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88–430 2014

THE NEW DOMESTIC ENERGY PARADIGM: DOWNSTREAM CHALLENGES FOR SMALL ENERGY 

BUSINESSES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON AGRICULTURE, ENERGY, AND 

TRADE 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

JUNE 26, 2014 

Small Business Committee Document Number 113–073 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

BLAINE LUETKEMEYER, Missouri 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JAIME HERRERA BEUTLER, Washington 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

DAVID SCHWEIKERT, Arizona 

KERRY BENTIVOLIO, Michigan 

CHRIS COLLINS, New York 

TOM RICE, South Carolina 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

YVETTE CLARKE, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRAD SCHNEIDER, Illinois 

RON BARBER, Arizona 

ANN McLANE KUSTER, New Hampshire 

PATRICK MURPHY, Florida 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Scott Tipton ..................................................................................................... 1 

Hon. Patrick Murphy ............................................................................................... 2 

WITNESSES 

Mr. Russell Smith, Executive Vice President, Public Affairs, Quantum Energy, Inc., Williston, ND ...................................................................................... 4 

Mr. Kevin Book, Managing Director, ClearView Energy Partners, LLC, Washington, DC ............................................................................................................. 5 

Mr. Jared Blong, CEO/President, Octane Energy, Midland, TX ......................... 7 

Mr. Greg Dotson, Vice President for Energy Policy, Center for American 

Progress, Washington, DC ................................................................................... 9 

APPENDIX 

Prepared Statements: 

Mr. Russell Smith, Executive Vice President, Public Affairs, Quantum 

Energy, Inc., Williston, ND .......................................................................... 24 

Mr. Kevin Book, Managing Director, ClearView Energy Partners, LLC, 

Washington, DC ............................................................................................ 36 

Mr. Jared Blong, CEO/President, Octane Energy, Midland, TX .................. 44 

Mr. Greg Dotson, Vice President for Energy Policy, Center for American 

Progress, Washington, DC ........................................................................... 56 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

None. 

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(1) 

THE NEW DOMESTIC ENERGY PARADIGM: 

DOWNSTREAM CHALLENGES FOR SMALL 

ENERGY BUSINESSES 

THURSDAY, JUNE 26, 2014 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:02 a.m., in Room 

2360, Rayburn House Office Building, Hon. Scott Tipton [chairman 

of the Subcommittee] presiding. 

Present: Representatives Tipton, Luetkemeyer, Huelskamp, Murphy, and Schrader. 

Chairman TIPTON. I would like to call our hearing to order. 

I need to start off by congratulating Mr. Murphy and the Democrat Members on their victory at the baseball game last night, even 

though there were many questionable umpire calls that we certainly would like to have reviewed. 

I would like to thank our witnesses for taking the time out of 

your busy schedules to appear before our Committee to discuss a 

topic that was all but unimaginable just a few short years ago. 

For decades, the consensus among geologists, energy producers, 

and policymakers was that oil production in the United States was 

in permanent and irreversible decline. However, advances in new 

technologies and the adaptation of old technologies for new purposes have now made it economical to produce enormous quantities 

of oil and natural gas in the United States, which has substantially 

increased the volume of our Nation’s proven reserves of oil and gas. 

The potential benefits of this new domestic energy paradigm to 

small businesses and the broader economy are significant. As the 

Subcommittee has previously examined, the full upstream development of our Nation’s oil and gas resources could produce more than 

1.4 million direct and indirect energy-sector jobs and another 1.4 

million jobs outside the oil and gas industry. 

Many of these energy-production-associated manufacturing jobs 

will be created by small businesses. Of course, these jobs will only 

materialize if the United States responsibly utilizes the abundant 

resources it has at its disposal. Unfortunately, that is presently not 

the case. 

In previous hearings, the Committee has examined upstream 

challenges to realizing America’s full energy potential, predominantly those created by government regulations and bureaucratic 

inertia. These upstream impediments include policies that have 

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2 

made it difficult to obtain access and permits to drill for oil on Federal lands. 

However, it now appears that additional challenges are emerging 

further downstream that could likewise reduce the potential production of oil in the United States and jeopardize the new jobs and 

other economic benefits that would result from that production. 

Specifically, there is growing mismatch between the increasing 

amount of light, sweet-grade crude being produced in the United 

States and the available utilization capacity of the midstream and 

downstream refining sector to process this grade of crude into highvalue products such as transportation fuels. 

The reasons for this are many, but they include previous assumptions that the United States would import most of the oil it 

consumed, and those imports are different grades of oil than what 

the U.S. is producing today. There are also regulatory requirements and other burdens that make it difficult to significantly expand refining capacity in the United States. 

The solutions to these challenges are complex. They are not only 

including building up the refining capacity but may also include 

ending of our Nation’s de facto ban on petroleum exports, which 

proponents claim would address downstream challenges to upstream oil production and help facilitate a reduction in the price 

consumers pay at the pump for gasoline and other transportation 

fuels. 

In relation to the matter of oil exports, today’s hearing couldn’t 

be more timely. As Members may know, according to reports, the 

Obama administration may soon approve licenses for two companies to export minimally produced petroleum condensates. Whether 

this is a significant step or an interim step in addressing the oil 

supply and refinery utilization challenges and what impacts it will 

have on domestic fuel prices is a question that I believe today’s witnesses will help answer. 

I would now like to yield to Ranking Member Murphy for his 

opening statement. 

Mr. MURPHY. Thank you, Mr. Chairman. 

And thank you all for being here. 

Excuse my voice. It was a very exciting baseball game, and I got 

a little raspy last night. 

Today, America is producing more oil than we have in decades. 

In 2013, domestic oil production reached its highest level since 

1989 and helped satisfy nearly half of America’s oil demands. 

These developments in drilling are now leading to changes in the 

American refining industry. 

Over the last 10 years, refiners have faced several market challenges based on various factors. Because of changes in the U.S. 

market, refiners have had to confront possible long-term reductions 

in demand, and they responded by cutting costs, reducing capacity, 

and closing facilities. 

But, now, new, cheaper crude oil is leading to the expansion of 

existing refineries and the reopening of many shuttered ones. After 

a period of refinery closings and several decades after no new single large refinery had been built in the United States, a few new 

refineries are being planned or built in North Dakota, Texas, and 

Utah. These refineries and expansions that are scheduled to be 

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completed over the next few years represent roughly $5 billion in 

investments in the refining industry. 

With new oil sources and types of crude, this industry must 

adapt to the changing market. These new conditions are growing 

our domestic refining capacity and making smaller refineries more 

competitive. 

Our hearing today will focus on how to make this industry more 

efficient by analyzing the strategic investment and operating 

choices by oil refineries in response to the changing market. We 

will also look at how these decisions affect downstream gas prices 

and small businesses. 

The refining industry is subject to environmental rules that are 

designed to increase energy efficiency and reduce energy production’s impact on our climate. Standards for greenhouse gas emissions, Tier 3 rules, and renewable fuel standards all play a part in 

the planning necessary to small refiners and producers but also 

serve a critical purpose in reaching our Nation’s environmental policy goals. 

I also look forward today to hearing about the ongoing debate 

surrounding the ban on domestic oil exports. Some experts claim 

that continuing the ban is critical for protecting American jobs, 

while others claim that lifting the ban could lower gas prices and 

help our economy. 

As we examine the policies that make oil production and the refining industry more efficient and that impact their business decisions, it is important to understand the potential effect that these 

changes have on small-business energy consumers. A healthy economy requires a thriving small-business sector, so we must ensure 

small firms continue benefiting from the recent developments in 

the energy industry. 

