially since 
offshore natural gas development poses little threat to any coastline.
    New technologies now permit oil and gas development in a way that 
minimizes onshore surface disruption in environmentally sensitive 
areas. The British, for example, who are very protective of open 
spaces, agreed to develop the giant Wytch Farm Oil Field under Poole 
Harbour, which is in the middle of the most heavily visited coastal 
zone of the South of England. At the Wytch Farm development, long-reach 
deviated wells are drilled in a radial pattern from a camouflaged 
central well pad onshore, to locations up to seven miles out into 
scenic Poole Bay. Opponents of petroleum development cite old operating 
practices, and prior environmental abuses. The modern practices are 
much improved. Just like Canada, Great Britain, Brazil, Norway, Qatar, 
Thailand, Australia, and many other petroleum producing nations, 
America likewise can develop its offshore and onshore energy resources 
in environmentally sensitive areas in a safe and rational manner.
    The concern over oil spills has been consistently overstated. 
Except for two incidents over the last 50 years, one off the coast of 
California over three decades ago and the other off Mexico in the 
1980s, both of which could have been prevented, all major spills have 
come from tanker accidents. For the year 1998, the OCS produced more 
almost 500 million barrels of oil. The total volume reported spilled 
for the year, in incidents where more than 50 barrels was spilled, was 
500 barrels. That is one barrel out of every million produced. Most of 
these spills were cleaned up on the platforms and never reached the 
ocean.
                                summary
    How important is producing domestic crude oil and natural gas? Is 
it important enough to permit access to prospective public-lands for 
exploration and development? Is it important enough to provide 
appropriate economic incentives for that development? Conversely, 
should we discourage the development of our domestic resources and 
increase our dependency upon other countries to supply our future 
petroleum needs? I need not remind you of the trauma faced by this 
country in our one experience with an energy crisis in spite of the 
fact that during that time we lost only 5 percent of our crude oil 
supply, the amount supplied by the Arab OPEC countries. If a 5 percent 
decline could cause the problems that we had then, think of what would 
happen today if we lost those same imports.
    The nation has attempted to reduce the supply/demand imbalance by 
promoting alternative energy, conservation, increased efficiency, and 
by increased imports. After billions of dollars in Federally supported 
research, alternative energy only accounts for less than 1% of the 
total energy needs. We have made significant progress in efficiency. 
Compared to 1960, it takes almost 50% less oil and gas energy to 
generate one dollar of Gross Domestic Product. Unfortunately, most of 
the shortfall has been taken up by increased imports. Imports now 
account for 56% of our needs.
    In order to maintain our lifestyle, the country needs energy 
supply. Sources alternative to hydrocarbons are not sufficient to meet 
demand. Conservation and enhanced efficiency are only part of the 
answer.
    Resource assessments indicate a sizable resource is present in 
currently restricted areas of the OCS. For those resources to be 
delineated and converted to reserves and ultimately to ``supply'', 
exploration must take place. Both the Eastern Gulf and the Atlantic OCS 
are known to have generated and trapped natural gas. AAPG believes all 
potential sources of energy and increased conservation of hydrocarbons 
should be mainstays of the national energy policy. AAPG believes full 
exploration of the OCS, while safeguarding the environment, must also 
be an important piece of that policy.
                                 ______
                                 

  STATEMENT OF C. GRADY DRAGO, CHAIRMAN OF THE BOARD, LINCOLN 
                       HERITAGE INSTITUTE

    Mr. Drago. Drago.
    Ms. Cubin. Thank you.
    Mr. Drago. Thank you, Madam Chairman. I would like to point 
out for the record that I am the former professional staff of 
the ad hoc Select Committee on the Outer Continental Shelf 
which drafted the P.L. 372.
    Ms. Cubin. Could you speak into the microphone? Thank you.
    Mr. Drago. Surely. I am the former professional staff on 
the Republican side of the Outer Continental Shelf Committee 
and I was also the Chief Republican Counsel of the Select 
Committee which oversaw the implementation of regulations and 
then moved on the Merchant Marine and Fisheries Committee.
    Ms. Cubin. And we are sorry that that committee still is 
not up and running.
    Mr. Drago. Gee. They would love to have heard that at the 
time.
    Ms. Cubin. I was not there then.
    Mr. Drago. From the outset, the OCS energy development 
program has been beset with opposition. Congress dealt with the 
early issues in 1953 by passing the Submerged Lands Act and the 
Outer Continental Shelf Lands Act. The first act gave the 
states exclusive rights to resources in the sea bed three miles 
from their shoreline--Florida and Louisiana have 10.5 miles--
while the Federal Government was given jurisdiction beyond the 
three mile limit.
    The decision to significantly accelerate OCS leasing as a 
result of the 1973-1974 oil embargo when we were importing only 
37 percent of our oil needs, raised many concerns and 
intensified opposition to leasing. It took three Congresses, 
the 93rd, 94th and 95th, to produce a consensus to the 
solutions of the problems causing opposition to OCS leasing. 
The result was S.9, the 1978 amendments to the Outer 
Continental Shelf Lands Act. Upon signing the legislation into 
law, P.L. 95-372, President Carter praised Congress for their 
work and expressed great hopes that since a consensus had been 
reached, we could now move ahead with a positive, safe, 
orderly, accelerated OCS program. Congress bent over backwards 
and worked very closely with those opposed to the accelerated 
leasing to solve the many issues which included:
    protection for the marine and coastal environment;
    directing the Secretary of Interior to establish and 
maintain a productive and periodically revise the 5-year OCS 
leasing program;
    requiring compliance with state coastal zone management 
plan;
    providing for oil spill liability safety and clean up;
    increasing the jurisdiction of the Coast Guard for offshore 
health and safety;
    establishing preparation of the environmental base line 
studies;
    requiring compliance with national ambient air quality 
standards;
    cancellation of a lease for environmental reasons;
    attempts to foster increased bidding competition by 
requiring adoption of new bidding systems;
    requiring the use of best available and safest technology;
    establishing procedures for settling boundary disputes;
    establishing a fisherman's contingency fund to reimburse 
the fishermen for damaged gear as a result of OCS activities;
    increase CZMA formula grants to states to be used to 
ameliorate impacts of offshore operations;
    and the list can go on and on and on. It was quite an 
extensive Act.
    As a result of the above, it is estimated that industry 
must now comply with over 75 different Federal regulations.
    The opponents to drilling were given everything by Congress 
that they said would solve the problem, but opposition 
continues. Today, we face the greatest energy crisis in our 
history. In 1974 we were importing 37 percent, today we are 
importing 57 percent. In addition, we face a shortage of 
natural gas which we cannot import to the degree that we can 
import oil. We have to produce gas, and to produce it we have 
to lease.
    Levels of dependence on imports are a threat to consumers, 
national defense, education, agriculture, the entire spectrum 
of our economy and society.
    So what are the hindrances now? Well, the trustees and the 
policy board members of the Lincoln Heritage Institute think 
that the major hindrance to OCS oil and gas production are 
drilling bans and moratoria. The arguments we heard against the 
program in the 1970's and 1980's are still with us. Opponents 
begin with the assumption that OCS oil and gas operations are 
in fact destructive of the environment and this is untrue. In 
all of the 45 plus years of OCS experience, we are not aware of 
any evidence that proves OCS oil and gas activity--not just 
drilling--have been irreversibly destructive of the 
environment.
    According to the Minerals Management Service, the Santa 
Barbara Channel oil spill was about 80,000 barrels. The natural 
seepage in the southern waters off California exceed that by 
over 180,000 barrels a year. In fact, the annual natural 
seepage for oil accounts for 100 times more oil in marine 
waters than OCS activities and average about 1000 barrels a 
day. It should be also noted that of the top 50 oil spills in 
the nation's waters, they all came from tankers, not from OCS 
activities.
    Another argument has been that we should save our resources 
for the future. Well, we have been facing an energy crisis for 
many years now and we still haven't seen any accelerated 
production, although we have made progress. It takes at least 
six to 8 years from the date of a lease sale to reach 
production in a frontier area, if indeed they find resources.
    Minerals Management Service, as has already been pointed 
out, shows an enormous potential in the outer continental shelf 
for oil and gas and it also shows that 78 percent of our oil 
are in moratoria area and my percentages on natural gas do not 
quite gibe with the previous witness in those areas.
    Finally, an accelerated leasing program not only solves our 
energy problem, but can lead to the development of hundreds of 
thousands of good-paying jobs with benefits, cut our record 
levels of deficit in our balance of payments, increase revenues 
to states, local government, Federal Government. You wonder how 
much longer we have to go before the American public gets the 
message we do have an energy crisis and gets behind some 
changes to bring to fruition the potential that the OCS has.
    That concludes my statement.
    Ms. Cubin. Thank you.
    Mr. Bedell.
    [The prepared statement of Mr. Drago follows:]

