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PATHWAYS TO ENERGY INDEPENDENCE:

HYDRAULIC FRACTURING AND OTHER NEW

TECHNOLOGIES

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

MAY 6, 2011

Serial No. 112–36

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on May 6, 2011 ................................................................................. 1

Statement of:

Grove, Shannon, Assemblywoman, 32nd Assembly, District of California;

Rock Zierman, chief executive officer, California Independent Petroleum Association; Tupper Hull, vice president, Strategic Communications, Western States Petroleum Association; William Whitsitt, Ph.D.,

executive vice president, Devon Energy; and Steve Layton, president,

E&B Natural Resources Management Corp. .............................................. 6

Grove, Shannon ......................................................................................... 6

Hull, Tupper .............................................................................................. 51

Layton, Steve ............................................................................................. 37

Whitsitt, William ....................................................................................... 17

Zierman, Rock ............................................................................................ 13

Letters, statements, etc., submitted for the record by:

Cummings, Hon. Eljiah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 72

Grove, Shannon, Assemblywoman, 32nd Assembly, District of California,

prepared statement of ................................................................................... 8

Hull, Tupper, vice president, Strategic Communications, Western States

Petroleum Association, prepared statement of ........................................... 53

Layton, Steve, president, E&B Natural Resources Management Corp.,

prepared statement of ................................................................................... 41

Whitsitt, William, Ph.D., executive vice president, Devon Energy, prepared statement of ........................................................................................ 20

Zierman, Rock, chief executive officer, California Independent Petroleum

Association, prepared statement of ............................................................. 15

(1)

PATHWAYS TO ENERGY INDEPENDENCE:

HYDRAULIC FRACTURING AND OTHER NEW

TECHNOLOGIES

FRIDAY, MAY 6, 2011

HOUSE OF REPRESENTATIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Bakersfied, CA.

The committee met, pursuant to notice, at 10 a.m., at the Kern

County Board of Supervisors Chamber, 1st Floor, 1115 Truxtun Avenue, Bakersfield, CA, Hon. Darrell E. Issa (chairman of the committee) presiding.

Present: Representatives Issa, Farenthold, and McCarthy.

Staff present: Lawrence J. Brady, staff director; Kristina M.

Moore, senior counsel; Ali Ahmad, deputy press secretary; and Michael R. Bebeau, assistant clerk.

Chairman ISSA. Full committee will come to order.

This field hearing is on Pathways to Energy Independence and,

particularly, on Hydraulic Fracturing and Other New Technologies.

The Oversight Committee mission: We exist to secure two fundamental principles. First, Americans have a right to know the

money Washington takes from them is well spent; and second,

Americans deserve an efficient, effective government that works for

them.

Our duty on the Oversight Government Reform Committee is to

protect these rights. Our solemn responsibility is to hold government accountable to taxpayers because taxpayers have a right to

know what they get from their government. We will work tirelessly

in partnership with citizen watchdogs to deliver the facts to the

American people and bring genuine reform to the Federal bureaucracy. This is our mission, and this is what we are here for today. This weekend, national gas prices surpassed $4 a gallon. That’s

no surprise to the people of California, who are tiptoeing, on high

steps, toward $5. A number of factors are included in this. Our

committee will, in fact, look at all of them.

Let there be no mistake. Today is not about only one part of the

cost of natural gas, oil, and other sources of energy. Consumption

from China and India are rising, thus stressing a world that had

a norm of supplying mostly Europe and the United States with its

fuel. Many of the wells that produce oil and natural gas have been

operating for decades or even, here, a hundred years.

Here in Bakersfield, we discover an early set of wells that still

produce and can produce much more. We’re here today to talk

about—sorry—to talk and listen to experts who can help us underVerDate 17-JUN-2003 14:59 Oct 13, 2011 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68218.TXT KATIE PsN: KATIE
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stand how we can safely extract more, not less energy from this region. It is very clear that America suffers from a willingness to

buy, a willingness to consume, but not nearly enough willingness

to produce domestically.

Hydraulic fracturing or ‘‘fracking’’ is largely responsible for the

increase in natural gas production. The proven technology has revolutionized the extraction business, particularly in natural gas. But

let us make it very clear. Hydraulic fracturing or ‘‘fracking’’ is not

new. It is the improvements in a 60-year-old technology that we

are so interested in.