I thank the witnesses for being here today, and I look forward 

to your comments. 

Thank you, Mr. Chairman. 

Chairman TIPTON. Thank you, Mr. Murphy. 

If the Committee members have an opening statement prepared, 

I would ask that they submit it for the record. 

I would like to be able to take a moment to be able to explain 

our timing lights that are in front of you. The light will start out 

as green. When you have 1 minute left, it will turn to yellow. And 

then when it turns red, if I would summarize your comments, we 

would appreciate it. We do have votes that are going to be coming 

up shortly, and so, if we can kind of stay on schedule, it would be 

much appreciated. 

I would like to begin with our first witness. I would like to welcome Mr. Russell Smith. He serves as executive president of Quantum Energy, a small business in the process of building five smallscale refineries in North Dakota. In addition to his experience in 

the energy industry, Mr. Smith has also worked in the technology, 

defense, and healthcare industries. 

Mr. Smith, thank you for taking the time to appear today, and 

please deliver your testimony. 

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STATEMENTS OF RUSSELL SMITH, EXECUTIVE VICE PRESIDENT, PUBLIC AFFAIRS, QUANTUM ENERGY, INC., 

WILLISTON, NORTH DAKOTA; KEVIN BOOK, MANAGING DIRECTOR, CLEARVIEW ENERGY PARTNERS, LLC, WASHINGTON, D.C.; JARED BLONG, CEO AND PRESIDENT, OCTANE 

ENERGY, MIDLAND, TEXAS; AND GREG DOTSON, VICE PRESIDENT FOR ENERGY POLICY, CENTER FOR AMERICAN 

PROGRESS, WASHINGTON, D.C. 

STATEMENT OF RUSSELL SMITH 

Mr. SMITH. Thank you, Mr. Chairman, Ranking Member Murphy, and members of the Committee. Thank you for the opportunity to come before you today. Much appreciated. 

I would like to discuss some issues that are important for small 

business, not only in the oil and gas industry, but also in the agricultural, retail, services, and mom-and-pop business community in 

the Williston Basin and the Bakken shale formation. 

Quantum Energy is here before you as a development-stage company. We are currently in the capital acquisition process to build 

five 21st-century energy centers that will consist each of one 

20,000-barrel-per-day microrefinery, a 100,000-barrel-per-day natural gas, or NGL, stripping facility, and a CO2 recapture capability 

for use in downhole recovery enhancement. 

As a development-stage company, we have had to make some 

tough decisions in the early stages of our business planning processes. The toughest of these decisions was facing the reality that 

EPA emissions regulations have basically put a limit on the feedstock size of new refineries to avoid being classified as a major refinery. 

That threshold is required because the emissions, if you work 

backwards, limit us to 20,000 barrels per day. And that is evidenced by the Montana-Dakota Resources new refinery currently 

being built near Dickinson, Montana. That refinery, when it comes 

on line later this year or early next year, will be the first greenfield 

refinery built in the United States since 1976, which is an important development and one we look forward to, in essence, copying 

the process that they went through. 

The economic model that drives our current business plan is 

built around a pressing need for local and regionally refined supplies of diesel fuel in the Williston Basin and a very pressing need 

for local and regionally refined propane in the Upper Midwest and 

the northern mountain west States. Both supply deficits have created distinctly higher prices for these essential commodities. 

The region currently has a daily need for over 55,000 barrels per 

day of diesel, a need which will grow over the coming 18 to 24 

months to exceed 75,000 barrels per day. The region’s sole legacy 

refinery meets only approximately 28,000 barrels per day of this 

need. This new microrefinery outside of Dickinson will meet another 6,000 to 7,000 barrels per pay. 

Our five 21st-century energy centers will, using a similar design 

to the Dickinson refinery, each produce 6,000 to 7,000 per day, for 

an aggregate of 30,000 to 35,000 barrels per day of new diesel. In 

aggregate, that will then mean that these seven refineries will be 

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meeting 85 to 90 percent of the region’s diesel requirements within 

the 24- to 36-month timeframe. 

Likewise, our NGL-stripping facilities will provide the opportunity for relief from skyrocketing propane prices in the greater region. Low- and middle-income families are struggling under the 

burden of these prices, particularly in rural areas, where propane 

is the most common home heating fuel. 

We additionally believe that our NGL-stripping facilities deliver 

a refined crude product that meets the language contained in the 

1970s-era rule that banned the export of nonrefined crude from the 

lower 48. The language in that rule that comes the closest to providing a definition of ‘‘refined crude’’ surrounds crude that has 

passed through a distillation tower. Our NGL-stripping facilities do 

utilize distillation towers and, as such, we believe, meet that standard. 

As the production in the Bakken continues to ramp up from a 

current level near a million barrels per day to an anticipated 2 million barrels per day in the next 3 to 4 years, the domestic refining 

capacity, which is already struggling to handle the supply, may 

force a slowdown in production growth. This will be harmful to producers, the local economies, and the continued growth of good, wellpaying jobs throughout the region. 

Therefore, in the absence of an abolition of the ban, we strongly 

feel that locally refined and NGL-stripped crude made available to 

the export markets can play a vital role in alleviating any potential 

slowdown in the growth of Bakken production. 

In summary, local and regional refining capacity helps: one, producers, large and small, through limiting impediments to both increased drilling and production while opening potential export markets in an age of a global economy; number two, local and regional 

economic development by reducing prices and increasing the local 

and regional supply of vital commodities such as diesel and propane; and, third, low- and middle-income families through provision of the above-mentioned benefits. 

Members of the Committee, we thank you for the opportunity to 

appear before you, and we welcome any questions. 

Chairman TIPTON. Thank you, Mr. Smith. 

I would now like to introduce Kevin Book. He serves as managing director of ClearView Energy Partners, an economic analysis 

firm with expertise on energy issues. In addition to his work at 

ClearView, Mr. Book was appointed to serve on the Department of 

Energy’s National Petroleum Council Advisory Committee. 

Mr. Book, thank you for being here, and we look forward to your 

testimony. 

STATEMENT OF KEVIN BOOK 

Mr. BOOK. Thank you, Chairman Tipton, Ranking Member Murphy, and distinguished members of the Committee, for inviting me 

to appear before you today. 

My name is Kevin Book, and I head the research team at 

ClearView Energy Partners, an independent firm headquartered 

here in Washington, D.C., that provides macro-level analyses to institutional investors and corporate strategic planners. 

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My testimony today suggests that, even as many Americans celebrate the renewed production of light, sweet crude oil, current 

trends may be creating an unstable equilibrium. Shale oil production has been growing incredibly fast. Demand has been growing 

fast, too. Newfound U.S. volumes have gone to three principal outlets: increased refinery utilization; displacement of imported light, 

sweet crude; and exports to Canada. 

In my written testimony, there is a picture, Figure 1, which 

shows the growth of shale oil supply relative to those three outlets, 

and it looks pretty balanced. But there are several caveats. 

First, petroleum refining is a manufacturing process that requires a certain amount of downtime to ensure safety and optimal 

performance. This limits the extent to which existing capacity can 

absorb incremental crude volumes without capacity expansions. Refiners have already ramped up their throughput considerably. 

Second, domestic production has already replaced nearly all of 

the volumes of light, sweet crude previously imported into the east 

coast and the Gulf of Mexico. 

Third, during the course of the last 2 decades, much of the U.S. 

refinery fleet was upgraded to process heavy, sour crude that tends 

to yield a thicker cut of the middle distillates that earn a premium 

relative to other products, such as gasoline. As the U.S. crude mix 

gets lighter and sweeter, U.S. producers must offer the Nation’s 

newly upgraded refiners discounts to encourage greater acquisition 

of a less suitable feedstock. 