Statement of C. Grady Drago, Chairman of the Lincoln Heritage Institute

Bringing to Fruition the Oil and Gas Potential of the Outer Continental 
        Shelf
    Thank you madam Chairman and members of the committee. My name is 
Charles Drago and I am the Chairman of the Lincoln Heritage Institute, 
a non-profit public policy corporation. Prior to assuming this position 
I had retired from Capitol Hill (1987) after 24 years of employment 
including serving as professional staff of the Ad Hoc Select Committee 
on the Outer Continental Shelf (which reported HR 1614, the 1978 OCS 
amendments). Subsequently I served as the Chief Republican Council of 
the Select Committee on the Outer Continental Shelf (OCS) which oversaw 
the regulatory implementation of PL95-372, the 1978 the Outer 
Continental Shelf Lands Act Amendments of 1978.
    The offshore oil and gas issue was fascinating and complex from a 
scientific, engineering, economic, and social viewpoint and with those 
complexities and challenges the OCS was as much a new frontier as 
space.
    While the first offshore oil production took place in state waters 
from a wooden pier off Summerland, California in 1896, it wasn't until 
the late 1940's that drilling offshore for oil and gas began to capture 
the imagination of the American culture. America has long looked upon 
the OCS as an area that held perhaps the greatest promise for domestic 
energy supplies. Unfortunately, while progress has occurred and great 
accomplishments made, the potential of the OCS as a supplier of 
domestic oil and gas has yet to been realized.
    The U.S. Government's OCS history began on September 28, 1945 when 
President Harry S. Truman proclaimed that the natural resources located 
in and on the subsoil and seabed of the Continental Shelf (1.7 billion 
acres) were subject to the jurisdiction of the U.S. Government. The 
Geneva Convention on the Continental shelf subsequently upheld the 
proclamation. This touched off actions and reactions that are still 
going on today--states rights, who shares in the revenues, and safety.
    In 1947, the U.S. Supreme Court ruled that the Federal government 
does have jurisdiction over the submerged lands that lay three miles 
beyond the mean low water mark in California. Similar decisions in 
Texas and Louisiana were made in 1950. These decisions seemed to 
generate additional controversy, which led to the creation of the U.S. 
Outer Continental oil and program.
    In 1953, two new Federal laws were established to deal with the 
existing problems and disputes in the offshore leasing program. The 
first was the 1953 Submerged Lands Act of 1953 which gave states 
exclusive rights to resources up to three geographical miles from their 
coast and confirmed Federal authority of lands beyond three miles. It 
was ultimately determined that Florida and Louisiana boundaries 
extended 10.5 miles from their coast.
    The second act was the 1953 Outer Continental Shelf Lands Act. It 
confirmed Federal jurisdiction over the seabed and its minerals beyond 
three miles of the state coast, and established, albeit very general, 
guidelines for the Department of Interior in managing the OCS.
    The first OCS lease sale took place on October 13, 1954 off the 
Louisiana coast. The Department of Interior offered 199 tracts (819 
acres) for lease; 90 tracts were bid on and all were leased. A total of 
336 bids were made on the offered tracts, and the Federal government 
received $116.4 million in bonuses and $1.2 million in first year 
rentals. We were now off and running.
    From that initial sale through 1960, there were a total of 869 
tracts offered for sale off the coasts of Florida, Louisiana, and 
Texas. Three hundred and thirty-three tracts were leased and the 
government received a total of $621.9 million in bonuses and $3.6 
million in first year rentals.
    Not a very auspicious beginning, but it wouldn't take long to heat 
up. The geographic, physical, economic, and political data gathered 
during the early years when the entire OCS was a frontier area was an 
education for those onshore and those conducting the drilling.
    Other significant events that impacted the OCS program included the 
first Pacific OCS well drilled in 1964; oil discovery in Prudhoe Bay 
Field in Alaska; the first production from the California OCS in 1968; 
and perhaps one of the more significant occurrence--the platform 
blowout in the Santa Barbara channel. Needless to say, this event 
captured the headlines and was to be a ``cause celebre'' that was used 
to oppose offshore leasing for many years.
    Following on the heels of those events was the establishment of the 
National Environmental Policy Act in 1969; passage of the Clean Air Act 
in 1970; and in 1972, the passage of the Marine Mammal Protection Act. 
More importantly in 1972, the Coastal Zone Management Act was signed 
into law, which was destined to have a major impact on future OCS 
exploration, development, and production.
    However, the catalyst that focused attention on domestic energy 
production and the potential of the OCS was the Arab oil embargo of 
1973-74. This event dramatically brought home to the American public 
that even though there had been adequate supplies of oil at reasonable 
prices, the nation faced a major energy problem.
    That embargo occurred when the U.S. had reached the incredible 
milestone of importing almost 37 percent of its total oil consumption. 
It was clear that the U.S. could not let itself remain at the mercy of 
foreign sources of oil that were beyond our control. One of the first 
reactions to the embargo was the launching of Project Independence, 
which set a target date of 1980 for complete energy independence for 
the U.S. Needless to say, we didn't make it.
    A major part of the efforts to reach energy independence was the 
establishment of a significantly accelerated OCS leasing program.
    Because of the significant increase in proposed OCS leasing many 
concerns were expressed over safety and potential negative impacts. 
Those raising the alarms included environmental organizations, 
commercial and sport fishing interests, state and local governments, 
and local citizen organizations. The threat of an oil spill and concern 
that vastly accelerated leasing could wrestle control of waterfront 
businesses and real estate from the hands of local communities became 
one more issue with which to deal.
    These concerns, which were quite vocal, and the fact that the above 
events and new environmental laws created a litigious environment, it 
became clear that a more orderly and coordinated approach to OCS energy 
development was needed.
    In 1974, the Senate acted quickly to pass S3221 in the 93rd 
Congress, but the House failed to act on the legislation and it died. 
One of the reasons for the Houses failure to act was that while one 
Senate Committee had the jurisdiction to deal with OCS leasing, issues 
now involved in program were the jurisdiction of at least three House 
Standing committees: the House Judiciary Committee, House Merchant 
Marine and Fisheries Committee, and the House Interior and Insular 
Affairs Committee. Jurisdiction of the legislation became one more 
hurdle to overcome.
    On April 22, 1975, the House took a historic step by passing House 
Resolution 412, introduced by Majority Leader Thomas ``Tip'' O Neal 
which established the Ad Hoc Select Committee on the Outer Continental 
Shelf; the first Ad Hoc Select Committee created in the House to have 
legislative authority. HR 6218, the 1975 OCSLAA, was introduced by 
Representatives John Murphy, Peter Rodino, and Leanor Sullivan and 
referred to the Select Committee. The first field hearing held on this 
legislative was fittingly, in New Orleans.
    H.R. 6218 was a major rewrite of the 1953 act, but because of the 
many new and controversial provisions it contained, it met the same 
fate as S3221 in the previous Congress and was not sent to the White 
House. The major controversy leading to a motion to recommit by Ranking 
Minority Member Representative Hamilton Fish, Jr. of New York was the 
vague authority for the Secretary of Interior to conduct pre-lease on-
structure exploratory drilling on the OCS. The recommit motion carried 
and the bill was sent back to conference where it died.
    However, the seeds of controversy were already sown because the 
Department of Interior implemented by regulation many of the provisions 
of H.R.6218 and were proceeding with an active leasing schedule.
    This action led to an outcry of public concern, and law suits by 
states and environmental organizations against lease sales abounded. 
While almost all of the suits ended in failure, they all but brought 
the leasing program to a halt. In addition, many were concerned that 
because of public pressure and the onslaught of law suits the 
Department of Interior (DoI) might drop many of the new regulations for 
managing the OCS oil and gas operations.
    It became obvious to Congress that if the nation was going to 
accelerate the exploration and development of oil and gas from the OCS, 
the need for a legislatively created, orderly, and safe accelerated OCS 
energy production program was more important than ever.
    The lure of the OCS was great particularly because it was the one 
energy program that was completely under the control of the U.S. 
government. The government could help reach national energy needs and 
determine oil and gas production simply by its leasing schedule.
    At the opening of the 95th Congress, January 11, 1977, Congressman 
John Murphy introduced two pieces of legislation. The first was 
H.R.1614, The OCS Lands Act Amendments of 1977. That bill was to 
establish management policy for oil and gas development on the OCS, 
protect the marine and coastal environment, and amend the 1953 OCSLA. 
(The companion Senate bill, S.9, was introduced by Senator Jackson of 
Washington State.)
    The second bill was H. Res. 97, to re-establish the Ad Hoc Select 
Committee on the OCS. The Resolution was passed the same day.
    On August 29, 1977 after considering 75 amendments to the original 
legislation during mark-up, the committee favorably reported the bill 
to the House. On February 2, 1978 the House passed the bill as S.9 and 
sent it to the Senate. The resulting conference report, substantially 
containing the language of the House bill, was approved by both bodies, 
and sent to the White House. On September 18, 1978 the OCS amendments 
were signed into law by President Carter as PL95-372, the 1978 OCSLAA.
    The President had significant praise for the work of Congress. He 
expressed great hopes that now that a consensus had been reached, the 
new law would lead to a much needed increase in the production of oil 
and gas since the problems expressed by those opposing offshore leasing 
had been dealt with in the bill.
    Among the issues dealt with in PL95-372 are:
     Lprotection for the marine, coastal and the human 
environment;
     Lthe Secretary of Interior was to establish, maintain, and 
periodically revise a five year leasing program consistent with energy 
and environmental needs, and states' concerns;
     Lrequired compliance with a states Coastal Zone Management 
program;
     Lprovided for oil spill safety, liability, and cleanup, 
and for offshore health and safety, by giving the Coast Guard increased 
jurisdiction and authority for offshore health and safety;
     Lpreparation of environmental base line studies;
     Lcompliance with the national ambient air quality 
standards;
     Lcancellation of a lease for environmental reasons;
     Lprovisions to increase competition by providing for the 
adoption of new bidding systems;
     Lrequirement for the use of Best Available and Safest 
Technology;
     Lprocedures for settling boundary disputes;
     La fisherman's contingency fund to compensate commercial 
fishermen for damaged gear resulting from oil and gas operations;
     Lincreased CSMA formula grants to states to ameliorate 
potential onshore problems resulting from an accelerated program; and 
more.
    Regardless of what individuals think about the need for so much 
Federal involvement, one has to admit that PL95-372 certainly dealt 
meaningfully with the concerns over expressed problems that resulted in 
so much opposition to an accelerated OCS oil and gas program.
    So, now with great hope, as expressed by President Carter, the 
members of the Ad Hoc Select Committee on the OCS, and the energy 
industry, the nation was at last ready to bring the promise of the OCS 
to fruition. As the cast of Saturday Night Live would say - NOT.
    The energy crisis that PL95-372 was established to deal with was 
nothing but a precursor of things to come. Some said that rather than 
an energy production program, the new legislation was an environmental 
program, and energy independence would not occur by 1980. That great 
contribution from the OCS would not develop, nor would another factor 
in the solution to domestic energy supplies, oil and gas development in 
the Alaska National Wildlife Refuge (ANWR).
    While we experienced another energy crunch in the early 1980's, the 
problems we face today have once again, as did the 1973-74 energy 
crisis, brought home to the American public the fact that the nation is 
facing an major energy problem. Because of conflicting public 
information, the public is not sure where the problem is, what the full 
degree of the problem is, or what its cause is.
    After every attempt was made to solve the health and safety 
measures that environmentalists claimed was the reason for their 
opposition, as well as providing the opportunity to address state 
issues of impact, opposition continued unabated.
    After significant commitments by government to meet the challenge 
of lessening our over dependence on foreign nations for our oil 
supplies, imports have risen from the high of 37 percent in 1974, to an 
unprecedented and dangerous 57 percent in 2001. Now however, another 
factor has been added to the formula - a shortage of natural gas that 
we can not import as we do oil. Tankering gas is not the answer, and 
pipelines tapping the natural resources of Mexico and Canada have their 
limitations. A ban on drilling for oil is also a ban on drilling for 
gas.
    We are once again faced with how to accelerate the production of 
the abundant energy resources this nation possesses and needs. The 
nation must develop a national energy plan that includes a coordinated 
effort of accelerating production of energy from onshore Federal and 
private lands, accelerating OCS oil and gas production, and drilling in 
ANWR.
    Environmentalists claim that there is too little oil in ANWR to 
endanger the pristine Alaska environment and it is not enough oil to 
fully solve our problem. It is estimated by the Department of Interior 
that the targeted area for leasing in ANWR contains upwards of 16 
billion barrels of oil, enough to replace imports from Saudi Arabia for 
the next 30 years. The oil supplies of the U.S., still a world leader 
in oil production, consists of an average production of 15 barrels per 
day from over 500,000 wells.
    As Representative Don Young of Alaska stated in an article, ``The 
Answer to Our Energy Problem? Cutting Green Tape'' that appears in a 
recent edition of our publication the ADDRESS, when speaking of 
drilling for oil and gas in ANWR, ``Twenty-plus years of oil production 
have shattered the (environmental) zealot's myths. Alaska's North Slope 
has produced more than 13 billion barrels of oil since 1977 without 
millions of barrels from a pipeline spilling over the tundra'' These 
same zealots predicted an environmental doomsday in the far north if 
the Trans Alaska Pipeline was constructed'' It appears the OCS is in a 
similar situation.
    There have been problems with the regulatory maze that has been 
established to manage the OCS oil and gas program. Some have determined 
that there are over 74 separate regulations they must comply with on 
the OCS. While this regulatory burden, and the potential for hindrances 
from regulatory activity can be significant, it is the opinion of the 
Lincoln Heritage Institute that the major problem facing fulfillment of 
the potential for OCS oil and gas development are the OCS moratorium 
and drilling bans.
    The very arguments that environmental zealots used to oppose 
drilling during committee hearings on the 1978 OCSLAA are still heard 
today when OCS drilling bans are discussed.
    One of the fears expressed by environmental groups centered around 
a government study that the Committee was told proved that drill muds 
devastated marine life on the ocean floor. Therefore leasing should 
move slowly. Following the hearing, the committee was informed by a 
counsel for the agency that conducted the study that the conclusions in 
the study were fallacious since they were based on findings that did 
not exist. The committee eventually was given a copy of that study, and 
that counsel was hired as staff.
    We heard from numerous environmental and public witnesses that we 
should not hold lease sales in the deep water off of the East Coast 
because industry had not drilled in deep water and they had not proven 
they could. We know what happened to those concerns since industry has 
successfully conducted operations several times in waters as deep as 
17,000 feet.
    However, the greatest opposition to offshore leasing came from 
those fearing oil spills from OCS leasing and production activities. 
Coastal communities were at times brought to almost hysteria because of 
their fear of blowouts after viewing and being told about the Santa 
Barbara blow-out. They were informed the offshore drilling would 
devastate the coastal environment, fisheries, marine mammals, birds, 
and beaches.
    The truth is that the oil spill in the Santa Barbara channel 
resulting from a blow on an OCS production platform put less oil in the 
water (an estimated 80,000 barrels) than does the annual rate of 
natural seepage that occurs off Southern California waters. As a matter 
of fact, natural seepage accounts for 100 times more oil in the U.S. 
marine waters than does OCS activities. The average natural seepage of 
crude oil on the OCS averages 1,000 barrels daily.
    This figure may be increased since new technology is uncovering 
more natural oil seepage is the Gulf, oil that had been blamed on 
drilling platforms. The oil industry and the Minerals Management 
Service (MMS) have been very diligent in developing the capacity to 
predict, prevent, detect and cleanup oil spills. Last year, the MMS 
spent over $5.7 million for this purpose. According to a study by the 
National Academy of Sciences, 45 percent of oil in the marine 
environment comes from tankers and 2 percent is the result of all OCS 
drilling and production activity. Of the 50 largest oil spills in U.S. 
water all came from tankering of oil. This is particularly pertinent 
for the North East U.S. because the vast majority of their oil needs, 
including refined products, are imported.
    The final argument for delaying or drastically cutting back on 
domestic energy production was that we should save our energy resources 
for an emergency. This seemed a particularly bogus argument since to 
bring in a producing well in a frontier area on the OCS could take up 
to 10 or 12 years and the drilling of up to 12 exploratory wells before 
finding a reservoir with enough oil or gas to make production 
economically feasible. That is not the type of response national 
emergencies need. For instance, today, we could use a significant 
influx of domestic oil right away but it is going to take at least 
three years before oil from new wells will reach the consumer.
    We have had more than 45 years of experience with offshore oil and 
gas development and more than 22 years of experience under PL95-372. 
The OCS environment and scientific and engineering requirements are as 
mind boggling, technical, and impressive as putting a rocket into 
space. Progress and accomplishments by MMS and industry have been 
impressive if not miraculous. Information from these accomplishments, 
scientific studies, historical events, and just plain common sense has 
caught up the with allegations of the ``nay sayers.'' It is time that 
allegations and unscientific studies be replaced with reality and real 
scientific evidence. While there is a potential for danger from OCS oil 
and gas activities, the scientific, engineering, and administrative 
experience that has been gained have ameliorated stated objections. The 
Trustees and Policy Board at the Lincoln Heritage Institute see no 
environmental reason why OCS oil and gas development should not move 
forward, full steam ahead.
    Alternative energy technologies and synthetic fuels can not fill 
the gap in our energy shortfall and are a long way from being practical 
in sufficient supply and affordable. We can not continue to put 
ourselves in the position of having to put our youth in harms way or 
sacrifice our economy or foreign policy goals because of our dependence 
on certain foreign nations for significant portions of our energy.
    According to the latest figures from the Minerals Management 
Service of the Department of Interior, the OCS contains an estimated 
50.4 billion barrels oil resources and 239.71 trillion cubic feet of 
natural gas resources. In addition there are more than 3.37 billion 
barrels of estimated oil reserves and over 31 trillion cubic feet of 
estimated gas reserves. Under moratoria are an estimated 36.9 billion 
barrels of oil, and 55.5 trillion cubic feet of natural gas. This means 
that over 69 percent of the oil resources, and over 23 percent of 
natural gas resources are off limits to leasing and not available to 
the American public. Once again, the consumer suffers, as does national 
security, and our economy.
    The important areas that are under moratoria, or are under drilling 
bans, are the Eastern Gulf of Mexico off of the Florida coast, and the 
OCS off of the coast of California. While obtaining accurate and like 
measurements of state consumption and production of energy has proven 
difficult, it is clear that both Florida and California are net 
importers of oil and gas. Instead of producing the resources that are 
located on their lands, or allowing production of resources on the OCS 
that belong to all Americans, they have chosen specific life styles, 
which is their prerogative, but have imposed the burdens of their 
decisions on the rest of the nation. The people of California are 
currently paying the price for approving the methods used by the 
officials they elected to pursue the lifestyle they selected.
    The cost of not allowing our domestic energy companies to pursue 
the development of energy product has also had its direct and indirect 
negative impacts. The direct impact is obvious - over dependence on 
imports. Indirectly? Today there is not one steel fabricator on the 
West Coast that can build offshore drilling rigs because of a lack of 
business. By curtailing offshore drilling, the government has decreased 
the need for the drill rigs and the Koreans and Japanese took up the 
slack. Today, for the same reasons, there are only one or two 
fabricators in the Gulf of Mexico.
    Because about 60 percent of our oil resources on located on lands 
controlled by the Federal government (including the OCS) and leasing 
has been drastically cut back across the board, many U.S. oil companies 
have obligated up to 70 percent of their exploration and development 
budget to finding product in foreign countries. Lets hope they don't go 
the way of the offshore rig steel fabricators.
    There does not appear to us that there is any legitimate reason to 
continue with prohibitions against leasing and drilling on the OCS. The 
primary consideration in determining the five year leasing schedule 
should be the needs of the nation's people, economy, and national 
security. All of these will be served with a truly accelerated and 
orderly five year leasing schedule.
    By moving ahead with an accelerated OCS, five year leasing schedule 
offering for lease all areas of the OCS, (only 2.5 percent of the OCS 
is under lease while over 25 percent of the rest of the worlds OCS is 
under lease) we can expect a significant increase in our domestic oil 
and gas supplies decreasing the pressure on the consumer and our 
economy. We would decrease our balance of payments deficit by hundreds 
of millions of dollars, along with our dependence on oil from the 
Middle East. A truly accelerated OCS leasing program could also create 
up to 300,000 high paying jobs, and significantly increase revenues to 
the U.S. Treasury in the form of lease bonuses and rental fees, as well 
as increased tax revenues to local, state, and Federal treasuries.
                                 ______
                                 