In North Dakota, we have a stunning example, where horizontal

fracking for oil production has increased 7,500 percent in just 5

years. Pennsylvania, one of the areas first used for oil, has the

same potential, as does California. But to recognize that potential,

we are going to have to listen to all the concerned citizens; we are

going to have to recognize that in America today, there are safe

ways to do things and then there are shortcuts.

Our committee is interested in making sure that no industry

ever again takes shortcuts, as we believe occurred in the Gulf. At

the same time, oil and natural gas will be produced somewhere in

the world to meet our consumption needs. Our goal is to make sure

that the safest possible activity goes on in the United States and

the maximum amount that can be extracted is extracted safely.

America has the highest standards for drinking water. EPA is to

be commended for what they’ve done. At the same time, clean

water without, in fact, an economy operating are mutually exclusive. Most of what we do in the way of clean air, clean water are

the result of a vibrant economy that is able to support technologies

that make these—clean air and clean water more available and

more abundant, not just here but around the world.

So as we look at this issue today, let me make it clear. We will

be looking at the entire group of issues, including ways in which

we can produce more and consume less.

President Obama has set goals for increased production and increased safety. We, as one-half of one-third of the government, seek

to make sure that his goals of clean, safe, and abundance of American fuel is able to be met by his administration through the work

of this Congress and Oversight.

Before I recognize other Members for the opening statements, I

would like to add one more thing for the record. I’ll be including

a comment of the committee on the announcement of the President’s fracking advisory panel. Secretary Chu has appointed a

panel. We’ve reviewed it.

I guess I’ll ask. Any of you hear about it in time to be included

in that Commission? No.

From what we can find, this is a Commission that lacks operators. It lacks people with the experience in the production and appears to be a combination of, if you will, intellectuals and opponents of all natural gas, oil, and other fossil fuel production.

So we’re hoping, through this letter in the record, and a followup

to the administration, that this Commission can be expanded so

that its consensus is a consensus of the entire industry and beneficiaries and not simply those who have already decided they don’t

want the end product.

3

And with that, I would recognize the gentleman from Texas, Mr.

Farenthold, for his opening statement.

Mr. FARENTHOLD. Thank you, Mr. Chairman. I’m honored to be

here today in California, another great oil-producing State. As I

drove in last night——

Chairman ISSA. There’s another.

Mr. FARENTHOLD. Yes, there is.

As I drove in last night, I looked around and kind of smelled the

air and got a feeling of the community. When you go into a town,

there’s just kind of a vibrancy, a feeling you get. And I was commenting to Jessica Blake, who was with me, a member of my staff,

who actually grew up in Midland, Texas—and we both agreed—

‘‘Wow, this is West Texas with the mountains in the background

and a few degrees cooler.’’ So I’m honored to be here, and I feel

right at home.

We have created a situation in this country where gasoline prices

are so high that it’s affecting every area of our economy. The food

that we eat, every good or service that we purchase is affected by

the increasing cost of gasoline and the increasing costs of energy.

We are producing—we are importing the bulk of our oil and gas

from foreign countries, many of whom are not our friend.

Energy independence, increased domestic oil and gas production

is an important economic issue, it’s an important jobs issue, and it

is also an important national security issue.

So I would like to thank our panel here for taking the time to

come talk to us and let us explore and understand better the technologies that have been used—in use for over 60 years—safely for

increasing oil and gas production here in California, at home in

Texas, and now throughout the United States of America. I look

forward to the testimony. I look forward to asking some questions

to the witnesses, and would also like to thank Mr. McCarthy and

Mr. Issa for having me here. Thank you.

Chairman ISSA. I thank the gentleman. And it now gives me

great pleasure to recognize your hometown hero, one of my heroes,

someone who I knew when he was in leadership in the statehouse

and was pleased when he came to Congress and even pleased when

he passed me by to be one of the top-ranking members of Republican leadership.

So I’m the chairman, but Kevin McCarthy is the boss. We now

go to the gentleman from California.

Mr. MCCARTHY. That was very kind.

I do want to thank Chairman Issa. He’s been going up and down

throughout the Nation. Kern County is not new to him; he’s been

throughout here.

But the work that he’s done through his committee—his committee is Government House Oversight. And for too long, government has not had the oversight. We have passed a lot of different

pieces of legislation, but we’ve never gone back and had the accountability. And his is the one committee that brings accountability back to government. And he’s done an extraordinary job

with it so far. And the one thing I want to thank him for is coming

to the 22nd Congressional District.