Fourth, and perhaps most importantly, many government agencies and private forecasters expect U.S. crude production to continue growing in the years ahead, likely exhausting import substitution here in the U.S. and eventually in Canada and outgrowing 

the ability of U.S. and Canadian refineries to increase their runs 

without expansions or modifications. This creates the prospect that 

the U.S. could soon become saturated with light, sweet crude, driving the price down here at home. 

Despite high global prices, widening discounts to global prices 

could discourage new upstream investment. Most producers plan 

their drilling programs 6 to 12 months ahead, but the smaller investments involved and faster completion of shale wells theoretically offer them the ability to change their drilling plans in the 

event that saturation leads to a sustained atypical discount. My 

cursory examination of the correlation between West Texas Intermediate and Bakken prices and rig counts suggest somewhere between 4 and 8 months of skid marks between a price collapse and 

a production slowdown. 

It is no secret that shale oil has benefited producer States in the 

Nation at large. A jobs multiplier may be responsible, meaning that 

States don’t just realize direct economic benefits from upstream 

production activities but also the benefits from activities indirectly 

associated with production as well as the jobs induced by new income. Put another way, oil and gas production jobs may have disproportionate economic impact because of this multiplier. And it 

may be worth considering the extent to which a jobs multiplier 

could also work in reverse if saturation leads to a production slowdown. 

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Current U.S. crude-oil export prohibitions tend to favor refiners, 

especially low-complexity refiners that rely on light, sweet crudes, 

by providing them with discounted feedstock relative to their global 

competitors. Trade statistics from the U.S. Bureau of Economic 

Analysis show that the combination of importing less petroleum of 

all kinds and exporting more refined products appears to be responsible for roughly $40 billion per quarter in combined trade 

benefit. 

It may be tempting to extrapolate from the status quo and conclude that continuing current policies might perpetuate these economic benefits, particularly if U.S. refiners add capacity. On the 

other hand, that may not be true for several reasons, even without 

liberalized crude-oil exports. Saturation could lead producers to 

pare back upstream investment. Alternatively, significant downstream capacity expansions could exert upward pressure on feedstock costs from the demand side. 

However they come about, higher costs could weaken the business case for new refining capacity. That said, even if U.S. crude 

prices rise, U.S. refiners appear likely to continue to enjoy lower 

process energy costs, thanks to cheap natural gas, contributing to 

their overall competitive advantage. 

In conclusion, producers may be soon selling their crude at deeper discounts relative global prices, while refiners must consider 

whether to commit capital to new infrastructure, predicated in 

large part on these feedstock discounts. I believe that moving as 

quickly as possible towards a clear and durable policy decision regarding crude-oil exports appears to be in the interest of all parties. 

Mr. Chairman, this concludes my prepared testimony. I look forward to any questions at the appropriate time. 

Chairman TIPTON. Thank you, Mr. Book. 

I would now like to introduce Jared Blong. He serves as president and CEO of Octane Energy, a small business that provides oil 

field services, headquartered in Midland, Texas. Mr. Blong and his 

partner started their business last year and currently employ 12 

workers. 

Mr. Blong, thank you for being here, and we look forward to your 

testimony. 

STATEMENT OF JARED BLONG 

Mr. BLONG. Thank you, Chairman Tipton, Ranking Member 

Murphy, members of the Subcommittee. My name is Jared Blong, 

and I serve as chief executive officer and president of Octane Energy, a Midland, Texas-based small business that provides oil field 

services to oil and gas exploration companies. It is an honor to address you today on the critical subject of crude-oil exports and the 

downstream challenges facing small energy businesses. 

Today I have the privilege of speaking to you not as a representative of a special interest group or a research firm but, instead, 

from the perspective of a small-business owner from the heartland 

of the American energy industry—real boots-on-the-ground perspective from a small-business owner who could very well succeed 

or fail based on the policies you adopt. 

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Octane Energy is truly a small business. Our company was 

founded in 2013 in response to the energy renaissance our country 

is experiencing. We have a staff of 12, of which 50 percent are veterans of the American forces, and we hope to double in size over 

the next 12 months. 

Our company is on the front lines of the energy resurgence. We 

see firsthand how this energy renaissance has positively impacted 

jobs, how it has created greater sustainability in a historically cyclical market, and how it is helping to achieve energy security for 

our country. 

But I also see unnecessary hurdles that could limit the opportunities for U.S. businesses. For instance, the 1970s-era policy banning oil exports is creating growing market distortions and needs 

to be revisited. This policy prevents our small business and others 

from growing as we otherwise could, prevents us from creating jobs 

as we otherwise could, and, most importantly, prevents our country 

from being as energy-secure as it otherwise could. 

Let me explain how. 

First, I should state that our small business, like many other 

small businesses involved in the energy industry, is directly impacted by the rig count—that is, by the number of rigs that are actually drilling for oil and gas in the United States. The more rigs 

that are drilling in the United States, the more people I can employ, as a general rule. 

In addition to simply adding numbers to our team of people, the 

quality of jobs is also very notable. As an example, in Octane’s consulting practice, we can conceivably add up to four well-site leaders 

per rig at a typical remuneration of $220,000 per year per team 

member. We also are in the process of establishing a drilling company, which will require up to 25 employees per rig, with an average annual pay of $76,000 per employee. 

Many of these folks we seek to employ are American veterans 

who possess small-unit leadership skills and an intrinsic appreciation for teamwork, sweat, and rigid operating procedures that are 

crucial to exceeding mission objectives in the energy industry. 

Lifting the ban on oil exports would ensure sustainability of 

these well-paying jobs in our company and in companies around 

the industry. The same goes for catering companies that feed rig 

hands, restaurants in those communities nearby, for steel manufacturers that make drill pipe, for countless other businesses that take 

part in supporting energy exploration and production. 

Creating a sustainable and increased rig count is directly tied to 

lifting the export ban and will facilitate Octane Energy’s direct investment in the manufacturing of an American-made rig fleet, 

which will also create secondary and tertiary job growth. The $12 

million to $15 million manufacturing investment for each Octane 

rig would create and sustain jobs in New York for the production 

of shale shakers, in Illinois for the manufacture of mud pumps, and 

various locations in Texas for drill pipe, automation, and iron, just 

to name a few. 

Current U.S. policy is artificially suppressing that very rig count 

and thereby suppressing U.S. jobs, manufacturing investment, tax 

revenue, as well as oil and gas production—by a lot, as it turns out. 

If it is suppressed, we have reduced investment, which means 

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fewer rigs. Fewer rigs means fewer rig hands and support services, 

fewer oil field service companies like Octane, and fewer people employed at well-paying jobs. 

So, today, on this hill, America finds itself at a crossroads: Do we 

cap oil production or allow exports? 

At a time when unemployment sits at nearly 7 percent and firstquarter GDP in negative territory, the energy sector has sustained 

and added jobs for millions of Americans, both directly and indirectly, through energy production, service and equipment companies. As an example, the unemployment rate in the Permian Basin 

is currently 2.3 percent and has been below 4 percent for the last 

half-decade. 

By supporting the export of domestically produced crude, U.S. 

lawmakers can counteract the national trends in the form of increased jobs, GDP, tax revenues, not to mention helping put veterans to work as they return from battle and transition to civilian 

life. 

I ask you to consider the course of our energy future. The world 

has changed significantly since the OPEC oil embargo and enactment of Federal regulations in the 1970s. Today I ask you to take 

a stand for a fundamental principle: that the role of government is 

to enable its people and to remove unnecessary roadblocks that 

stand in the way of our national security and prosperity. 