      STATEMENT OF CHARLES BEDELL, MURPHY OIL CORPORATION

    Mr. Bedell. Madam Chairman, members of the Subcommittee and 
of course my own Congressman, Mr. Vitter, good to see you 
today, sir.
    Mr. Vitter. Good to see you.
    Mr. Bedell. Murphy Exploration and Production Company is a 
wholly owned subsidiary based in New Orleans of Murphy Oil 
Corporation. Our corporate offices are in Eldorado, Arkansas. 
We are a vertically integrated company, probably about the 
smallest in the world or at least in the United States, but we 
have operations in the United States, North Sea, Canada, South 
America and Malaysia. Last year, we spilled less than one-
thirty five millionth of 1 percent of the oil that we produced.
    I am here today to address constraints on production. I 
will explain the map in detail in a few minutes. Constraints on 
production of Federal offshore oil and gas reserves have so 
proliferated until I think it is proper to say now that they 
threaten to choke off development in the last remaining truly 
active oil and gas production area in the United States, the 
central and western Gulf of Mexico.
    The growing use of anti-development legal, legislative, 
regulatory and executive actions have eroded our industry's 
ability to provide energy and the chemical feed stocks 
essential for modern American life. Commendable attempts in the 
Bush administration and by Members of Congress to develop a 
balanced, workable national energy policy cannot succeed unless 
these constraints are effectively addressed.
    Over the years, the constraints on production have grown 
both in numbers and complexity. The nature of the constraints 
being placed on production vary from moratoriums that others 
have mentioned on OCS activities all over the nation's 
coastline, to legal actions and negative publicity campaigns by 
special interest groups.
    But in recent times, legislative-based constraints, based 
on the Coastal Zone Management Act, have emerged as the most 
threatening. The functioning of the Outer Continental Shelf 
Lands Act as a reliable, legal foundation for offshore oil and 
gas activities is being undermined by a combination of new 
Federal CZM regulations, and aggressive attempts to expand the 
applicability of state coastal zone plans to Federally 
permitted activities located off of another state's coastal 
zone. The realities of today's international energy situation 
make it clear that we need to take some action. No matter how 
carefully the administration and Congress craft it, no energy 
policy, I say again, no energy policy will be able to succeed 
unless action is taken to reverse the recent trends in the 
administration of the Coastal Zone Management Act and to ensure 
that it will be enforced and put into play in a constructive 
and uniform manner in the future.
    Now the Act was passed in 1972, and was modified, of 
course, several times over the years, but it was never intended 
to be an anti-development law. Congress stated in the findings 
that are in the Act that the coastal zone has important 
industrial uses and that the value of those need to be 
protected. It was Congress' intent that the coastal states 
create comprehensive plans for dealing with potential conflicts 
between activities and development and not to create a 
mechanism for categorically and automatically excluding an 
entire industry from existing anywhere near or in a coastal 
zone of a state. As some apparently believe now, the Act was 
not created for stopping all oil and gas activity.
    There are many terms in the Act that show that the intent 
was to create a balanced approach. They talk about priority 
consideration being given to coastal dependent uses and orderly 
processes for siting major facilities related to national 
defense, energy and especially in areas adjacent to where such 
development already exists, and that is what we will get to in 
that map.
    No state CZM program is supposed to be approved by the 
Secretary of Commerce unless the Secretary first finds that it 
contains two provisions which are significant to any discussion 
of national energy policy. Each state's program must include a 
planning process for energy facilities likely to be located in 
or which may significantly affect the coastal zone. And also, 
the management program must provide for an adequate 
consideration of national interest involved in planning for, 
managing the coastal zone, including the siting of facilities 
such as energy facilities, which are of greater local 
significance.
    Now in the case of energy facilities, the Secretary is 
directed by the law to find that the state has given 
consideration any applicable national or interstate energy plan 
or program.
    Luckily for the nation, the Coastal Zone Management Act, as 
it is even now written, has been administered properly by the 
states of Louisiana, Alabama, Mississippi and Texas, and I 
think looking at that map you can see that development 
certainly has gone forward off of those states.
    My company's experience with the Act's Federal consistency 
provisions has primarily involved interactions with Louisiana's 
program. We can state that if all other states would emulate 
the way Louisiana administers the Act, the offshore oil and gas 
industry would have nothing to fear and the nation's energy 
prospects would be far better than they are.
    Unfortunately, this is not the case. The primary source of 
the disruptive effect of the Act is the evolution of the idea 
that the consistency provisions contained in the Coastal Zone 
Management Act are there to stop energy activities, which have 
been made to seem, at least temporarily, politically unpopular. 
It was put there to promote cooperation among the states and to 
get exchange of data and information that would allow everyone 
to go forward without harming the environment, but also 
producing the energy that we need.
    This is the Lease Sale 181 area that everyone has heard 
about. And one of the things that I wanted to point out is 
right here, is that line that was spoken of earlier. It is not 
a geological, geophysical line, as Congressman Gibbons can 
understand, and I think we all do. It is a line which is 
created by political and other forces. There has never been a 
moratorium in the panhandle part of Florida, but there has been 
farther down. As you can see, there are a number of leases that 
have been let over here, this is the Destin Dome project and my 
company is a partner in that. We have estimates from the 
government as high as 2.3 trillion cubic feet of natural gas 
here, which is not allowed to be produced. We cannot go forward 
now. These areas are not quite as big as this field, but these 
fields are in production right now.
    We have further activities here and in one place 160 miles 
off Mobile, Alabama.
    Ms. Cubin. Could I interrupt for a second? Is that black 
line the border between Alabama and Florida?
    Mr. Bedell. Right here.
    Ms. Cubin. That is it, okay.
    Mr. Bedell. And this is the lease sale going forward, which 
we have heard some discussion of. If the lease sale goes 
forward, that is one thing, that is a victory. But it's not 
enough if the lease sale goes forward only to repeat the same 
thing that has happened with the Destin Dome project, because 
the CZM Act is for instance, still a constraint. It will 
certainly effect our ability to go forward and put money on the 
table to the Federal Government to buy leases in an area where 
we know the State of Florida is objecting to the projects down 
here (pointing at map), which are much closer to Louisiana than 
to Florida.
    The major problem with the CZM consistency provision is we 
are now seeing the trend that the State of Florida, for 
instance, wants to apply its own state coastal zone plan 
offshore of other states. That has not been the case in the 
past. You can see there has been development that has taken 
place very close to the Florida/Alabama line and in the past, 
there was comity between the states where they would not 
interfere with projects off the coast of other states. And now 
under the 1990 amendments to the Coastal Zone Management Act, 
new regulations and just the political realities of the day, we 
are seeing objections being raised, not only to Lease Sale 181 
but there is a pipeline in this area that is being subjected to 
criticism by the state, there is a project here 160 miles 
offshore the state of Alabama where Florida says that there is 
not enough information. That is slowing down the process.
    And when you have a situation like that, it does throw in 
jeopardy, even if the sale goes forward, whether or not there 
will be any production. I think what we mean to say is that the 
substance--the bottom line of our testimony today, Madam 
Chairman, would be to urge your Subcommittee and Mr. Vitter as 
well, forcefully to go forward and when Coastal Zone Management 
Act reauthorization bills are introduced in the House this 
year--they are now pending, there is one pending in the Senate, 
S.328--that this Resources Subcommittee seek to have some sort 
of sequential referral or executive or whatever the proper 
terminology would be, to make sure that the people who are in 
charge of energy policy in the United States Congress have the 
right to have some say on this crucial CZM law. If it is not 
modified and put back to the way it was before 1990, which was 
a cooperative, ongoing, positive influence, then your work on 
energy policy is going to be invalidated.
    Thank you, Madam Chairman, sorry I went over time.
    Ms. Cubin. Oh, no, that is fine. Thank you very much.
    Mr. Kelly.
    [The prepared statement of Mr. Bedell follows:]

  Statement of Charles A. Bedell, Manager, Environment and Government 
           Affairs, Murphy Exploration and Production Company