And when you look at the challenges, when Blake talked about

the security of America and jobs from the ability to have energy

4

independence, there’s probably no better district in the Nation than

the 22nd District. We go from the Mojave Desert to the Pacific

Ocean. We have the fourth largest potential in wind and the Nation’s fourth largest in the State for solar. You can go across; you

can find a nuclear facility in San Luis Obispo; you can go out to

find geothermal in Ridgecrest.

As Kern County knows, we produce more than 70 percent of all

the oil in California, 10 percent of the Nation, 1 percent of the

world. It’s more than a hundred years; so the technology has to be

different. But as technology has changed our life, as I look across

into this field of individuals, they all have different forms of canvas.

When we landed on the Apollo, with the Apollo landing on moon,

there is more technology in my BlackBerry today than there was

on the Apollo. It has made our life better. And just as that technology has improved, it has improved our ability to use the resources of America instead of paying someone else for it. When we

send our money someplace else, we send our jobs someplace else,

but we also constrain our economy.

Now, we are the Saudi Arabia of natural gas, but do we have the

ability to bring it up? We’ve watched fields more than a hundred

years old. And there are independent representatives here in the

oil business that many have sold them and moved on.

We find in Kern County you have—Oxy is based here. Well, gov- ernment sold them their field for $3 billion, and they thought they

got a really good deal out of it because they didn’t think anything

would extract. One of the largest finds undiscovered in the last little bit is out there.

So there’s new potential each and every day. Our decision has to

be as Americans, do we want to control our own future, do we want

to invest in America, and do we want to use that technology to protect our environment at the same time and make it better than

we’re using it today? And it’s almost every week I’m able to go out

and see a new form.

In Kern County, our oil happens to be thicker; so we have to enhance it to get it even to come up. But we have now used new technology where we are first in the world putting in solar panels out

there to put the steam in. It is a new approach, a new style, and

that’s what we believe in, America reaching the new opportunities.

Winston Churchill always said about America, ‘‘You can always

count on them to do what’s right after they’ve exhausted every

other option.’’ I think that’s right when you look at our energy policies. We put in an energy department because we want to become

energy independent. We import more today than when we created

that department.

We have to be honest with ourselves. We have the resources in

America; we have the ability. If we make the decision that we do

not want to utilize our natural resources, that doesn’t mean we’re

not going to get it from somewhere else; it just means we’re going

to pay somebody else, somebody else is going to have the jobs, and

it’s going to cost our own economy. And we’ve watched that, and

we watch the world continue to grow.

That’s what today’s hearing is about. We want to protect our environment; we want to do it in a common sense, sound way that

5

makes the investment right here, and we want to utilize the technology that allows us to do it.

It’s a little ironic that the chairman of this committee probably

knows technology better than anybody else inside Congress. He

was very successful in business, based upon technology, and he

continues to enhance that ability and apply that. But also, he understands accountability, and that’s what he wants to apply to government as well. That’s why he goes out across the country and

has a hearing and goes directly to where it can have an effect.

So I want to thank the chairman, and I want to thank the committee, and I yield back.

Chairman ISSA. I thank the gentleman.

Just another reminder, we’ve probably got the third highest

ranking Republican in half the time that I’ve been in Congress.

We now recognize our panel of distinguished witnesses.

Assemblywoman Shannon Grove represents the 32nd District of

California and is also an entrepreneur and a very successful one

at that.

Rock Zieman—Zierman—sorry about that, Rock—is chief executive officer of the California Independent Petroleum Association.

Dr. William H. Whitsitt——

Mr. WHITSITT. Whitsitt.

Chairman ISSA [continuing]. Whitsitt is executive vice president

of Devon Energy, which is the largest U.S.-based independent oil

and gas producer. And as I was reminded, both a Californian and

an Oklahoman depending, and we miss you here.

Mr. Steve Layton is president of E&B Natural Resource Management Corp. of California, a California-based independent oil and

natural gas exploration company. Thank you for being here.

And Mr.—is it Tupper?

Mr. HULL. Yes, it is.

Chairman ISSA [continuing]. Hull is vice president of the Western

States Petroleum Association, which represents large and medium

oil producers and a frequent testifier on these kinds of important

issues.

Pursuant to the committee’s rules, I would ask you all to rise to

take an oath.

[Witnesses sworn.]

Chairman ISSA. Let the record reflect all witnesses answered in

the affirmative.