Thanks for considering our views. 

Chairman TIPTON. Thank you, Mr. Blong. 

And I would now like to yield to Ranking Member Murphy for 

introduction of our next witness. 

Mr. MURPHY. Thank you, Mr. Chairman. 

It is now my pleasure to introduce Mr. Greg Dotson, vice president for energy policy at the Center for American Progress. For 

more than 18 years, he was the lead environmental and energy 

staffer to Representative Henry Waxman and top staffer on the 

House Energy and Commerce Committee and the House Committee on Oversight and Government reform. 

Welcome, Mr. Dotson. 

STATEMENT OF GREG DOTSON 

Mr. DOTSON. Chairman Tipton, Ranking Member Murphy, and 

members of the Subcommittee, my name is Greg Dotson. I am the 

vice president for energy policy at the Center for American 

Progress. Thank you for the opportunity to testify today regarding 

the future of the oil industry. 

There are three main points I would like to make today. One is 

that U.S. oil production is up and is expected to increase, but this 

does not insulate the country from price shocks in the global oil 

market. Second, lifting the crude-oil export ban could have negative 

economic and environmental impacts on the Nation. And, third, energy policy decisions should be made in a way that helps to mitigate the serious threat of climate change. 

I am submitting a lengthier statement for the record, but because the crude-oil export ban has been a topic that has come up 

repeatedly, I will focus my oral testimony on that issue. 

For decades, oil in the U.S. has been characterized by ever-increasing demand and declining domestic production. We were relySBREP-219 with DISTILLER

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ing more and more on imported oil. But this has changed in recent 

years. Since 2008, we have experienced a transformation in our oil 

markets. New tailpipe standards for cars and trucks are curbing 

pollution and bringing increasingly efficient vehicles to market, and 

our oil consumption is no longer on the rise. 

New technology and policy have unlocked additional oil supply. 

North Dakota is producing more oil than previously understood to 

be possible because of new drilling technology. Heavier and dirtier 

forms of oil, such as the Canadian tar sands, are being brought to 

market. North America is awash in oil for the time being. 

But this new oil supply doesn’t ease the challenge of our Nation’s 

dependence on oil. Global demand for oil is still on the rise. Supply 

disruptions in far-flung areas of the world still impact the prices 

we pay here. Just look at what is happening due to the situation 

in Iraq. 

Oil is a global commodity, and, absent unique regional market 

conditions, prices are generally set by the world market. Experiences in other countries show that price spikes are not prevented 

or mitigated by higher levels of domestic oil production. 

The nonpartisan Congressional Budget Office examined gasoline 

prices in Canada, the United States, and Japan over the last decade. CBO found that gasoline prices in those countries rose and fell 

in tandem with the world market, even though Japan produced almost no oil, Canada was a net exporter, and the United States produced less than half of its own oil. More domestic supply did not 

protect Canadian consumers from price shocks. 

Some have cited a recent study by IHS to argue that lifting restrictions on oil exports will reduce global oil prices and save American consumers money through 2030. It would be prudent to approach this study with a good deal of caution. The IHS study essentially suggests that, rather than reduce our dependence on oil, the 

United States should double down on our dependence on oil. The 

study is not on strong ground in making that recommendation, and 

I would like flag two points related to that. 

First, the study assumes that there is a vast domestic resource 

base that will support a massive increase in oil production for decades to come. This assumption differs from that of the U.S. Energy 

Information Administration’s Annual Energy Outlook for 2014. The 

EIA’s reference case projection is a business-as-usual trend estimate given known technology and technological and demographic 

trends. The reference case projects that domestic oil production will 

peak in 2019 and then begin to decline. 

That is a point that is very important to emphasize and one that 

I don’t think you have heard earlier today. EIA suggests that there 

may be more oil, much more oil than that, but they also say there 

may much less oil than that. And that is a huge uncertainty that 

should be resolved prior to taking rash action on the crude-oil export ban. 

There is another aspect of the study that deserves further examination. The study assumes that the U.S. is able to boost oil production to such a degree that it decreases world oil prices significantly and that American households are able to enjoy those reduced prices unabated through 2030. This assumption deserves serious scrutiny. 

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The Congressional Budget Office has stated that, even if the 

United States were to develop additional resources, this process 

would take years, and oil producers around the globe would likely 

respond by constraining their development, dampening the effects 

of increased production on prices. CBO stated, and I quote, ‘‘Increasing production of oil in the United States might not increase 

the world’s oil supply substantially or lower the price of oil significantly.’’ 

That means that even if increased domestic production could reduce oil prices, such price reductions could be short-lived, severely 

undermining the policy argument advanced by the IHS study. That 

is why we need to reduce our dependence on oil overall, not just 

from other countries. The less oil we use as a Nation, the less impact we will feel from international disruptions in oil markets. 

Thank you. I am happy to answer questions at the appropriate 

time. 

Chairman TIPTON. Thank you, Mr. Dotson, for your testimony. 

We will now move into the questioning phase, and I would like 

to begin with Mr. Luetkemeyer. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

Mr. Dotson made some interesting remarks there. 

I was just kind of curious, I saw something the other day that 

we have, like, 800 years’ worth of oil that we have now found here 

in the United States. Is that correct? Can anybody answer that 

question? 

Mr. DOTSON. I think—— 

Mr. LUETKEMEYER. What the volume of supply is that is known 

and anticipated to be able to be touched and tapped in the next 100 

years? 

Mr. DOTSON. Congressman, I would be happy to expand on my 

remarks slightly. The—— 

Mr. LUETKEMEYER. Well, Mr. Dotson, everything you said in 

your—I wrote down the words ‘‘could,’’ ‘‘may,’’ ‘‘might,’’ ‘‘maybe,’’ 

‘‘could happen.’’ I never heard anything definitive from you. I am 

looking for somebody who can give me a definite answer on how 

much they think is underneath the ground here. 

Mr. BOOK. I can give you a different answer that isn’t definite, 

which is that, in the history of oil production, we have run out a 

bunch of times, and it has never happened. And the reason is that 

our understanding of what can be economically produced from existing technology is always undercounting the success of our innovation and our ability to respond to price signals. 

We are in a pretty high-price environment right now, I don’t 

think anyone is missing that point, and the innovation is going 

crazy. We are at the very beginning of our learning curve on formations, but we have no idea of what the tails look like. I think it 

is reasonable to expect, based on history, that we are going to see 

far more than we currently think we are going to get, not less. 

Mr. LUETKEMEYER. Well, it would seem to me, you know, to follow your line of thought, Mr. Book, I think that that would, you 

know, certainly undermine many of the arguments that Mr. Dotson 

made about concerns about production down the road, about prices, 

you know, production may decline. I don’t know where that remark 

comes from, but all of the things I have seen is natural gas, coal, 

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all the fossil fuels, including oil, there is more and more that is 

being found. 

And, Mr. Book, you make the point that, as we continue to develop new technologies and new ways of getting it out of the 

ground, it makes more of it available. We can go back to old oil 

wells, if I am not mistaken, and pull some old oil back out of those 

wells and make them profitable again. I assume that that is still 

the case. I mean, I have been told this by many people in the business. 

I guess, Mr. Blong, you are in the business of putting these rigs 

together. I am kind of curious, what does a rig cost to put up and 

then to operate? You said 25 people to run it. The actual physicalstructure rig, what does it cost? And then how much capital does 

it take to operate the rig? 