    Introduction: 1Madam Chairman and Members of the Subcommittee, it 
is my pleasure to appear before the Subcommittee today to address 
constraints on the production of the oil and natural gas reserves on 
Federal submerged lands. Murphy Exploration and Production Company is a 
wholly-owned, New Orleans based, subsidiary of Murphy Oil Corporation, 
of El Dorado, Arkansas. Murphy Exploration and Production has 
operations in the United States, the North Sea, Canada, South America 
and Malaysia.
    Constraints on the production of Federal offshore oil and natural 
gas reserves have so proliferated until they now threaten to choke off 
development in the last remaining, truly active offshore oil and gas 
production areas in the United States, the Central and Western Gulf of 
Mexico. The growing use of anti-development legal, legislative, 
regulatory and executive actions have eroded our industry's ability to 
provide America with the energy and chemical feed stocks necessary for 
modern life. The commendable attempts of the Bush Administration and 
Members of Congress to develop a balanced, workable national energy 
policy cannot succeed unless these constraints are effectively 
addressed.
    Over the years, the constraints on production have grown both in 
numbers and in complexity. The nature of the constraints being placed 
on production vary from moratoriums on all OCS activities off much of 
our nation's coastline to legal actions and negative publicity 
campaigns by special interest groups. In recent times, legislative-
based constraints, based on the Coastal Zone Management Act ( CZMA ) 
have emerged as the most threatening. Other laws, regulations and 
executive orders are also disruptive, but, at this time, the 
constraints imposed on the orderly development of Federal offshore 
resources by some states through their use of the CZMA are, by far, the 
most serious. The functioning of the Outer Continental Shelf Lands Act 
as a reliable legal foundation for offshore oil and gas activities is 
being undermined by a combination of new Federal CZM regulations and 
aggressive attempts to expand the applicability of a state coastal zone 
plan to Federally permitted activities located off another state's 
coastal zone. The realities of today's international energy situation 
make it clear that the United States needs a balanced, reliable energy 
policy. No matter how carefully the Administration and Congress craft 
it, no energy policy will be able to succeed unless action is taken to 
reverse recent trends and insure that the Coastal Zone Management Act 
is being administered in a constructive, uniform manner.
    The Coastal Zone Management Act: The Coastal Zone Management Act of 
1972 was passed as part of a group of Federal laws which were inspired 
by the report of the Stratton Commission and was designed to insure 
that future development in coastal areas would take place in an 
harmonious, orderly, environmentally sound way. The CZMA was viewed as 
a temporary catalyst created give coastal states an incentive to 
develop comprehensive programs to manage and balance competing uses of 
and impacts to their coastal resources. The Act preserved the 
traditional, Constitutional balance between Federal and state powers. 
It originally required that all Federal activities be consistent to the 
maximum extent practicable with the policies and provisions of a 
state's approved coastal zone management plan. It was not intended to 
be an anti-development law. Congress found that the coastal zone is 
important for industrial uses that have ``potential value to the 
present and future well-being of the Nation''. It was Congress' intent 
that Coastal States create comprehensive plans for dealing with 
potential conflicts between activities and developments in the coastal 
zone, not to create a mechanism for automatically excluding an entire 
industry from existing anywhere in or near a state's coastal zone, or, 
as some now apparently believe, for stopping any activity merely by 
claiming that it might give rise to some adverse affect on some part of 
the state's approved CZM Plan.
    Congress included in the CZMA it's finding:--There is a national 
interest in the effective management, beneficial use, protection, and 
development of the coastal zone [ 16 U.S.C.A. 1451(a) ].'' The new law 
was intended to enhance communications between Federal agencies 
responsible for permitting onshore and offshore activities, including 
those on Federal submerged lands and in coastal states, so as to 
minimize or eliminate conflicts with approved State goals and programs 
in a timely manner. Regarding important permitted activities the law 
provides, among other things:
     LEncouragement and financial assistance to states to 
implement programs--to achieve wise use of the land and water resources 
of the coastal zone'' which includes ``compatible economic 
development''.[ 16 U.S.C.A. 1452(2) ];
     L``priority consideration being given to coastal-dependent 
uses and orderly processes for siting major facilities related to 
national defense, energy, ... in or adjacent to areas where such 
development already exists,'' [16 U.S.C.A. 1452(2)(D)]; and
     L``the coordination and simplification of procedures in 
order to ensure expedited governmental decision-making for the 
management of coastal resources.'' [16 U.S.C.A. 1452(2)(G)].
    No state's CZM management program can be approved unless the 
Secretary of Commerce first finds that it contains two provisions which 
are significant to any discussion of a national energy policy:
     LEach state's program must include a planning process for 
energy facilities likely to be located in, or which may significantly 
affect, the coastal zone, including a process for managing the impacts 
resulting from such facilities [ 16 U.S.C.A. 1455(d)(2)(h)]; and
     LThe management program provides for adequate 
consideration of the national interest involved in planning for , and 
managing the coastal zone, including the siting of facilities such as 
energy facilities which are of greater than local significance. In the 
case of energy facilities, the Secretary shall find that the State has 
given consideration to any applicable national or interstate energy 
plan or program [ 16 U.S.C.A. 1455(d)(8).
    It is clear from reading the entire Congressional Findings section 
of the law that it was viewed as a positive law designed not only to 
help identify potential conflicts but to create a reliable process 
which would foster Federal-state cooperation in developing land and 
water use programs for the coastal zone, including ``unified policies, 
criteria, standards, methods, and processes for dealing with land and 
water use decisions of more than local significance [16 U.S.C.A. 
1451(i)].'' Under the CZM, permit applicants should be able to have a 
reasonable expectation that the objective of the process is to find a 
way to go forward, not to find an excuse to prevent any legal activity.
    Luckily for the nation, this is precisely the way the Coastal Zone 
Management Act has been administered in the States of Louisiana, 
Alabama, Mississippi and Texas. My company's experience with the Act's 
state-Federal consistency provisions has primarily involved 
interactions with the Louisiana program. Louisiana understands and its 
program fully implements the Findings and Policy sections of the Act 
including 16 U.S.C.A. 1452(G) which calls for the coordination and 
simplification of procedures in order to ensure expedited governmental 
decisionmaking! If all other coastal states would emulate the way 
Louisiana administers the Act, the offshore oil and gas industry would 
have nothing to fear and the nation's energy prospects would be far 
better than they are.
    Unfortunately, this is not the case. Although Alabama, Mississippi 
and Texas also recognize the need to provide for the siting of energy 
facilities of greater than local significance and properly administer 
their Programs, other states do not. The primary source of the 
disruptive effect of the Act is the evolution of the idea that the 
``consistency'' provisions contained in the CZMA are there to be used 
stop energy activities which have been made to seem politically 
unpopular. Although the consistency provisions were created to insure 
Federal-state coordination, some are now using them in a way which 
poses a significant threat to the ability of Federal officials to make 
balanced, timely and consistent decisions regarding the location and 
extent of lease sales and the permitting of specific energy activities 
and facilities. Such actions have resulted in diminution of our 
national energy security, domestic job loss, and a reduction in royalty 
revenues to the U.S. Treasury that would otherwise flow from oil and 
gas production in the Federal OCS.
    We have created a map for the Subcommittee which shows energy 
developments which have taken place in the Gulf of Mexico. This map 
illustrates how the CZMA works well when interpreted and applied by the 
States of Alabama, Mississippi, Louisiana and Texas. However, there is 
a stark, north-south line at the border of Florida and Alabama where 
development stops. This line is not there because of some geological 
change which suddenly ends any possibility of any oil and gas 
exploration and production. In fact, huge oil and natural gas 
discoveries have been made in the area just to the west of the line 
where development have been stopped [ See Attachment I ]. It is there 
because the Coastal Zone Management Act is being used to stop the 
Minerals Management Service from permitting energy activities east of 
that line. Congressional and Administrative moratoria have been imposed 
to the east and south, but the area of Florida's Panhandle has never 
been under a moratorium.
    Recent developments threaten to extend this de facto energy 
``exclusionary zone'' farther west into already highly productive areas 
of the Gulf of Mexico. The use of Floating Production and Storage 
facilities, referred to as FPSO's, in deepwater off the Central and 
Western Gulf has been challenged. Strong opposition to proceeding with 
Lease Sale 181 has surfaced, despite the fact that the lease sale is 
part of the MMS's OCS Lands Act-based 5 Year Leasing Program, the 
closest thing we have to an energy policy. Individual exploration, 
development and pipeline permits for at least four major projects 
located in areas up to 160 miles offshore Mobile, Alabama, are also 
being delayed and challenged. No longer are CZM consistency challenges 
confined to projects off the coast of the state making the objection. 
No longer is there any effort by the state claiming potential adverse 
affects from permitted activities to work out a reasonable compromise 
which would allow the activity to go forward. Companies attempting to 
obtain permits for their energy projects find their state consistency 
review consists only of impossible to satisfy lists of information 
demands which deal with many issues that are of little or no apparent 
real impact to enforceable state policies or natural resources of the 
coastal zone. Provisions of the Act requiring states to make their 
consistency determinations within 90 days are not being honored. Time 
limits within which appeals of state findings that a proposed activity 
is inconsistent with that state's CZM Plan, have gone unheeded by the 
Secretary of Commerce. The inconsistent application of the CZM Act is 
getting more pronounced and more destructive of the goals of the CZM 
Act as well as the energy-related objectives of the OCS Lands Act.
    Another new source of concern about CZM Act constraints on oil and 
natural gas production is the new set of Commerce Department 
regulations based on the 1990 CZMA amendments. These regulations were 
put into effect just before the Bush Administration was sworn in. The 
new regulations are complex and, among other things, highlight a 
serious controversy about the scope of the geographic area within which 
a state can claim the right to subject Federal permit applicants to a 
CZM consistency review. Is a state's consistency jurisdiction limited 
in scope to it, ``enforceable state policies'' and does that mean that 
the state's power is limited geographically to proposed activities 
within or offshore that state? Any other interpretation raises 
fundamental legal questions about the nature and extent of state power 
and the prospect of serious conflict between states with no apparent 
mechanism in place to reconcile potential disagreements. The 
legislative history of the 1990 CZMA amendments clearly indicates that 
Congress did not intend to expand the scope of Federally licensed or 
permitted activities which are subject to consistency review. In the 
past, state involvement in consistency decisions for Federally-
permitted, offshore oil and gas activities has been limited to those 
within the offshore projections of the borders of adjoining states. One 
state did not try to block a project which was offshore of another 
state. This is not true any more.
    Another developing, scope-related constraint on offshore energy 
production is exemplified by recent actions by two different states to 
subject routine interactions, such as a suspension of operations, 
between the Minerals Management Service and lessees to CZM consistency 
review. During the life of an average offshore lease, there are 
numerous, routine modifications made to facilities and procedures which 
involve filing papers with the MMS and the agency responding. There are 
thousands of offshore facilities. If each of these transactions 
requires a CZMA consistency review, it will little time for either the 
state of Federal agency to do anything else.
    Essential Fish Habitat Regulations: The Magnuson-Stevens Act 
(passed in 1976) was amended in 1996 by the Sustainable Fisheries Act, 
which changed the name of the act to the Magnuson-Stevens Fishery 
Conservation and Management Act. This amended act includes provisions 
under which the National Marine Fisheries Service (NMFS) of the 
Department of Commerce was empowered to describe and then identify 
Essential Fish Habitat ( EFH ) for each species or group of species 
managed under a fishery management plan as well as to establish Fishery 
Management Councils (FMC). The FMC's were then required, to the extent 
practicable, identify and describe any adverse impacts to EFH caused by 
fishing. This of course has been extended to non-fishing interests 
including the oil and gas industry. In March 1999, the National Marine 
Fisheries Service (NMFS ) declared the entire Gulf of Mexico and all 
adjacent estuaries and wetlands areas of all coastal states to be 
``essential fish habitat'' ( EFH ) under the Magnuson-Stevens Act. 
Although it seems clear that this broadest of all possible definitions 
of EFH goes far beyond the intent of Congress, nothing has been done to 
set aside the agency's action. The industry is worried about this 
regulation because the proposed rule included statements to the effect 
that oil and gas activities are ``inherently harmful'', in spite of 
wide recognition of the positive artificial reef role offshore 
platforms play. The permitting process for some oil and gas activities 
has now included an EFH review. Delays have been experienced in the 
permitting process, especially in obtaining Section 404 Corps permits. 
Time has been wasted and unnecessary costs have been incurred by both 
the government agencies and companies involved. Although the need for 
protecting fish habitat arose out of concern for the negative impacts 
of overfishing, not out of concern for harm from energy activities, 
this regulation remains as a destabilizing constraint on offshore 
energy production.
    Marine Protected Areas: On May 26, 2000, President Clinton signed 
Executive Order 13158, entitled ``Marine Protected Areas'' (MPA). It 
was heralded as another way to protect natural and cultural resources 
within the marine environment. In addition to ``strengthening and 
expanding'' the Nation's marine protected areas, EO 13158 directs 
Federal agencies to ``avoid harm'' to MPAs or their resources through 
activities that they undertake, fund or approve. There are already 
numerous laws including the Coastal Zone Management Act; the National 
Environmental Policy Act; the Clean Water Act; the Coastal Wetlands 
Planning, Protection and Restoration Act; the Endangered Species Act; 
the Marine Protection, Research, and Sanctuaries Act; the National 
Invasive Species Act; the National Ocean Pollution Planning Act; and 
the Shore Protection Act which seem to address issues covered in the 
executive order, but the Clinton Administration did not seek 
Congressional action to establish the broad initiatives contained in EO 
13158. The question for the offshore industry is; ``What will the use 
of new concepts and terms under the Executive Order do to the 
predictability and reliability of the many processes from lease sales 
through the many levels of permitting which must be concluded before we 
can produce the energy America needs?'' Will the creation of a 
``system'' of MPAs result in the exclusion of oil and gas related 
activities from wide areas now being developed under the OCS Lands Act? 
The use of the vague term ``avoid harm'' in the context of the impact 
of a Federal agency's or a permittee's activities on an MPA or it's 
``resources'' seems to hold the promise of more delays and uncertainty 
for offshore companies and for the ability of any national energy 
policy to succeed.
    Conclusion: Murphy Exploration and Production Company supports the 
true principles of the Coastal Zone Management Act and recognizes the 
benefits the Act has had over the years. However, some of the changes 
made to the Act in 1990 in response to the political and economic and 
energy supply realities of that time are not working in 2001. For 
America to develop and implement a successful energy policy many laws, 
regulations and executive orders, including moratoria on offshore 
development, will have to be re-examined and refined. It is imperative 
that those Congressional Committees charged with responsibility for 
energy issues take an active part in the review of these other laws, 
regulations and executive orders.
    We hope that the serious questions raised in our testimony about 
the functioning of the Coastal Zone Management Act and the negative 
impacts of the Act on America's ability to have a successful energy 
policy will move the Members of the Subcommittee to urge that the 
Resources Committee be given some degree of concurrent or consecutive 
jurisdiction over CZMA reauthorization bills submitted during this 
Session of Congress.

[GRAPHIC] [TIFF OMITTED] T2337.023

    STATEMENT OF PAUL KELLY, SENIOR VICE PRESIDENT, SPECIAL 
                PROJECTS, ROWAN COMPANIES, INC.