This is a field hearing. And although many of you, who I’ve seen

in Washington in the past, understand the formality of Washington, it’s a little different here. You’re not going to see adversarial questions and can we get you in 20 questions and cut you

off as you’re answering. Anyone that comes to a field hearing, Republican or Democrat, generally comes to listen. So although we

would like you to try to stick to more or less 5 minutes because

your entire opening statements are going to be placed in the record,

as we go through the questioning, don’t be surprised if Blake comes

in and says a followup to what I say or Kevin comes in.

The idea is we’re here to listen, and we’re here to learn. At the

same time, if one is answering and you want to pipe in, don’t wait

to be asked. We want to make the record complete with the knowledge that you bring to us to take back to Washington.

6

And with that, Mrs. Grove or Ms. Grove, I will recognize you

first, mostly because you’re first on the schedule but also because

you’re the lady present.

STATEMENTS OF SHANNON GROVE, ASSEMBLYWOMAN, 32ND

ASSEMBLY, DISTRICT OF CALIFORNIA; ROCK ZIERMAN,

CHIEF EXECUTIVE OFFICER, CALIFORNIA INDEPENDENT

PETROLEUM ASSOCIATION; TUPPER HULL, VICE PRESIDENT, STRATEGIC COMMUNICATIONS, WESTERN STATES PETROLEUM ASSOCIATION; WILLIAM WHITSITT, PH.D., EXECUTIVE VICE PRESIDENT, DEVON ENERGY; AND STEVE

LAYTON, PRESIDENT, E&B NATURAL RESOURCES MANAGEMENT CORP.

STATEMENT OF SHANNON GROVE

Ms. GROVE. Thank you, Mr. Chairman, and thank you Congressman McCarthy and Members and guests. I’m Assemblywoman

Shannon Grove, but before I became elected to serve the people of

Kern County, I’ve been a business owner. And my business is primarily a third- or fourth-tier contractor to the oil, construction, and

agricultural industries.

And my hope here today is to bring some common sense regarding our domestic oil production for these two very important reasons: The security of our Nation and jobs. We have a vast supply

of fossil fuels, oil, in California, and we barely are tapping into

them. Think about this. For every barrel of oil that we cannot

produce here we are importing from a volatile foreign nation. Most

of it comes from volatile foreign nations. And why are we, as Americans, relying so much on energy from foreign nations when we

have the ability, the technology, and the people who need jobs in

our own State, our own county, and our own Nation right here able

to do it?

For example, I know one smaller, kind of mid-sized producer that

has a platform; and, if allowed, this platform can produce an additional 30,000 barrels of oil a day. So if you think about that, and

you’re conservative, if we were allowed to produce 100,000 barrels

of oil a day additional to what we produce now, California could reduce 20 percent—or excuse me—increase 20 percent of its oil production, and you would reduce that from the Middle East countries.

Equally important is our national security or jobs, private sector,

non-taxpayer funded jobs. Our Nation has one of the highest unemployment rates ever. And here, in our energy-rich district that I

represent, it’s at an all-time high of 171⁄2 percent unemployment.

Some of our Kern County cities are close to 40 percent unemployment, and that’s completely unnecessary. Jobs domestic oil production would produce are great paying, high quality, non-taxpayer

funded, much needed jobs.

So with over 2 million people out of work in our great State,

more across the Nation, our national security and our economic

hope of the future must realize its potential that we are leaving in

the ground. Allowing increased domestic oil production begins to

solve both of these very important issues, our national security and

private-sector jobs that are much needed in our Nation.

7

Let the people of the United States and California get back to

work, reduce our dependency on foreign oil, and make America

stronger, and stop this full-out assault that we have on a very prosperous industry that provides jobs in our Nation. It’s the No. 1

thing that we need—people need to get back to work. And this industry provides jobs and has provided jobs and technology throughout history.

So thank you for letting me be a part of this today, and I’ll keep

my opening remarks brief.

Chairman ISSA. That’s very un-Washington-like.

[The prepared statement of Ms. Grove follows:]

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STATEMENT OF ROCK ZIERMAN

Mr. ZIERMAN. Thank you, Mr. Chairman and members of the

committee. I’m Rock Zierman, the CEO of the California Independent Petroleum Association.

We’re a trade association that represents about 470 companies—

independent oil producer companies, royalty owners, and service

and supply companies that have operations here in California.