Mr. BLONG. So capital expenditures for a drilling rig, at least of 

our design—and they vary, obviously, from company to company, 

and those range, generally speaking, from $12 million to $25 million. For our design, we are looking at deploying from $12 million 

to $15 million per unit. 

Mr. LUETKEMEYER. So when you decide that you want to drill, 

what is the anticipated amount of oil that you have to pull out of 

the ground to be able to make that thing work? So many barrels 

per day? Per month? Or how do you do that? 

Mr. BLONG. Right, so, fortunately for us, we work for the companies that are extracting that oil from the ground, and we are the 

means to that extraction. So, for us, the internal rate of return on 

that well is important from a sustainability standpoint for our company, because we want to continue working. So if our customers 

are realizing the quantity of oil that they want out of each 

wellbore, then it would make sense for us to continue on and sustain those jobs and that sort of thing. 

Mr. LUETKEMEYER. One of the comments you made, though, was 

that, you know—and I think I saw it in your testimony or somewhere—I mean, I think you made the point, as well, with regards 

to being able to sort of turn these things off and on. I mean, you 

could do it every 3 or 4 months, you could ramp it up with a rig, 

and then you could ramp it down. 

Is that possible? I mean, when you have the kind of investment 

out there, are you looking to be able to have that sort of flexibility, 

be able to move this around? 

Mr. BLONG. I don’t recall that particular portion as my testimony 

that was submitted. 

Mr. LUETKEMEYER. Maybe I misunderstood what you were saying. 

Mr. BLONG. Yes, sir. 

You know, I will speak in maybe a broader brush. In our opinion, 

you know, the Permian is a really great case study for the first portion of your question that you addressed and then the secondary 

part. You know, we have been commercially producing oil in the 

Permian Basin for almost a century, and we continue to find new 

horizons to drill into, which makes our basin somewhat unique in 

the North American landscape and, really, the global drilling landscape, for that matter. 

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So ramping up and ramping down I don’t think is really the key 

question that we are asking our customers, that our customers are 

asking of us. The question more is, how can we delineate and develop this in almost a manufacturing environment, where we gain 

efficiencies, thereby increasing their rates of return so they can 

continue to deploy rigs and capital into the field? That allows them 

to continue to produce. 

But the turning off and turning on, I wouldn’t be able to speak 

to that with any level of conviction. 

Mr. LUETKEMEYER. Okay. 

I see my time is up, but I was kind of curious, also, about the 

numbers of refineries and how that may be a chokepoint for being 

able to access and produce and really flood the world with oil and 

oil products, but I am sure the chairman will get into that. 

I thank you for your time and your testimony. 

Thank you, Mr. Chairman. 

Chairman TIPTON. Thank you, Mr. Luetkemeyer. 

I would now like to turn to Mr. Schrader for his questions. 

Mr. SCHRADER. Thank you, Mr. Chairman. 

Mr. Smith, just a little background. I am not an oilman. The 

original ban set up in the 1970s, can you give a quick, you know, 

why it was set up, what was the rationale, and why that may not 

be applicable right now, in your opinion? 

Mr. SMITH. To the best of my understanding, having been somewhat young at the time, the original rationale came out of the Arab 

oil embargo. I think that was the motivation for the act that was 

passed in 1975. 

It was an interesting piece of legislation, in that, rather than 

provide a legislative prescription for exported crude, it was essentially an authorization bill that gave the administration the authority to do a rulemaking. 

And the rulemaking is somewhat vague. I actually have with me 

a Congressional Research Service paper that looked into the history of the bill, Mr. Schrader, and examined what definitions existed in the bill. And it is interesting that the language of the rule 

that was issued does not explicitly define ‘‘refined crude.’’ 

What it does define is ‘‘crude.’’ And that definition, I will read it 

very quickly, sir. I think it is relevant. ‘‘’Crude oil’ is defined as a 

mixture of hydrocarbons that existed in liquid phase in underground reservoirs and remains liquid at atmospheric pressure after 

passing through surface separating facilities and which has not 

been processed through a crude oil distillation tower.’’ 

That is the only definition of ‘‘crude.’’ But, by inference, one could 

say that refined crude would be something that had been passed 

through a distillation tower. That is the part of the process that is 

involved in our natural gas liquids, or NGL, stripping facilities. 

Mr. SCHRADER. Okay. 

Mr. SMITH. And I think that, as that affects the ban itself, it also 

impacts some of the downstream refining issues that we have mentioned. Because some of the issues, Mr.—— 

Mr. SCHRADER. Can I just stop you there? 

Mr. SMITH. Yes, sir. 

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Mr. SCHRADER. I appreciate that. That is a very thorough explanation, most of which went over my head, but I am sure my staff 

will explain it to me later. 

Mr. Dotson, would you comment also, your perspective also? 

Mr. DOTSON. On the crude-oil export ban? 

Mr. SCHRADER. Yes. 

Mr. DOTSON. I think, you know, essentially what we are seeing 

right now is a discussion that is happening within the oil industry. 

And the producers see that they can perhaps get a few additional 

dollars per barrel if they are able to bypass the domestic refining 

sector and export directly overseas. 

And I think, from the refiners’ perspective, they say: We have 

made hundreds of billions of dollars of investments in this refining 

infrastructure. We have good-paying jobs today. We have skilled 

workers. Don’t bypass us. 

In fact, the Congressional Research Service said that lifting the 

crude-oil export ban could affect refining operating margins and, 

they say, quote, ‘‘may result in some refineries ceasing operations.’’ 

So I think there are economic reasons to really take a very close 

look at this, and there are environmental reasons, as well. 

Mr. SCHRADER. Mr. Blong, do you—just trying to get perspective 

here. Mr. Dotson has indicated there may be an opportunity for increased excess capacity, refining capacity, right now. Your testimony seemed to indicate the opposite a little bit. Where are we on 

that, in your opinion? 

Mr. BLONG. We feel that the chokepoint, more than the refining 

sector, is really in the transmission sector still—pipelines getting 

that crude oil, or railcars, for that matter, getting crude oil to market, wherever that market may be most economically viable for 

that particular product and that particular basin. 

Contrasting Mr. Dotson’s remarks, however, we have 10,000 operating companies, or producers, in the U.S. that we would consider as independents, and they have no stake in refineries. And 

so they are forced to essentially take a discount simply because 

they don’t have the organizational wherewithal or financial structure to have that investment in a refinery, whereas the super-majors, as we call it in the industry, or the integrateds, have that excess. 

And we feel like that is a disproportionate and maybe somewhat 

governmentally augmented advantage that is given to those integrated companies versus the small operators that are really the 

ones driving this shale revolution. 

Mr. SCHRADER. I guess a question for Mr. Blong, Mr. Book, and 

Mr. Smith, from my standpoint, is, you know, if we go ahead with 

the increased oil/gas production, there is a big concern by a lot of 

people in America, regardless of where you personally are on the 

issue, about greenhouse gas emissions. 

So how do we deal with that concern? You know, the oil could 

be a great export opportunity, could maybe drive prices down 

worldwide, maybe we have centuries of it, but how do we answer 

the concerns of folks about how do we keep that production from 

destroying our climate at the same time? 

Is that okay, Mr. Chairman, to ask those three guys? 

Chairman TIPTON. Go ahead. 

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15 

Mr. SMITH. One of the new technologies that is coming out, it is 

very cutting-edge, it is one that we are strongly examining using 

in our microrefineries, Mr. Schrader, is the CO2 recapture capability. And there is a large market for that in the downhole recovery enhancement that was mentioned by the other Member earlier 

asking about reworking some of these old wells. 