    Mr. Kelly. Thank you very much, Madam Chairwoman.
    First let me note personally that in a prior life, I was a 
member of the official delegation of the State of Texas to the 
Interstate Oil and Gas Compact Commission and in several 
meetings I remember your work with the Commission. It is good 
to be back with you today working on Federal matters.
    I am here to talk about a different kind of infrastructure 
and that relates to the industry infrastructure necessary to 
meet a 30 Tcf natural gas market envisioned in 10 years. Rowan 
Companies is a diversified oil service/supply company based on 
Houston. We currently own and operate 23 mobile offshore 
drilling rigs which work under contract to major and 
independent oil companies. Twenty-two of these units are 
located in the Gulf of Mexico, while one is operating on the 
Scotian shelf off the east coast of Canada.
    Incidentally, we were a participant as the contractor of 
choice of a recent new discovery south of the Sable Offshore 
Energy Project which was made by Pan-Canadian as the operator 
and its partners, Marathon and Murphy, who are here today. That 
is another interesting natural gas discovery that may provide 
additional natural gas to the northeastern United States.
    Rowan also constructs offshore rigs and we have another 
two, what we call, advanced Gorilla Class jack up rigs under 
construction at our shipyard in Vicksburg, Mississippi. As the 
name ``Gorilla'' implies, these are $200 million drilling rigs 
that stand the height of a 60-story office building. And while 
you have heard much today about deepwater drilling, we are a 
pioneer in the development of new technology and rigs for 
advanced drilling on the shelf into some of these new deep gas 
structures that we have been talking about.
    Our rig construction company, LeTourneau Inc., has built 
over one-third of the world fleet of jack up rigs. We also 
operate six deepwater anchor handling tug supply vessels and a 
fleet of over 100 helicopters, which is divided evenly between 
the Gulf of Mexico and Alaska. That division conducts its 
business under the name of Era Aviation, Inc. We have also 
recently gone into the parking lot business in Louisiana. The 
reason for that is that we have two major helicopter facilities 
located in Port Fourchon, which you heard about earlier, and 
also Venice. The high volume of activity in the central Gulf of 
Mexico today has required us to build a 1,000-car parking lot 
at one of these facilities to hold the cars of the workers who 
are traveling offshore every day.
    There has been much discussion about the infrastructure 
requirements of the nation in meeting the 30 Tcf gas market 
projected by several organizations, including the National 
Petroleum Council (NPC). The U.S. drilling fleet must expand to 
undertake the dramatic increase in activity that will be 
required to produce the additional supply to meet this demand. 
The total number of oil and gas wells drilled per year, 
including dry holes on land and offshore will have to double 
from approximately 24,000 in 1998 to over 48,000 wells by 2015. 
And even taking into account anticipated improvements in 
drilling efficiencies, approximately 2,300 active rigs will be 
needed to achieve this level of drilling. This represents an 80 
percent increase over the 1,300 average active rig count 
estimated for this year.
    As the NPC study indicates, 33 percent of the seven 
trillion cubic feet of additional gas supply required to meet 
demand in 2010 is expected to come from the Gulf of Mexico. 
This is a tall order and involves many challenges, not the 
least of which is infrastructure requirements. And as I have 
indicated, rig availability, which is crucial to exploration 
and development, will be a significant challenge for the 
industry.
    The oilfield supply and services sectors have been hit 
particularly hard by the boom and bust cycles. Very few new 
onshore drilling rigs have been built since the mid-1980's, and 
if the 5 percent per year historical attrition rate continues, 
most of the existing 1,700 onshore rigs will be retired by 
2015, and a total of almost 1,900 onshore rigs will have to be 
built. Additions to the offshore fleet will also be needed and 
are projected to include 10 new deepwater drilling rigs, 32 
platform rigs and 30 jack-up rigs and barges. Exhibit 1 of my 
testimony presents a good overview of the status of the 
offshore drilling fleet.
    It should be noted also that the cost of offshore rigs is 
substantially different from land rigs. To build a new land rig 
today costs anywhere from $10 million to $20 million compared 
to an offshore rig which can cost anywhere from $110 million to 
$400 million.
    Exhibit 2 shows the cost of all the new mobile offshore 
drilling rigs constructed throughout the period 1996 to 2001, 
our most recent building cycle. We built around $13 billion 
worth of new mobile rigs for the world market. This last rig 
building cycle resulted in the delivery of state-of-the-art new 
equipment, the likes of which drilling contractors only dreamed 
of a decade ago. Indeed, it had been a decade since the 
conclusion of the last building cycle and as the new builds 
were delivered, the stark realization set in that most of the 
drilling contractors and shipyards had under-estimated what it 
would cost to build these new ultra-modern rigs.
    Between 1996 and present, a total of 45 new drilling rigs 
were delivered. Only seven of those were delivered on budget. 
The average cost overrun on the remaining 38 rigs approached 30 
percent. There have also been significant delays in deliveries 
from the shipyards which have resulted in contract disputes 
between contractors and both their shipyards and their oil 
company customers. One major shipyard on the Gulf coast has 
recently announced they are going into bankruptcy. These 
disputes, along with the cost overruns, have caused drilling 
contractors to take a much more judicious approach to new rig 
construction. Prices and rates charged must go up, and thus, it 
will be challenging to face the next building cycle and meet 
the NPC call for another 70 new offshore rigs.
    I can repeat the same story in the offshore supply vessel 
and aviation sectors, which face similar challenges. Both have 
aging fleets and the cost of replacements and new technology 
will be much higher.
    The next wave of rig construction must come, however, if 
for no other reason than 130 jack up and semi-submersible rigs 
are now more than 25 years old. Attrition is taking its toll. I 
am confident the market will find a way to respond if the 
demand is there. It may not happen in the short term, but it 
will happen eventually.
    In the meantime, we have 192 mobile offshore drilling rigs 
working in the Gulf of Mexico as we speak, the highest number 
in 20 years. If platform rigs are added, the total number of 
rigs currently drilling offshore is well over 200. While we 
have not yet seen a significant production response from this 
high level of activity, largely because of increasing decline 
rates in the Gulf, I am reasonably confident that we should 
soon see a step up in net oil and gas production.
    Another significant concern and challenge to the industry 
is the future availability of skilled workers at all levels to 
produce the increase in supply and construct the necessary 
infrastructure. Company consolidations and volatile 
fluctuations in oil prices have resulted in cuts in exploration 
and production budgets, and layoffs at all levels in the E&P 
sector and in the service/supply sector. Approximately half a 
million jobs have been eliminated from the industry since the 
early 1980's, with over 40,000 job cuts occurring in the 
producing sector alone with the collapse of oil prices in 1998 
and 1999.
    We need to do more to attract young people into our 
industry. We need to attract more people for enrollment in the 
energy-related college curricula and we need to pay better. 
Higher wage scales are a must to attract workers back into the 
industry.
    Likewise, there is a significant need for capital and 
improved financial performance on the part of the companies in 
the industry, which have often delivered returns lower than the 
average reported for the Standard and Poor's 500 companies. It 
is estimated in the NPC report that almost $1.5 trillion will 
be required to fund the industry through 2015 to meet 
anticipated natural gas demand.
    As a contractor, we do see some encouraging signs. Our 
customers have spent the better part of the last 2 years paying 
debt, improving their balance sheets and trying to get 
themselves back into better financial condition in order to 
improve their financial ratings. We now see them spending money 
on exploration and production. Those expenditures have 
increased this year by over 20 percent and all indication are 
that they will increase by at least the same amount in 2002.
    As far as Rowan is concerned, we are moving ahead to 
respond to this increase in gas demand. We have one new $200 
million jack up rig scheduled for delivery late this year and 
another similar unit due in 2003. An analysis of the purchase 
orders for these two U.S. built, U.S. flagged vessels shows 
components ordered from suppliers in 37 American states and 
seven foreign countries. Neither rig has a contract at this 
time, but we are confident they will when they are delivered.
    I think I will stop there, Madam Chairwoman, and leave the 
rest of my comments for any questions which members of the 
Subcommittee may have. Thank you.
    Ms. Cubin. Thank you.
    Mr. Schoeffler.
    [The prepared statement of Mr. Kelly follows:]

  Statement of Paul L. Kelly, Senior Vice President, Rowan Companies, 
                                  Inc.

    Madam Chairwoman and members of the Subcommittee, I am Paul Kelly, 
Senior Vice President of Rowan Companies, Inc., a diversified oil 
service/supply company based in Houston, Texas. Rowan currently owns 
and operates 23 mobile offshore drilling rigs under contract to major 
and independent oil companies. Twenty two of these units are located in 
the Gulf of Mexico while one is operating on the Scotian Shelf off the 
East Coast of Canada. Rowan also constructs offshore rigs and we have 
another two advanced ``Gorilla'' class jack-up rigs under construction 
at our shipyard in Vicksburg, Mississippi. The company's LeTourneau 
division has built over one-third of the world fleet of jack-up rigs. 
We also own and operate six deepwater anchor handling/ tug/supply 
vessels and a fleet of over 100 helicopters which is divided evenly 
between the Gulf of Mexico and Alaska. That division conducts its 
business under the name of Era Aviation, Inc.
    Let me add my welcome to the Gulf of Mexico region where one-fourth 
of America's natural gas supply is produced and about one fifth of our 
oil.
Rig Availability
    There has been much discussion about the infrastructure 
requirements of the nation in meeting the 30 trillion cubic feet (tcf) 
natural gas demand projected by several organizations including the 
National Petroleum Council (NPC) and the Department of Energy's Energy 
Information agency ( EIA) at the end of this decade.
    The U.S. drilling fleet must expand to undertake the dramatic 
increase in activity that will be required to produce the additional 
supply needed to meet this demand. The total number of oil and gas 
wells drilled per year (including dry holes) on land and offshore will 
have to double from approximately 24,000 in 1998 to over 48,000 by 
2015. Even taking into account anticipated improvements in drilling 
efficiencies, approximately 2,300 active rigs (over 2,100 land rigs and 
180 offshore) will be needed to achieve this level of drilling. This 
represents an 80 percent increase over the 1,300 average active rig 
count estimated for this year.
    As the NPC study indicates, 33 percent of the 7 tcf of additional 
gas supply required to meet demand in 2010 is expected to come from the 
Gulf of Mexico. This is a tall order and involves many challenges, not 
the least of which is infrastructure requirements. Rig availability, 
which is crucial to exploration and development, will be a significant 
challenge for the industry.
    The oilfield supply and services sectors have been hit particularly 
hard by the boom and bust cycles. Very few new onshore drilling rigs 
have been built since the mid-1980's. If the five percent per year 
historical attrition rate continues, most of the existing 1,700 onshore 
rigs will be retired by 2015 and a total of almost 1,900 onshore rigs 
would have to be built. Additions to the offshore fleet will also be 
needed and are projected to include 10 deepwater drilling rigs, 32 
platform rigs, and 30 jack-up rigs and barges. Exhibit 1 presents a 
good overview of the status of the offshore drilling rig fleet. 
Although the number of new offshore rigs is smaller than the number of 
rigs needed on land, the average cost of each offshore rig is 
significantly higher than that of onshore rigs. Depending on its 
horsepower and drilling depth capacity, a new onshore rig will cost 
from $10 million to $20 million compared to an offshore rig which can 
cost anywhere from $110 million to $400 million.
    Exhibit 2 shows the costs of all the new mobile offshore drilling 
rigs constructed throughout the period 1996 to 2001. This most recent 
offshore drilling rig building cycle, which began in 1996, resulted in 
the delivery of state-of-the-art new equipment, the likes of which 
drilling contractors only dreamed of a decade ago. Indeed it had been a 
decade since the conclusion of the last building cycle and, as the 
newbuilds were delivered, the stark realization set in that most of the 
drilling contractors and shipyards underestimated what it would cost to 
build these new, ultra-modern drilling rigs. Between 1996 and present, 
a total of 45 new drilling rigs (excluding barges and tenders) were 
delivered. Only seven of these rigs were delivered on budget. The 
average cost overrun on the remaining 38 rigs approached 30 percent. 
There have also been significant delays in deliveries from the 
shipyards which have resulted in contract disputes between contractors 
and both their shipyards and their oil company customers. One major 
shipyard on the Gulf Coast has recently gone into bankruptcy. These 
disputes, along with the cost overruns, have caused drilling 
contractors to take a much more judicious approach to new rig 
construction. Prices and rates charged must go up, and, thus, it will 
be challenging to face the next building cycle and meet the NPC call 
for another 70 new offshore rigs.
    The offshore supply vessel and aviation sectors face similar 
challenges. Both have aging fleets and the cost of replacement and new 
technology will be higher. The next wave of rig construction must come, 
however, if for no other reason that 130 jack-up and semi-submergible 
rigs are now more than 25 years old. Attrition is taking its toll. I am 
confident the market will find a way to respond if the demand is there. 
It may not happen in the short term, but it will happen eventually. In 
the meantime, we have 192 mobile offshore drilling rigs working in the 
Gulf of Mexico as we speak, the highest number in 20 years. If platform 
rigs are added, the total number of rigs currently drilling oil and gas 
wells offshore is well over 200. While we have not yet seen a 
significant production response from this high level of activity, 
largely because of increasing decline rates in the Gulf, I am 
reasonably confident that we should soon see a step up in net oil and 
gas production.
Skilled Workers
    A significant concern of the industry is the future availability of 
skilled workers at all levels to produce the increase supply and 
construct the necessary infrastructure. Company consolidations and 
volatile fluctuations in oil prices have resulted in cuts in 
exploration and production budgets, leading to layoffs at all levels in 
exploration and production companies and in service / supply companies. 
Approximately 500,000 jobs have been eliminated from the industry since 
the early 1980's with over 40,000 job cuts occurring in the producing 
sector alone in 1998 and 1999. Simultaneous reduction in industry 
hiring rates in the last 20 years has resulted in a disproportionate 
percentage of the workforce reaching retirement age in the next decade, 
an average of 40% in a sampling of major producers.
    Furthermore, the next generation of workers is not choosing to 
enter the industry, as indicated by the significant decrease in 
enrollment in some energy-related college curricula since the mid-
1980's. The oilfield service / supply sector faces a similar situation 
as many laborers and supervisory personnel have left the industry in 
search of more stable work. Higher wage scales are a must to attract 
workers back into the industry.
Need for Capital and Improved Financial Performance
    Adequate financial performance must be demonstrated in order to 
compete for and attract the investments required to meet the growing 
demand. Companies will need to balance short-term performance demands 
with long-term planning to achieve the needed growth. According to the 
NPC report, almost $1.5 trillion ($1998) will be required to fund the 
industry through 2015 to meet anticipated demand. This amount includes 
over $700 billion for operating expenses and an estimated $781 billion 
for capital investments. Approximately $658 billion of capital is 
projected to be spent for oil and gas supply development and about $123 
billion for transmission, storage and distribution infrastructure 
expansion. This equates to an average annual increase in capital 
expenditures form $34 billion per year between 1990 and 1998 to $46 
billion between 1999 and 2015. Many of these expenditures will involve 
higher risk projects-such as large deepwater projects in the Gulf of 
Mexico, each of which can easily exceed $1 billion. While much of the 
required capital will come from reinvested cash flow, capital from 
outside the industry is essential to continued growth. To achieve this 
level of capital investment, industry must be able to compete with 
other investment opportunities. This poses a challenge to all sectors 
of the industry, many of which have historically delivered returns 
lower than the average reported for Standard and Poors 500 companies.
Industry Response and Conclusion
    The 1998-1999 downturn hit the industry hard. The past two years 
have been spent paying down debt and improving balance sheets. Our view 
as a contractor is that oil and gas companies have now recovered 
financially to the point where they are using cash flow from higher oil 
and gas prices to invest in exploration and development. Their capital 
expenditures this year have increased over 20 percent, and all 
indications are that they will increase again by at least that amount 
in 2002. Rowan has a new $200 million jack-up rig scheduled for 
delivery late this year and another similar unit due in 2003. An 
analysis of the purchase orders for these two U.S. built, U.S. flag 
vessels shows components ordered from suppliers in 37 American states 
and seven foreign countries. Neither rig has a contract at this time 
but we are confident they will when delivered. Rowan is responding to 
the market by entering the business of constructing land rigs and 
components such as mud pumps, draw works and cumulators. We are also 
participating in the Gulf of Mexico deepwater frontier with our recent 
acquisition of some of the most technically advanced high horsepower 
offshore supply vessels. Finally, we have introduced larger 19 
passenger helicopters into the Gulf for those long trips to deepwater 
locations offshore. Providing billions of dollars in new infrastructure 
for offshore oil and gas development cannot occur overnight. I am 
confident, however, that America's industry is beginning to respond and 
that it will rise to meet the many challenges we have before us.
    Thank you very much for your attention. I will be glad to answer 
any questions members of the Subcommittee may have.
                                 ______
                                 