About 160 of those are actual oil and gas producers that range in

size from small producers, with just a couple of wells; to large, multinational corporations that produce hundreds of thousands. The

definition of an independent doesn’t have to do with size. It has to

do with the fact that they’re not an integrated company; they don’t

refine, market, transport petroleum products at all.

Independent producers produce 70 percent of California’s in-state

production of oil and 90 percent of its natural gas. As a State, our

instate production represents 38 percent of what we consume—our

refineries and our consumers and on the oil side. The rest, as Ms.

Grove mentioned, has to be tankered in. And 14 percent comes

from Alaska, but they’re also declining. And so the rest of the marginal wells have to come from foreign countries, primarily Saudi

Arabia, Iraq, and Ecuador.

Independents is the main driving force behind exploring for new

oil and natural gas reserves. Over 90 percent of domestic oil and

gas wells are drilled by independents in the United States, and

their role is increasing. In 1999, major oil companies invested $31 billion in drilling pro- grams while independents invested $18 billion. By 2007, the role

had totally reversed. Majors invested $49 billion and independents,

$77 billion, for a total of $126 billion. And that was 4 years ago.

Obviously, the numbers are quite larger today, which leads us to

the next point, which is drilling for oil and natural gas is expensive, and it’s getting more expensive. In 1999, it cost $100 per foot,

on average, to drill a well in the United States. By 2008, that had

risen sixfold, to $600 a foot.

A recent study concluded that, on average, independents reinvest

150 percent of their net income back into drilling operations. That

means they have to go out and get equity partners for capital or

they have to borrow from banks in order to continue their operations.

Capital budgets, by definition, are driven by how much capital is

available. And obviously, the market price of oil plays a significant

role in determining how much capital is available; but other factors, such as risk and return on investment, also contribute.

Oil and gas operations, as with all mining operations, are producing a finite resource; therefore, producers are basically going

out of business every day. So in order to survive, producers have

to drill to find new resources or employ new technology to better

extract existing oil fields, and that takes money.

So if your goal is to increase domestic oil and gas production, you

can’t hamper the availability of capital. And unfortunately, that’s

precisely what the administration has proposed in their last three

budgets. The administration claims that Big Oil is receiving subsidies from the U.S. Government, and nothing could be further

from the truth.

14

And I’ve listed a number, in the record, of these tax treatments.

And I’ll just mention two: One is intangible drilling costs, which,

by the way, are not available to any of the integrated majors, only

to independents. And these are expenses, expensing, of non-salvageable items that can be expensed in the current year that they

were incurred, just like any other business can. If a shoe salesman

buys shoes for $10 and sells them for $20, he doesn’t depreciate the

shoe over 7 years, he expenses it.

So these debates are about the proper accounting method of expensing these things. These are not subsidies that are given, cash

payments from the government, for certain activities. And as I

mentioned, a lot of the other ones are listed in the record. I’d be

happy to address those with any questions.

But the bottom line is it takes a lot of capital to drill for new

oil and gas production. So let’s not hamper the access to the capital

by raising taxes on our domestic independent producers, but let the

sector continue to create jobs and meet the energy needs of our citizens. Today, they employ about 4 million people, which represents

over 3 percent of our total U.S. workforce. And that’s what we need

to foster in the future. Thank you.

Chairman ISSA. Thank you.

[The prepared statement of Mr. Zierman follows:]

15

16

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Chairman ISSA. Doctor, they’ve all been running under time; so

there’s extra time if you need it.

STATEMENT OF WILLIAM WHITSITT

Mr. WHITSITT. Thank you, Mr. Chairman. Thank you to members

of the committee for the opportunity today. And I want to thank

the local residents with whom I had a great conversation before the

meeting today. And they had a number of good questions.

What I’d like to do is chat a little bit with you and discuss what

is truly a revolution caused by technology—the chairman alluded

to it—and this is the natural gas revolution in the country today.

The game has changed, the revolution is here, the paradigm has

shifted, and there is no going back.

This is a piece of shale from 8,000 feet below the prairie of Oklahoma. And I’d like to pass this around to the committee. And also,

it’s fine to pass it around to the audience too. The natural gas is

actually trapped in the pores of this core sample, and this is the

key to the revolution.