This is a great opportunity to take that CO2 out of the emissions 

that are a resultant from the refining process and basically go bury 

it in the ground. There is a market for doing that, because you are 

helping rework old wells and enhance the production of existing 

wells. And so it is a get rid of it, get rid of the bad stuff, in a really 

good way. And there is a market for it. 

Mr. SCHRADER. Mr. Book? 

Mr. BOOK. Thank you for the question. 

Generally speaking, producing hydrocarbons corresponds to 

greater amounts of greenhouse gases. That is a fact. But there are 

different ways of producing those hydrocarbons. More venting and 

flaring, more greenhouse gases into the atmosphere. Good operating practices here in the U.S. can make our crudes potentially 

less greenhouse-gas-intensive than overseas crudes, which would 

mean that if we were to export and displace other production elsewhere, we might have small, but significant over time, differential 

results. 

Most of the impact really has to happen on the demand side. And 

ultimately what you are seeing is that, along the way, some of the 

interim steps include things like using carbon dioxide as a way to 

get more oil out of the ground and storing that carbon dioxide as 

a consequence of production in the geological formation. 

So there are small opportunities, but you wouldn’t want to oversell it. 

Mr. SCHRADER. All right. 

And Mr. Blong? 

Mr. BLONG. I can speak to our company from the drilling perspective, really, most efficiently, and that is, you know, innovation 

has really started to impact the notion of greening up the oil patch, 

if I can use that term. 

Drilling companies like ours and many counterparts are looking 

at bi-fuel solutions where we are using that flare gas that is typically seen if you drive through the oil patch and see flares going 

about. You can recapture that energy in power drilling rigs, which 

offsets an incredible diesel expenditure as far as just sheer consumption. 

Some other things that we are looking at implementing specifically is waste-heat capture using the organic Rankine Cycle to generate fuel-free, emission-free electricity off of those bi-fuel motors, 

engines, generators, so that we are capturing more of that energy 

and putting it to good use, rather than it simply just being a waste 

product. 

So, within the context of the drilling industry, those are just a 

couple of examples of what we are trying to do to deal with that 

more from an innovative perspective. And we see that if we lead 

out in that effort that the production community will follow suit. 

Mr. SCHRADER. Thank you very much. 

I yield back, Mr. Chairman. 

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Chairman TIPTON. Thank you, Mr. Schrader. 

Mr. Huelskamp? 

Mr. HUELSKAMP. Thank you, Mr. Chairman. 

I appreciate the opportunity to be at this hearing and visit with 

the gentlemen here that are talking about the restrictions on your 

business. 

I am a cosponsor of the Bridenstine bill that was referenced earlier, as I believe we need to lift the restrictions to allow you to actually continue to do your business and actually create some more 

American jobs, which are in desperate need in many areas of the 

country. 

But I want to shift gears to a very specific topic and, I believe, 

a specific threat to the industry, and that is the Endangered Species Act and the efforts by a number of environmental groups to 

use that to impact and shut down parts of your industry. 

In May, the lesser prairie chicken, which I understand is a very 

tasty bird, was listed as threatened. And in my district in western 

Kansas, it has essentially shut down a number of operations, not 

just temporarily till the mating season is over, but we are hearing 

many cases where drilling rigs are pulling out permanently, leases 

are going away, they are not happening, because folks are not 

going to take that risk. Because there is a $25,000 to $50,000 fine 

not only for killing the bird, but if you would somehow impact the 

habitat, which is very undefined. 

But the truth is, with the lesser prairie chicken, here supposedly 

the historical habitat area, that also happens to match up with 

something called a drought. And, ladies and gentlemen, until it 

rains—and I am trying to get this message across to the Fish and 

Wildlife Service—until it rains, you are not going to grow any habitat. And so hopefully it will start raining. 

But one thing I do want to note, that the impact is—because of 

the sue-and-settle strategy, in which environmental groups have 

sued, settled basically out of court with the Federal Government 

and cut a deal that could lead to the listing of 250 new threatened 

or endangered species—and I know that, after the lesser prairie 

chicken, the next one is the sage grouse, which will impact a lot 

of areas. 

But the reality is that folks in this industry are not going to take 

the risk of a $50,000 fine or going to jail for a bird they may never 

see or for a habitat that is undefined. But what we have seen, particularly with the sagebrush lizard, which is not in my area, and 

I think it might be in Mr. Blong’s area, you had a voluntary conservation effort between the industry, and it was able to say, hey, 

we don’t need that, we can take care of it ourselves without a 

Washington approach. 

So, Mr. Blong, I don’t know if you have any background with the 

sagebrush lizard, but can you tell how your industry works together to do this in a voluntary manner to preserve and protect our 

species? 

Mr. BLONG. One of the things that we have seen in the Permian 

Basin, in particular, which is really the epicenter of the North 

American energy renaissance now, is an unusual collaboration effort that has not historically been seen on that front. And I would 

be reckless to say that it was simply economically driven. I think 

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the Permian Basin houses some of the most entrepreneurial and 

innovative people in the country, where opportunity exists, as we 

mentioned, to create jobs, but, in light of that, we also see some 

of the finest stewards in North America in our basin. 

And if any of you have traveled there, it would appear to the eye 

that there is not a whole lot to be stewards of. We happen to live 

in a very flat north Chihuahuan desert with lots of mesquite scrub 

brush. 

So the fact that we are really taking the initiative to meet with 

regulators not just simply in Washington but in Austin and Santa 

Fe, as well, which are the other areas that are affected by what we 

are doing, or trying to do, I would say that operators, the service 

contractor community, both are really taking an aggressive initiative to say: Listen, we can collaborate and work together, because 

we all have a vested interest. We actually all live here. Water matters to us. Our surroundings matter to us. We are raising our children in this place. So why on earth would we be so haphazard with 

our home, our own backyard? 

Mr. HUELSKAMP. Well, I appreciate your efforts on that. And that 

is a great example where it can be done voluntarily and together 

with folks in the oil and gas industry as well as the ag industry, 

which I am in, as well. 

Mr. Book and Mr. Smith, any thoughts on these endangered species efforts, which I think are directly going to impact your industry? 

Mr. SMITH. Yes, sir. I think it is also interesting to note that a 

number of the new technologies that are coming out, the things 

such as I mentioned before, like CO2 capture, much more responsible drilling practices than, say, you would have seen even 15, 20, 

30 years ago, pose far less of a threat to birds than wind farms, 

for which the Obama administration has recently issued an exemption from the raptor act to allow for wind farms to slaughter as 

many eagles and hawks and owls as they want, while you or I, if 

we shot one on our ranch, would go to Federal prison. 

Mr. HUELSKAMP. Absolutely. 

Mr. Book? 

Mr. BOOK. Yeah, I think that Mr. Smith made perhaps the most 

important point, which is that the operating practices have become 

decreasing invasive to the habitat of species, whether they be endangered, threatened, or just out there. You are seeing less surface 

impact in drilling operations now. 

And I think it is safe to say that, also, what Mr. Blong pointed 

out is very true; there is an incentive for companies to become able 

stewards of their operating environments. And there are histories 

here. The sage grouse was managed locally sufficiently that it was 

deemed to be maybe at risk but still just a candidate. There are 

good stories, there are good-news stories in the history of species 

management and oil production alongside it. 

Mr. HUELSKAMP. Those are great to see. 

And your point, Mr. Blong—if I might, Mr. Chairman, one last 

thing—the idea that the folks closest, that actually live there actually know a little bit more than some lawyers in a courtroom somewhere, where it was at, to make a decision about what happens in 

your area or my home area. 