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                                 [GRAPHIC] [TIFF OMITTED] T2337.028
                                 
          STATEMENT OF HAROLD SCHOEFFLER, SIERRA CLUB

    Mr. Schoeffler. Thank you for the opportunity to address 
this Committee on a topic that is vital to Louisiana and the 
nation. Other states at this time may have an opportunity to 
approve or disapprove the expansion of offshore drilling in 
Federal waters throughout this country. Louisiana was never 
afforded that opportunity. Starting off as a small, seemingly 
inconsequential activity, it has become a major contributor to 
this nation's energy resources and the national treasury.
    We have a three-way partnership between the Federal 
Government, oil industry and the host state in the development 
of offshore mineral resources. I would like to make comments on 
the host state's role in this partnership. First of all, that 
state receives no compensation for the very necessary 
contributions it makes to the offshore oil and gas recovery. A 
list of what host states provide, which would include 
Louisiana, are as follows:
    I would like to mention that in your home state, looking at 
the Minerals Management report for the year 2002, you all 
received about $270 million in oil fees, you received another 
$200 million in your water recovery program, which stays in 
your state. Only 10 percent of the royalties actually go into 
the Federal treasury.
    Ms. Cubin. It is not fair. I like the money, but it is not 
fair that--
    Mr. Schoeffler. Right, absolutely. And I am going to go 
through that.
    The ports, Louisiana has about 15 of them that provide 
docking, loading facilities for tugs, crew boats, barges, 
supply vessels, helicopters that haul people, food, generators, 
fuel, fresh water and an endless list of other materials needed 
to support drilling production activities. these ports are 
funded with local property taxes and with a state tax, five 
cents per gallon gasoline tax statewide.
    Fabrication yards where the tugs, crew boats, barges, 
platforms are built, painted, sandblasted and maintained. Many 
of these are on private property but many are also on 
properties developed in the ports by Louisiana tax dollars.
    Service facility yards. An endless array of pipe yards, 
equipment rental facilities, heliports, helicopter maintenance 
facilities and a long list of other service connected 
facilities. In Lafayette which is Lafayette Parish, which is 
the central coast of Louisiana, about 40 miles from the coast, 
there are 67 pipe yards. One of the major problems with pipe 
yards is that for a long time we did not know when we cleaned 
pipes that what we are taking out of these pipes was radium 
225, radium 228, a highly radioactive material. All these 67 
sites are highly contaminated with radioactive material. We do 
not know what the hell to do with that yet.
    Waste. All coming ashore in Louisiana. that waste is 
derived from drill cuttings, drilling fluids, domestic waste 
from the 29,000 people who live on Louisiana offshore 
platforms, and that number is based on Minerals Management 
Service environmental impact studies. Waste from other states 
like Alabama whose regulations are much stricter than Louisiana 
will find its way to Louisiana's unregulated, ``non-toxic'' 
oilfield waste sites. As Federal regulations on waste disposal 
become strict, it guarantees that the additional waste 
generated will find its way to Louisiana's non-regulated, non-
toxic waste sites. We are just dealing with an incinerator of 
oilfield waste that will be located in the coastal community 
port of Intracostal City, Louisiana, would burn 500 tons per 
day of oilfield waste that would not be regulated by the EPA or 
our Department of Environmental Quality because it is all non-
toxic, whatever that means. It is politically non-toxic; 
scientifically quite toxic.
    Shoreline processing facilities include refineries, carbon 
black plants, gas processing plants, petrochemical facilities 
and others with the state providing infrastructure to support 
their existence. We provide free water for all these--you being 
from Wyoming. We have no water policy whatever in this state. 
You can take any from the ground, from the lakes, from the 
rivers, all you want, any size, any quantity and of course that 
supports the refineries and a lot of other oil and gas 
activities.
    Transportation of product. Pipelines, tank yards, canals, 
roads, bridges, all of which takes an enormous toll on coastal 
marsh loss and the related fisheries loss. We have 9000 miles 
of OCS pipelines with more to come that crosses our coastal 
zone. We have 42,000 miles across the state and the coastal 
zone is 9000 miles. Each mile of pipeline, according to the 
Minerals Management Service environmental impact studies, we 
lose 89 acres of marsh. Of course, that affects shrimping 
fisheries and people say well I do not see how it affects 
shrimping, but when you look at the licenses sold in a 10-year 
period, Louisiana shrimping licenses in 1985 numbered 38,300, 
these are commercial shrimping licenses. And in 1995, declined 
to 10,200. So marshland loss certainly does contribute to some 
basic economic activities in the loss of those activities.
    Education for offshore workers. The State of Louisiana, 
through vo-tech schools, colleges and high schools provides 
training programs for offshore mineral extraction and related 
support activities.
    Emergency services. The State of Louisiana through state 
agencies provides hospitals, sheriffs' departments, fire 
departments, coroner's offices and a long list of emergency 
services that is absolutely required by this industry. It 
involves wrecks on the roads and helicopter crashes and boat 
sinkings and you name it.
    In conclusion, this is a short list of what the host 
states, especially Louisiana, provide the Federal offshore 
drilling program. We have 5500 platforms offshore worldwide 
with over 4000 of them in Louisiana Federal waters. That number 
is changing constantly as we move them. It takes an enormous 
infrastructure to support the 29,000 people who live and work 
on them.
    According to Minerals Management Service figures recently 
released, there are proven reserves of over 54 billion barrels 
of oil and 293 trillion cubic feet of gas in Louisiana Federal 
waters in the Gulf of Mexico. This country needs that energy. 
The infrastructure to recover that energy is in place.
    We do need to compensate the host states for all the 
services needed to support this effort. These services are, for 
the most part, funded by state and local government. And when 
that occurs, that is tax dollars that do not reach our schools, 
colleges, roads, bridges, hospitals and other needs. For 
Louisiana, this is a monumental drain on its resources. It has 
given us one of the worse educational programs in the nation. 
With poor education comes obvious economic partners--poverty; 
high crime and incarceration rate, the highest in the country; 
low quality of life and other problems. It is high time that 
the Federal Government and the Minerals Management Service 
program recognize its dependence on the host state for vital 
services and that those services be made part of a plan for 
total compensation--past, present and future. We could call it 
the Louisiana Royalty Relief Act.
    Thank you.
    [The prepared statement of Mr. Schoeffler follows:]

Statement of Harold James Schoeffler, Conservation Chair, Delta Chapter 
                   Sierra Club, Lafayette, Louisiana

    Thank you for the opportunity to address this committee on a topic 
that is vital to Louisiana and the nation. Other states at this time 
may have an opportunity to approve or disapprove the expansion of 
offshore drilling in Federal waters throughout the country. Louisiana 
was never afforded this opportunity. Starting off as a small seemingly 
inconsequential activity, it has become a major contributor to this 
nation's energy resources and the national treasury.
    We have a three-way partnership between the Federal Government, oil 
industry and the host state in the development of offshore mineral 
resources. I would like to make comments on the host states' role in 
this partnership. First of all that state receives no compensation for 
the very necessary contributions it makes to the offshore oil and gas 
recovery. A list of what other states provide, which would include 
Louisiana, are as follows:
     LPORTS--Louisiana has about 15 of them that provides 
docking, loading facilities for tugs, crew-boats, barges, supply 
vessels that haul people, food, generators, fuel, fresh water and an 
endless list of other materials needed to support drilling production 
activities. These ports are funded with local and state taxes, 
including a 5 cent per gallon gasoline tax statewide.
     LFABRICATION YARDS--where the tugs, crew-boats, barges, 
platforms are built, painted, sandblasted and maintained
     LSERVICE FACILITY YARDS--An endless array of pipe yards, 
equipment rental facilities, heliports, helicopter maintenance, and a 
long list of other service connected service facilities.
     LWASTE--All coming ashore in Louisiana. That waste is 
derived from drill cuttings, drilling fluids, domestic waste from the 
29,000 people who live on the Louisiana offshore platforms. Waste from 
other states like Alabama whose regulations are much stricter than 
Louisiana will find its way into Louisiana's unregulated quote ``non-
toxic'' oilfield waste sites. As Federal offshore regulations on waste 
disposal becomes more strict, it guarantees that the additional waste 
generated will find its way to Louisiana's non-regulated, non-toxic 
waste sites.
     LSHORELINE PROCESSING FACILITIES--Include refineries, 
carbon black plants, gas processing plants, petrochemical facilities 
and others with the state providing infrastructure to support their 
existence.
     LTRANSPORTATION OF PRODUCT--Pipelines, tank-yards, canals, 
roads, bridges, all of which takes an enormous toll on coastal marsh 
loss and the related fisheries loss. We have 9,000 miles of OCS 
pipelines with more to come. Each mile of pipeline we lose 89 acres of 
marsh. Louisiana shrimping licences in 1985 numbered 38,300 and in 1995 
declined to 10,200.
     LEDUCATION FOR OFFSHORE WORKERS--The State of Louisiana 
through vo-tech schools, colleges and high schools provides training 
programs for off shore mineral extraction and related support 
activities.
     LEMERGENCY SERVICES--The state of Louisiana through state 
agencies provides hospitals, sheriffs departments, fire departments, 
coroner's offices a long list of emergency services that is absolutely 
required by this industry.
    In conclusion this is a short list of what the host states, 
especially Louisiana, provides the Federal offshore drilling program. 
We have a 5,500 platforms offshore worldwide with over 4,000 in 
Louisiana Federal waters. It takes an enormous infrastructure to 
support the 29,000 people who live and work on them.
    According to mineral management figures recently released there are 
proven reserves of over 54 billion barrels of oil and 293 trillion 
cubic feet of gas in Louisiana Federal waters in the Gulf of Mexico. 
This country needs that energy. The infrastructure to recover that 
energy is in place.
    We do need to compensate the host states for all the services 
needed to support this effort. These services are for the most part 
funded by state and local government, and when that occurs that is tax 
dollars that does not reach our schools, colleges, roads, bridges, 
hospitals and other needs. For Louisiana this is a monumental drain on 
its resources. It has given us one of the worse educational programs in 
the nation. With poor education comes some obvious economic partners--
poverty, high crime and incarceration rate, low quality of life and 
other problems. It is high time that the Federal Government and the 
minerals management program recognize its dependence on the host state 
for vital services, and that those services be made a part of a plan 
for total compensation - past, present, and future.
                                 ______
                                 
    Ms. Cubin. Thank you.
    This has been a great hearing. The testimony from all of 
the witnesses has been great because rarely do you have a 
hearing where you agree with what every witness has said, and 
Mr. Schoeffler, I really am committed to trying to help the 
Louisiana delegation to do something about this. I knew it was 
not fair, but I had no idea the extent to which Louisiana has 
carried the burden for the rest of the country.
    Mr. Schoeffler. I am part of the Teachers of America 
program and I serve on the board and there are 2000 Teachers of 
America volunteers around the country and 350 of them are in 
Louisiana. We have a parish north of us that has about 800 
teachers, 500 of them are not college graduates and they use 
those teachers because they cost a lot less.
    Ms. Cubin. Well, something needs to be done and I expect 
that it will be.
    A couple of points I wanted to make--if I could only find 
my notes. The jurisdiction of this Committee really is not to 
establish energy policy. The jurisdiction of this Committee has 
to do with access to the minerals. We have jurisdiction over 
MMS and other agencies, but certainly we play a big role, 
because one of the biggest problems--and today I have learned 
some other big problems--but one of the biggest problems is 
access, which you know, and it is the same thing on the land as 
well.
    One of the things that Representative Skeen from New Mexico 
and I were able to get amended onto the Energy Act of 2001 is a 
requirement of the USGS to establish and plot on a map, if you 
will, the reserves of oil and gas under the lower 48 states and 
the outer continental shelf. And then on top of that, do 
overlays of things that inhibit or restrict access to those 
minerals. So there would be one overlay, for example, of the 
Endangered Species Act, another overlay of national forests and 
parks, just, you know, one on top of the other, so we could 
actually see what is keeping us off of the Federal lands where 
the energy that we need is. So I think that will be helpful to 
everyone, not only to extract the mineral, but once you have 
all of these prohibitions in place, to see why we cannot have 
pipelines. You know there are places where absolutely there 
should not be drilling and there should not be pipelines, there 
should not be power plants. But we also know absolutely that 
there are areas that are restricted that ought not to be, 
especially in view of the situation we find ourselves in with 
energy right now.
    Another thing that I should have said earlier and I did not 
say, was that we have been talking about production of more 
energy, oil and gas in this particular case, but I do not want 
anyone to leave with the idea that we do not believe that 
renewable energy supplies are very important and that we need 
to invest in that and that we also need to invest in 
efficiency, in conservation and in technology to help us use 
the energy sources that we have. I want--because we have not 
focused on that in this hearing, I just want everyone to know 
that that is considered to be a hugely important part of any 
energy policy that goes forward.
    A quick question. Louisiana owns the water in Louisiana, 
right?
    Mr. Schoeffler. That is a very good question. We are 
fighting that battle right now. I think we do, by the 1953 
Submerged Lands Act, yes, we do.
    Ms. Cubin. Yeah, we always fight over water in the west.
    Mr. Schoeffler. Right. Yes, we own the water.
    Ms. Cubin. And so you need to get on your state legislature 
to do something.
    Mr. Schoeffler. We are doing our best. We have pending 
legislation right now. The big concern is that maybe Florida 
will take it to solve their water problem down in the 
Everglades. They could run a pipe through the Mississippi very 
easy and do that.
    Ms. Cubin. Another thing that I wanted to clarify from your 
testimony, Mr. Vitter said here today and Mr. Cooksey has told 
me in the past, that some of the best fishing that there is in 
Louisiana is out by the platforms. And you know, he has told me 
about the size of the shrimp and all that stuff.
    Was your testimony in relation--when you were talking about 
diminished supplies of fish, were you talking about because of 
pipelines or what?
    Mr. Schoeffler. No, the loss of the marshes has an enormous 
impact on commercial fisheries because the shrimp and red fish 
and speckled trout depend--at one time or another in their life 
cycle they live in the marshes. In juvenile stages they go into 
the marshes and they eat the material or decaying vegetation 
and then at maturity, they come out. So if they cannot access 
those marshes or if the marshes are gone--when we talk about 
wetlands loss in Louisiana, we are not talking about turning it 
into a corn field, as it occurs maybe in Michigan, what we are 
talking about is vegetated marshes--mass amount of vegetation, 
typically 270 varieties of plant will grow in a health marsh 
and it turns to open water, it becomes the bay, it becomes part 
of the Gulf, and we lose that and we lose all the productivity, 
the ability to take care of juvenile shrimp, juvenile crab. He 
is correct about the fishing though. I have fished in the Gulf 
all my life, I am 61, I fished in the Gulf when we did not have 
oil rigs and putting oil rigs out there has made a tremendous 
difference. It is much easier to find the fish. This week I 
fished out there twice and the fishing is fabulous, that is 
where we fish.
    Mr. Bedell. Madam Chairman, here are pictorial 
representations if you would like.
    Ms. Cubin. Well, Congressman Cooksey has brought me some of 
that stuff, but he has never brought me anything--
    Mr. Bedell. And LSU did some studies, Madam Chairman, there 
have been a number of studies done that show that the 
populations around the platforms are not simply the result of 
migration of existing stocks of fishes, that in fact, the 
existence of the platforms has added its own stocks to the red 
fish, red snapper and all the rest of them.
    Mr. Schoeffler. It is kind of irritating to me in Louisiana 
that when they finish with the platforms and they dismantle 
them, they have a rigs to reef program and Florida is crying to 
get our rigs as they are dismantled.
    [Laughter.]
    Ms. Cubin. Right.
    Mr. Schoeffler. That is terrible.
    Ms. Cubin. Well, it is the same thing with California, 
wanting, you know, to build their plants in Nevada.
    Mr. Bedell, you referred to the boom and bust cycle of the 
energy industry and believe me, being from Wyoming and largely 
dependent on energy for our economy, I understand that boom and 
bust cycle. And I do not know whether this is actually a 
proposal or whether this is in law, but allowing, during low 
price periods, allowing companies to forego royalty payments 
and make capital investments so that the industry does not come 
to a screeching halt. Comment on that for me.
    Mr. Bedell. Madam Chairwoman, that would be a creative way 
of approaching the problem. The fact that we participate in 
lease sale today, we spend say, $14 million on a block and we 
start doing seismic work--more seismic work than we did before 
we decided how much to bid, that is. If we won the lease, then 
we will start planning structures. It can be an expensive 
process, as the other witnesses have referred to, of between 
six and 10 years in a frontier area where there is no 
infrastructure or maybe three to 5 years in another area where 
you have existing infrastructure where we do try to tie into 
existing pipelines. We do not try to lay a whole new pipeline 
where another one exists. Where say production has gone down so 
that now there is capacity in that line, we will have a new 
discovery and we will lay over to that line rather than do a 
whole new line. But anyway, we do not know always what product 
that we will find--if we find what it will sell for and we may 
have to spend--my company has spent 20 to $30 million on one 
well--before we find out. So there need to be incentives that 
can get a smaller company involved. There has been really, I 
think, excellent testimony earlier to that effect.
    There are provisions of law where the MMS can vary the 
royalties. It is very difficult politically to do that kind of 
thing in some cases, I think, to be very realistic about it. 
And if you have a situation where we have some budget surplus, 
maybe it is a good time to think about allowing some more 
flexibility. But it could be difficult with the Budget Act and 
having to see if they cut this income out where are they going 
to get that to be augmented from. You are much more familiar 
with the functioning of that process than we are. But I think 
what you mentioned would be a good way to do it. It would be of 
help, I think.
    Ms. Cubin. You know, we can rely on a stable supply of food 
and, of course, the farmers cannot necessarily rely on good 
prices. They have really been suffering and our government 
policies have been very detrimental to the industry. But I do 
not see why we cannot do some creative thinking and have a 
reliable source of energy as well. I really think if we start 
thinking out of the box and quit with the politics and, you 
know, the 30-second sound bits of destroying the environment, 
that we all really could get a lot further.
    Mr. Drago, would you elaborate for me a little bit on how 
Congress intended the states to be involved in the OCS planning 
process when the 1978 amendments were passed?
    Mr. Drago. In the planning process through the Coastal Zone 
Management Plan?
    Ms. Cubin. That's correct.
    Mr. Drago. All of the issues that were raised at--and the 
concerns and fears, some substantiated, some not, of the impact 
on the Outer Continental Shelf, there were provisions in the 
Act to deal with those. Congress established a 5-year leasing 
program which would spread these lease sales out over a period 
of time, that the states could see where--and the oil companies 
could see where they were going. Any problems that they saw 
coming from this could be dealt with during that 5-year period. 
The Coastal Zone Management Act potentially was the best tool 
to deal with that, but as has been pointed out, I think the 
hand has been overplayed a little bit. It has been used in some 
instances as a hinderance to development. You cannot say their 
concerns are not genuine, they obviously are. But it is like 
your state, one of my policy board members is one of the 
biggest wildcatters up in Wyoming. He is having problems with 
permitting.
    Ms. Cubin. Who is that?
    Mr. Drago. Charlie Lazer. He cannot get a permit. I know 
you have dealt with this in other committees. But this question 
of how we solve our problems with OCS leasing we thought were 
answered in the OCS Lands Act, the Members provided everything 
that they thought was needed to make this program work. 
President Carter was very impressed with it and he thought we 
were going to move right forward. To be very honest, a lot of 
the things that I have heard today are the same type of 
problems we heard back then. The Coastal Zone Management Plan 
can work if there is good faith on both sides.
    Ms. Cubin. Right.
    Mr. Drago. I think that is the important part. The other 
thing is that there are a lot of concerns for the impact of oil 
and gas operations on shore. There was concern by the members 
of those committees, and these were people that were 
representing on-shore and off-shore oil states -- John Breaux 
was a member of the committee; Morris Udall was a member of the 
committee. It wasn't just off-shore coastal states. One of the 
problems that we found was when people started talking about 
the impact of off-shore activities on-shore and a loss of land, 
it was very difficult to determine what damage was coming from 
leasing within state waters and leasing on the outer 
continental shelf. Pointing a finger of blame sometimes is a 
real waste of time, but if you cannot get down to what the 
cause is, it is very difficult to come up with a solution. I 
think that hedging on what real causes are prevents us from 
finding real solutions. Problems are not being treated with 
hard scientific data, and if they were, I think a lot more 
answers would be a lot more obvious.
    Ms. Cubin. Mr. Kelly, did you want to respond?
    Mr. Kelly. Yes, Madam Chairwoman. I was involved in the 
evolution of the OCS Lands Act amendments back in 1978 as well, 
back when I had a lot more hair and it was brown.
    Mr. Drago. So was mine.
    [Laughter.]
    Mr. Kelly. I think there was a lot of goodwill that 
surrounded the enactment of the amendments and a number of the 
stakeholders came together and made compromises. Section 18 of 
the OCS Lands Act that deals with the interaction of the state 
governors with the Federal activity is generous in the sense of 
giving governors in the states a lot of opportunity to comment 
on the process, but in the end there must be a decision maker 
and the law provides that that is the Secretary of the 
Interior. There was significant litigation in the late 1970's 
and early 1980's when no matter what the Federal Government did 
with the states, for states like a California or Florida, it 
was never enough. So they went to court. It is interesting that 
none of the states ever won litigation to block an offshore 
lease sale because the courts ended up stating that where 
Federal lands outside the territorial limits of the states are 
involved and the benefits of those Federal lands are to go to 
the citizens of all 50 states, therefore, Federal interests are 
paramount. Further, as along as the Secretary of Interior uses 
a standard of judgment that was defined by the court as being 
reasonable, Federal interests should be upheld. Only then did 
the states go to Congress and start using the appropriations 
process to block the activity. That is the problem. I think in 
the era of trying to diversify and pay more attention to 
Federalism, Congress has gone back and given more of that power 
back to the states, even though the law said it was not 
necessary.
    Ms. Cubin. Thank you. Go ahead.
    Mr. Bedell. There was also a provision in the Act that 
formally set down--I think it was Section 301--but anyway, it 
was the information exchange between the Federal Government and 
the states similar to what is in the Coastal Zone Management 
Act, but it was within the OCS Lands Act. That was one of the 
impetus for putting together that Act and for getting the ad 
hoc Select Committee together. It was that states had 
complained that they weren't getting enough information. So, 
you know, it's deja vu all over again, as Yogi Berra would say. 
We still have that same problem unfortunately today despite the 
fact that the OCS Lands Act and the Coastal Zone Management 
Act--in my testimony I rattled off a bunch of the different 
statues that exist--are there. Sometimes this seems to confuse 
matters. We are not sure which act governs what.
    Ms. Cubin. Right.
    Mr. Bedell. I was interested in your comment about the 
provision you had put in the law trying to come to grips with 
that, at least on shore. There's a need to put together 
something that would show which laws apply to what extent and 
then try to figure out where you go from there.
    Ms. Cubin. How do you untangle it. Well it is--does apply 
to OCS--oh, it doesn't. Excuse me, it is just the lower 48.