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We are working hard, but until it rains in my area significantly, 

it doesn’t matter, you are not going to grow anything. And I just 

can’t get the lawyers and the bureaucrats to understand that. So 

I appreciate you shedding some light on that. 

I yield back, Mr. Chairman. 

Chairman TIPTON. Thank you, Mr. Huelskamp. 

I now recognize Ranking Member Murphy for his questions. 

Mr. MURPHY. Thank you, Mr. Chairman. 

From my understanding, it sounds like some companies are finding ways around the restrictions to export crude oil. Can any of you 

explain how this is happening and what it means for the smaller 

competing refineries that are actually following the rules? 

Go just in order. Mr. Smith, go ahead. Or whoever wants to answer it. 

Mr. SMITH. Yes, I am not really aware of any individual companies that are specifically getting around the ban, Mr. Murphy. 

What some companies are doing is developing splitter refineries, 

which do partially refine the crude. 

And, again, in response to the Member’s question about the export ban, it is that distillation process that occurs in a splitter refinery. So you are actually taking different components of the crude 

off the crude, if you will, lighter components that are often more 

volatile than the heavier components. And their position is, as is 

our position, sir, that that is exportable crude and falls under the 

definitions of the rule that was promulgated after the 1975 act. 

Yesterday, the administration announced that they were going to 

offer an exemption for certain condensates. We do not yet know 

specifically whether those are lease condensates or plant condensates or a combination thereof. Those are different processes that 

result in those condensates. But our position would also be that 

that exception to the ban was a valid exception under the language 

in the rule. 

Mr. MURPHY. Does anyone want to add anything? 

Mr. BOOK. Well, part of the problem in answering the question, 

Congressman, is that we don’t know what BIS actually did, other 

than what we can read in the newspapers. 

Simply put, what seems to have occurred is that a subset of the 

oil being produced from shale formations is being processed in a 

fashion that BIS has deemed acceptable for export once the processing is complete. 

So that is a subset of a subset, and it is not necessarily a very 

big change, but there is a lot of question about where the line 

might be. I know yesterday I spent a lot of time on the phone with 

my clients, who were trying to make sense of it, too. 

But whether this compromises other refineries is entirely a question of the scale of its impact. 

Mr. MURPHY. Okay. 

Mr. BLONG. If I may reword the question, Mr. Murphy, or at 

least regurgitate the question, can we speak to several producers 

getting around the ban, I think what we have really seen more 

than anything else is American ingenuity in its finest working and 

business folks understanding the context of the law and creating 

innovations, much like Mr. Smith’s company has done, to facilitate 

continued growth. 

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I certainly would say, from our perspective, not that we are legal 

experts by any stretch, but it seems like they have taken what is 

written in the law and understood that well and are trying to play 

within the confines of those rules, but innovatively and creatively 

as they can. 

Mr. MURPHY. Just as a follow-up, it was recently reported that 

the Obama administration approved recently the export of 

unrefined oil, and that was the first time in, I guess, nearly 4 decades. 

How does that affect your business plan and other—I guess, any 

of your industries and that of the refining industry? 

Mr. BLONG. Based on all the reports that we have read really in 

the last 24-plus hours, I think it is too early for us to tell, really. 

I think we are trying to interpret what exactly has taken place and 

what the impacts would be on our clients and our businesses. 

Mr. MURPHY. That is votes, so we are going to run out of time 

here. Just real quick, I want to kind of switch gears a little bit. 

This is the Small Business Committee. You sort of alluded earlier, I guess, Mr. Dotson, to the super-majors and their prowess in 

the market. What can we do on this Committee specifically? If 

there was one regulation, if there was one rule, if there was one 

thing we could do to help small businesses enter the market, help 

you grow, help you expand, and help new startups, what would 

that be? 

Mr. BLONG. I think lifting this export ban is the place to start. 

It de-risks the investments of the producers, which de-risks the investments of drilling companies and consulting firms like ourselves 

and everyone else down the line. 

And so, when the investment community sees that their investment is de-risked and has sustainability, which I think really is the 

conversation at hand today more than anything else, at that point 

in time, then we can create jobs and have direct investment into 

American manufacturing. 

Mr. MURPHY. Okay. 

Mr. Book or Smith, do you care to comment? 

Mr. SMITH. With respect to small businesses, you know, we firmly believe that the development of increased refining capacity here 

onshore will benefit both small businesses in the areas where the 

refinery capacity is increased and also small businesses that live 

along the food chain that would potentially benefit from a lifting 

of the export ban. 

Mr. BOOK. I would have to say that the oil price drives the bus, 

and investment follows the price. And with that investment comes 

a series of those indirect and induced jobs, many of which are supplied by small businesses. 

And so what you want to do is keep the investment going. And 

you can do that with policy that is clear so that you can make investment decisions and count on what the future looks like. Opening up U.S. crude to the world should help keep that investment 

going. 

Mr. MURPHY. Okay. 

Mr. Dotson, can you comment on that, as well, and maybe talk 

about some of the recent EPA regulations, like Tier 3 and GHG 

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and RFS rules and if that will hurt small operators and refining 

companies? 

Mr. DOTSON. Sure. 

Just on the small-business point, I would say refining is such a 

capital-intensive sector that having small businesses enter that 

sector and compete is a very unlikely proposition. As my co-panelists have said, production, though we are seeing lots of small-business activity there. And that is booming right now. And I don’t 

know that there is—I would actually say I am not sure that there 

is action necessary by Congress on that boom, because it is growing 

so quickly. In fact, you will read press articles about how the industry is actually having problems identifying workers to participate and they are growing so quickly. 

With regard to the environmental regulations, I would say 140 

million people in the United States still live in areas in which there 

is more air pollution than is considered healthy. And so EPA’s mission in implementing the Clean Air Act is just to attempt to protect 

public health. 

They have finalized Tier 3. That is a set of emission standards 

for cars and trucks, and it also requires cleaner fuels to be produced. And it is really—it is something that is great for the American people. It helps reduce illness, helps prevent asthma attacks. 

And it is also good for domestic manufacturing, because the one 

area that the United States has a manufacturing edge is in the 

manufacturing of emissions controls. And they celebrated this victory. They see this as something that is good for hundreds of manufacturing jobs, because they want us to continually push for cleaner technology so they can manufacture that technology and export 

it abroad. 

Mr. MURPHY. Okay. 

Thank you. 

Chairman TIPTON. Thank you, Mr. Murphy. 

Mr. Book, it seems a little—and I think we can offer this to the 

entire panel here—it seems a little counterintuitive to say that 

lower prices for domestic oil are a bad thing. Could you explain to 

the Committee how lower domestic oil prices wouldn’t reduce fuel 

prices? 

Mr. BOOK. Happy to do so, Mr. Chairman. 

As one of the other panelists pointed out, global supply and demand trends set the price of oil. And while you can actually influence global price a little bit by adding to supply, most of what happens here in terms of the prices that we receive for gasoline at the 

pump, which is where consumers meet the oil industry face-to-face, 

that is determined by the global price, which has a lot to do with 

other things. 

What happens here is that folks, like the folks to my left and 

right, are making investments, and they are making investments, 

again, based on the environment that the oil price suggests. So if 

our oil price is for some reason artificially constrained from reaching global prices and is lower, firms will make that investment 

elsewhere. 

And that doesn’t happen necessarily right away, nor is it obviously going to happen when prices are as high as they are now. 

But bring Libya back on line. Solve some of the problems in the 

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21 

world, and the global price falls. And that differential will really 

make a difference. 

Chairman TIPTON. I think we tried setting prices in the Nixon 

administration. That didn’t work out too well for us as a country 

at that time. 

Any other comments in regards to that? 

Mr. SMITH. Not to sound like a broken record here, but another 

issue that does impact gasoline prices specifically is refining capacity. And that is one of the areas that we have literally built our 

business plan around. 

And I might mention, we are not the only kids on the block. 

There are a number of other companies that have similar business 

plans for developing additional refining capacity onshore. And as 

goes increased refining capacity will go lowered or stabilized gasoline prices at the pump. 

Chairman TIPTON. Now, when we are talking about microrefinery that you were looking at, Mr. Smith, does that have the 

potential to lower fuel prices? Propane is a big deal in our part of 

the world out west. 

Mr. SMITH. Yes, sir. Two components to the answer to that question. 

In our specific case, we are building the microrefineries to address local and regional diesel demand. The diesel prices in the region are extremely high compared to the other parts of the country. 

One of the reasons for that is they are hauling the crude oil to the 

coasts, refining it, and then hauling it back. The closest refinery to 

the Williston Basin would be in Denver, 600 miles away, and most 

of them are in the 1,200- to 1,700-mile distance in terms of your 

supply chain for diesel. Gasoline would follow, as well. And so, 

while we are primarily producing for the local and regional market, 

others are in other markets and would affect that. 

The second part of the answer is the natural-gas-stripping facilities specifically provide for an increased locally produced supply of 

light gases, specifically propanes, butanes, that can then be fractured into their various components and delivered more locally to 

the market, thereby driving down propane prices. 

I also live in the mountain west, where propane is extremely expensive. And we feel that the closer to the consumer that you can 

place the refining processes, the better for the consumer, the better 

for prices. 

Chairman TIPTON. Now, I do want to follow up a little bit on the 

refining end of this. You know, I remember, 1972, I think, we had 

the first Earth Day. The projections were we were going to run out 

of all of our fossil fuels I think by the 1990s, at that particular 

point. I think we have had some great testimony that the technologies have improved. 

Mr. Blong, I embrace what you were saying. People that live 

there and work there, I have talked to people with dirt under their 

fingernails that work under these rigs, happen to love their—you 

are holding up your hand—you know, that actually love their families and love where they live and want to be able to do it right. 

But we haven’t seen a major refinery built in this country now 

for—is it 40 years? Is that correct? 

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Mr. SMITH. 1976 was the last major. And the MD Resources refinery outside of Dickinson that will open at the end of this year, 

the beginning of next, will be the first greenfield startup refinery 

in nearly 40 years, sir. And we are hoping to be among the next 

after that. 

Chairman TIPTON. What, kind of, inhibited developing a new 

technology to be able to do it better? Was it government regulations? 

Mr. SMITH. It is not so much a technology inhibition, sir, as it 

has been the really draconian lowering of the level of emissions allowed by the EPA down to a 100—the cutoff is 100 tons per year 

of any gas or emission deemed to be a regulatable gas. 

And at 100 tons per year, the guys with the fat brains can calculate backwards, and they have determined that you cannot have 

a feedstock input to a refinery in excess of 20,000 barrels per day 

without exceeding that 100-ton threshold. Raising that threshold 

would greatly increase the odds of having larger refineries built. 

Mr. DOTSON. Mr. Chairman, can I just add that, while it is true 

that we haven’t had major development of a new refinery, we have 

had consistent additions to capacity at existing refineries. So we 

have seen a great consolidation in the refining sector. In the last 

14 years, we have added 1.4 million barrels per day of refining capacity. Today, we have almost 18 million barrels a day of refining 

capacity, which is at an all-time high. So we—— 

Chairman TIPTON. But that was geared towards not a light, 

sweet crude, but a heavy crude? 

Mr. DOTSON. A lot of the recent investments have tended to focus 

on heavier crudes. 

Chairman TIPTON. Right. Okay. 

I would like to follow up on Ranking Member Murphy’s question, 

because it is about small business. And, heartening to me to hear 

about 12 employees, wanting to be able to expand, the average 

$76,000 a year in wages that you are able to pay the folks. 

What is the potential impact on domestic fuel prices of this limited decision that we just saw come out of the Department of Commerce when it comes to completely lifting the de facto ban on oil 

exports? 

Mr. BOOK. I mean, the decision out of the Department of Commerce is not at all clear. But if it is just a subset of a subset of 

our crude, the impact on prices is probably imperceptible. The impact of a wholesale lifting of the current policy could be meaningful. It depends on how much crude ends up being induced by the 

opportunity to come to market. 

But if you think of it, sort of, in a static sense, that every million 

barrels per day is roughly 10 bucks off the global price of oil, you 

can start to feel 10 to 15 cents at the pump when you get into that 

range. 

Mr. BLONG. With respect to the job creation by a de facto lifting 

of the ban, we feel like that it is perhaps more sentimentally driven, which will ultimately drive the economics of the issue. But investors and operating companies, producers have to have some reassurance that there is incentive for them to continue to innovate 

and continue to deploy capital to develop our Nation’s resources so 

that folks like us can create jobs alongside of them in cooperation. 

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Chairman TIPTON. Okay. Thank you. 

They have just called votes, but I do have one final question I 

would like to ask Mr. Book. 

Could you explain some of the tradeoffs involved in lifting the 

ban on crude-oil exports? And would the economic benefits of this 

decision be a net plus for the economy and for small businesses? 

Mr. BOOK. In general, if you increase the upstream investment, 

you are going to benefit all businesses across the country. There is 

a number of very well-documented studies that show how it 

reaches outside the oil patch, but there were comments by this 

panel this morning that do the same thing. 

In terms of the tradeoffs, there are currently, yes, some refiners 

that are benefiting from an artificially discounted crude-oil price, 

and they would be probably somewhat undercut in their current 

profits if that price were to go up. But it is my testimony that that 

price could go up for other reasons, even without the exports. 

And even if that price went up, they would still have two principal advantages. One, they would be able to buy the crude net of 

transportation costs here in the U.S., which might give them some 

advantage based on their proximity to the crude. And, second, they 

have low-cost natural gas as a processed fuel, which, in the fractions of a cent that make or break you in the refining business, is 

a very big deal. We have significantly cheaper natural gas and are 

likely to continue to have it for many years to come. 

Chairman TIPTON. And I think there is certainly something to be 

said for domestic energy security, given what we are seeing going 

on in the Middle East right now in particular, to be able to make 

sure that we have those resources to be able to create our jobs here 

locally and make sure we keep the lights on and the heat on during 

the winter months. 

Gentlemen, I would like to thank you all once again for taking 

the time to be able to be here and appearing before this Committee. You have all provided valuable insight into how decisions 

in Washington affect small businesses operating in the real world. 

The shale oil and gas production revolution does hold promise to 

transform our economy and energy security. And, at the same time, 

we should be mindful that they are one part of a broader, comprehensive, all-of-the-above strategy that includes utilization of all 

of our Nation’s available resources, including coal, hydropower, nuclear, and renewables. 

Certainly want to be able to recognize, we just had the 70th anniversary, that we recognized on D Day, the efforts that you have 

made with half of your employees, Mr. Blong, in terms of being veterans, come out with some great skills. And certainly I think it is 

an appropriate thing for us to maybe have some legislation to make 

sure that we give access to those jobs for our veterans that are 

coming out of our service. So thank you for that. 

I would like to ask unanimous consent that Members and the 

public have 5 legislative days to submit comments and materials 

into the hearing record. 

Hearing none, so ordered. 

The hearing is now adjourned. And thank you. 

[Whereupon, at 11:08 a.m., the Subcommittee was adjourned.] 

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