    One more question, Jim. This is yours, Mr. Bedell. The map, 
181 is 213 miles from Tampa, 108 miles -- is 108 miles the 
closest it comes to Florida?
    Mr. Bedell. Well it depends, Madam Chairwoman, on how you 
define close to Florida. In the traditional sense, again it was 
where they had the state boundaries and in the OCS Lands Act it 
recognizes those are projected offshore--you know, straight off 
shore, perpendicular to the shore or whatever. So ``off of 
Florida'' would be from the Florida-Alabama border to the east. 
That is just one of the problems we have.
    Ms. Cubin. Okay, that was what I was going to ask.
    Mr. Bedell. But as you can see, a lot of this lease sale 
was designed specifically to meet all of the objections that 
Florida had at the time this was being put together. In other 
words, this line right here is 100 miles off shore of Florida. 
This Alabama one is 15 miles off shore. So, (pointing at map) 
three, five, 15 miles off shore. And then this development had 
already been had here. There were extensive negotiations with 
the military. As an ex-pilot, Congressman, I am sure you would 
be concerned about the fact that we want the military to be 
able to go ahead and be able to test weapons and that sort of 
thing out of Florida. Along the coast there is a very active 
testing center at Eglin Air Force Base. These areas (pointing 
at map) were negotiated for controls on development of those 
leases so that they would not interfere with the military's 
mission.
    Mr. Kelly. One suggestion has been made that one way to 
compromise with Florida might be to eliminate some of the 
acreage in the stem. The irony in that is that that's the gas 
prone part of the leases.
    Ms. Cubin. Right.
    Mr. Kelly. And if we are all interested in increasing our 
supply of environmentally friendly fuel, why would we do that? 
That is where the risk is the lowest.
    Mr. Bedell. And Madam Chairwoman, there is a pipeline 
project now being proposed, that has gotten through FERC, which 
goes from Mobile Bay right through here (pointing at map) --
which they wouldn't allow us to produce--all the way over to 
Florida. This pipeline would have its--it is similar to your 
situation in Nevada with California, the compressor stations 
would be in Alabama, and put the Mobile area in jeopardy in 
becoming a nonattainment area for the benefit of clean air in 
Florida where they are converting their powerplants to natural 
gas.
    Ms. Cubin. I understand. I saw that look on your face.
    Mr. Gibbons.
    Mr. Gibbons. Thank you, Madam Chairwoman. Believe me, it is 
an interesting, complex problem that we are hearing from today 
about this. One of the things that I'm interested in--of 
course, MMS believes that, I think, 50 percent of undeveloped 
oil and gas reserves lie in the outer continental shelf. Mr. 
Drago, your concern is, of course, that OCS is a Federal lease 
problem. What changes would you look at, what would you 
recommend in the OCS lease problems? What changes would you 
make for that 2002-2007 time frame for --
    Mr. Drago. The only -- excuse me. The only changes I would 
recommend is basically what I talked about in my testimony and 
that is to open that area up to leasing. Natural gas production 
is crucial. We cannot import that like we do oil. We have to 
produce it. To produce it, we have to lease so that we can 
drill for it. And that is the only significant thing I can see 
that the government can do, take a closer look at these things 
and make their judgments on science. Is there danger? Yes. Can 
it be ameliorated and has it been? Yes. There is no reason not 
to--look at the money the government of states and local 
communities gets from OCS activities.
    Mr. Gibbons. Let me address my question over here to Dr. 
Hare, because I know that your are somewhat skeptical of the 
fact that the great reliance on deep-water production out there 
in the Gulf is going to sustain our natural gas demands. Let me 
ask you, what could we do--what recommendations would you make 
to keep the Gulf from peaking in that time frame from 2002 to 
2003 if, in fact, the supplies are not there?
    Mr. Hare. Well I think one thing that you could do, we have 
heard the word competition mentioned a lot. If you just have a 
few of the super majors doing the exploration, their economic 
cutoff of what they are going to explore for is going to have a 
real high threshold value. If you can bring more of the large 
independents or midsized independents into the business, they 
will hunt for smaller deposits and they will find economic ways 
to develop them.
    Mr. Gibbons. Mr. Kelly.
    Mr. Kelly. I think that one very creative initiative that 
the Minerals Management Service has come up with is this new 
deep drilling royalty incentive on the shelf. We have talked 
today a lot about deep-water royalty relief. This is a new idea 
that would provide a royalty suspension on wells drilled 15,000 
feet or deeper on the shelf. It does have a floor price, in 
that the benefit only kicks in if natural gas is $3.50 or 
lower. I do not know how many others would agree with me, but 
we may never see $3.50 gas again. I think we could really see 
some deep drilling on the shelf in the Gulf if the floor price 
were moved to say $5.00. That might be worth considering. One 
way to address the gas supply problem is to encourage deeper 
drilling. As the NPC report says, if we are going to find more 
gas, we have got to drill deeper both on shore and off shore. I 
think this would really help because--and it can be justified 
in terms of fairness, because in order to drill 15,000 to 
20,000 foot wells, we have to have bigger rigs, higher 
horsepower, and more technologically advanced equipment to deal 
with high temperatures, high pressures, and hydrogen and 
sulphur compounds that corrode materials at those depths. So it 
is going to be a risky and expensive business for the companies 
that venture into it.
    There are a lot of structures out there that look 
prospective at those depths. One of the interesting things is 
that there seem to be more of them off Texas in Federal waters 
than Louisiana. So we might see a little bit of the work 
getting spread out into the western Gulf. I think the lease 
sale that is scheduled for this August for the western Gulf--
number 180, will be very interesting in this respect, to see 
how the companies respond with this new incentive in place. But 
I think the incentive could be enhanced greatly if the base 
were increased from $3.50 to $5.00.
    Mr. Gibbons. Mr. Drago.
    Mr. Drago. One of the things that has happened onshore and 
off the overthrust area, we did not know the oil was there. As 
soon as they found it, the increase in estimates went through 
the roof and there was more drilling and more oil and more 
estimated resources. We are looking at areas on the outer 
continental shelf in this area, for instance, the west coast of 
Florida, that has enormous potential right now. What is it, 236 
trillion cubic feet of gas? I think that's right. That is a lot 
of gas. If they go in there and drill, they are going to find 
that the estimated resources are higher. They will be able to 
take a look at the --what am I thinking of--structures that 
they are drilling in, where do they go. And I think we will 
find in the years to come once we start leasing in there, that 
we are going to have a lot more resource potential out there 
and be able to solve a lot of the problems that this country 
has.
    Mr. Gibbons. That seems to be the common sentiment, that we 
have actually got to get out there and drill it before you can 
say there is X amount there to begin with and whether it is oil 
and gas or whether it is in mining or any other, it takes some 
type of exploration to be able to pin that down.
    I always find it amazing when I hear people rail against 
exploration, to say there is not enough there for you to be 
interested in, it is only a small amount, like 6 months supply 
for the United States, not worth going after. But as soon as 
you start exploring it and putting that first line down, you 
find out that it is vastly more than you anticipated.
    Mr. Hare. Exactly. And I have trouble, when we have a 
resource estimate that is a distribution on a probability curve 
and we usually pick the mean figure off and say okay, it could 
be this size, why would we not want to go out and do some kind 
of exploration to assure ourselves that it is either there or 
it is not there. To me, that seems to be the essence of it.
    Mr. Gibbons. Let me ask a question real quick. I know our 
time, Madam Chairwoman, is expiring rapidly here, but Mr. 
Schoeffler brought up the issue about skilled labor force drop 
off. What are each of your companies--and let me say I do not 
know that the AAPG can come up with that, but--
    Mr. Hare. I do have an opinion.
    Mr. Gibbons. Well, what are your companies doing to partner 
with educational institutions, et cetera, to help ensure that 
we have both educated and skilled labor forces?
    Mr. Hare. Well, I am a person that was formerly the chief 
geologist for Vastar Resources and of course we were acquired, 
when BP acquired Arco, they ultimately got us, and so there was 
a lot of talent that had to disperse elsewhere. Most of the 
really good talent became employed by smaller companies or 
whatever, but the NPC study that was published in December 1999 
pointed out there were 750,000 jobs lost in the oil and gas 
business, and a lot of those were in these very, very technical 
fields. So that is something that if we are going to be able to 
reach that goal of being able to produce 30 Tcf in 2010, only 
25 of which is going to be coming from the U.S., we have to 
have those geological and geophysical and engineering 
professionals who are ready to go.
    Mr. Gibbons. Let me just go down the line, whoever wants to 
start.
    Mr. Bedell. My company designed and built the first jack up 
drilling rig that has now been donated, it is not working 
offshore any more, and we do not have a drilling company any 
more, but that has been donated and is now a training facility 
in south Louisiana. We donated our former drilling building to 
the University of New Orleans, which is about an 11-12 story 
building downtown that is now a UNO technology center... sort 
of a--a place where new businesses are stimulated, there are 
some state offices and things in there.
    We are trying to work on educational things, and we are 
concerned. I think the average age of our offshore work force 
is over 40 years old now. We try to keep people, we do not want 
to push people out the door, but getting recruitment of new 
people coming in is becoming increasingly difficult. The class 
sizes in universities of petroleum engineers, geologists, 
others, have gone down and these things are outside of our 
control. This boom and bust cycle is certainly nothing of our 
making, I do not think, and it is very difficult to deal with. 
We do what we can, we have programs where you incentivize 
people to stay around and not leave, you give them bonuses for 
every year they stay and this kind of thing. That has worked 
with engineers in our company, but again, we are not getting 
encouragement. If we cannot expand in the U.S., we can go 
overseas, but that is not hiring American workers.
    Mr. Gibbons. Of course every time you raise salaries to 
attract more employees, you have to add that to the cost of the 
product that you produce, which ripples across the country as a 
price increase and then you get criticized for gouging.
    Mr. Bedell. Right now the facts are that there were 
something like seven ammonia plants in the state of Louisiana 
producing ammonia which of course goes into fertilizer. And a 
number of these, more than half of them, I believe, at some 
point with the high gas prices, natural gas is the source of 
amonia, had to shut down operations. Now there is going to be a 
ripple effect of that when the farmers go to buy their 
fertilizer this spring or have already done so, I cannot but 
believe that there is going to be some bad effect there, not 
only on our employment here and our ability to deal with our 
problems in this state, but it is going to have a ripple 
effect.
    Mr. Gibbons. Mr. Kelly.
    Mr. Kelly. Our company, Rowan, has taken somewhat of a 
unique approach in that we have never had a layoff of employees 
in the company. What we have done to deal with these boom and 
bust cycles is that during the boom cycle, we husband our cash 
and set a certain amount aside to deal with the next downturn. 
When the downturn comes, we do not lay out employees off, but 
we keep them. They do a lot of maintenance work on the rigs. We 
also involve them, to some extent, in rig construction, because 
likewise, we use the cash that we husbanded during the boom 
cycle to build equipment during the down cycle. This makes us 
very unique in our industry, but our feeling is that is the 
time to get good prices. When the down cycle comes, materials 
get cheaper. So we have historically built new equipment during 
the down cycle to be prepared for the up cycle.
    Now in addition to that, we have a summer internship 
program where for many years, we have hired approximately 50 to 
75 college students involved in engineering and the geosciences 
in the universities to work offshore. Most of these interns 
come from around the Gulf coast, but we have had students from 
New England and California as well. They work on the rigs for 
the summer, they make good money as roustabouts and roughnecks, 
and we try to get them interested in the energy business. And 
it has been extraordinary how many have come back to come to 
work for Rowan or they have gone to work for other companies 
that are our customers. So it has paid off and this summer we 
are really boosting that program. We will probably have as many 
as 120 or 125 interns working in the Gulf of Mexico this year.
    We also have active training programs. We tend to hire from 
the bottom and let the cream rise to the top, as they say. A 
lot of these students come in like these interns and it has 
paid off for us quite successfully.
    Mr. Gibbons. Thank you.
    Mr. Drago. Can I say something else?
    Ms. Cubin. Yes, Mr. Drago.
    Mr. Drago. Your point about opponents to drilling in ANWR, 
claiming ANWR does not have large enough reserves to produce, 
because all it would give us is 40 days of oil and therefore is 
not worth producing. I would like to point out that there are 
over 500,000 producing wells in this nation that produce all of 
our oil, averaging about 15 barrels of oil a day. That is 
pretty small production but that is where our oil comes from.
    Ms. Cubin. Well, I would like to thank the panel for their 
valuable testimony and the answers to the questions.
    The hearing record will remain open for 10 days so anyone 
who has any supplemental information they would like to submit, 
that would be great. And also, if we could ask, I think there 
might be a few questions that we did not have time to get to 
and if you could answer those for us in writing, we would 
appreciate it.
    Hearing no other business in front of the Committee, the 
Subcommittee is now adjourned.
    [Whereupon, at 5:45 p.m., the Subcommittee was adjourned.]

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