What I’d like to do is start with a little geology lesson here. This

is geology for non-geologists. And you can follow either in the printed testimony or on the screen. But traditionally, we were looking

for oil and gas that was produced in that lower band, that gray

area there, source rocks. These are shales that I’m referring to

here. And that oil and gas cooked for 340 million years. The little

critters and plants would migrate through porous zones up until

they were trapped by an impermeable layer of rock. And you can

see that shown there toward the right in the small red area. Well,

that led us to find or try to find a number of these little trapped

areas. And that’s why you had so many wildcat wells that were less

successful or more.

And then back in the 1990’s, beginning in Texas—and I’ll have

more to say about that—George Mitchell had the idea that we

ought to be able to produce natural gas right from the source rock,

and he started drilling vertical wells and fracturing them, and the

economics just didn’t work out all that well.

So in 2002, Devon Energy that acquired Mitchell, began to marry

the technologies of hydraulic fracturing and horizontal drilling to

begin to produce gas from the Barnett Shale of Texas. That’s the

picture of where it is.

And we’ll go to the next slide. And you’ll see that in the early

part of the last decade, the wells were—shown on the black line.

Those were vertical wells. You can see production rates and the

production tailing off out into the future. And then look what happened, with the blue line there, when we started marrying the hydraulic fracturing and the horizontal drilling to produce this gas,

huge initial production rates in these wells in the last 40 or 50

years.

Let’s go to the next slide. You can see the history of the shale

plays around the country with the use of this marriage of technology. And you can go to the next slide to see the projections that

EIA has in the dark blue there for our gas resource production into

the future based on this technology. This is a depiction of the areas

around the country where we have shale fairways and the ability,

potentially, to produce a lot more natural gas for this country.

18

And if you go to the next slide, you’ll see that has already begun

to have a very significant positive effect on consumer prices. Those

are three different projections by the EIA over the past 3 years,

ending up at that red line on the bottom, that show the different

price projections based on this increase in supply.

And if you go past this slide to hydraulic fracturing—this is what

I’d like to spend a little more time on. Hydraulic fracturing is, of

course, the putting of large quantities of water, sand into the

ground, pulling the water out of the sand, holding the fractures

open. And we have a little bit of animation here that will show you

what it is that we’re doing.

First of all, we drill the well. And then we’re going to re-run it

from the beginning here, hopefully. And you’ll see that the well is

drilled obviously from the surface out into a lateral that can be

many thousands of feet long. And then once we complete the drilling of the well—I’ll tell you what. I’m not sure if that’s going to

work so well, but we’ll just talk about it from here.

You can see that the drill string is pulled out, and then the well

is actually perforated with a perf gun—you see that happening

here—into the shale formation. And after the well is perforated—

you can see the length of the distance of the perforations—then the

sand and water, with some additives, is put in under very high

pressure, and we begin to frack the shale formation.

The frack stages can be multiple. Here, we put a plug, and then

we’ll come back into the well and do the same kind of fracture

stimulation treatment along that horizontal part of a well. And

then the water is flowed out; the sand stays, holding the fractures

open; and the surface equipment is, by in large, removed and only

a small amount remaining; and the gas is produced. So that’s basically the hydraulic fracturing process.

If we go to the next slide, you’ll see that one of the big concerns

about hydraulic fracturing is addressed here by our well construction. We, under State regulation throughout the country, put pipe

or what we call ‘‘casing’’ through any freshwater zones that usually

occur hundreds of feet below the surface. And we may be fracking

as much as 15,000 feet below the surface. But we seal off the water

zones before we start the operation. And you can see that depicted

here.

If you go to the next slide, you’ll see just a depiction of the equipment that’s used on the site. That equipment virtually all goes

away after the frack job. And you see some numbers there with regard to the amount of water we use. We can talk about that later.

If you look at the frack fluid components that have gotten a lot

of attention recently, the bottom line is that 991⁄2 percent of what

goes into these wells is basically sand and water. And, of course,

most of that, obviously, being water. And the fluids are not all that

mysterious. In fact, there’s a very robust Web site that has been

in operation now for a little over a month called ‘‘FracFocus’’ that

was actually created and is operated by State regulators under the

Groundwater Protection Council and the IOGCC on which producers are beginning to post what goes into every well that’s hydraulically fractured.

This is a shot of the actual screen, the forum that you can call

up. You can search this by well location, by company, by coordiVerDate 17-JUN-2003 14:59 Oct 13, 2011 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68218.TXT KATIE PsN: KATIE
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nates, by API well number—lots of different ways—and find out

what’s in any well that’s hydraulically fractured once this site is

fully operational and all postings are on it.

The site is also extremely good—and I’ll say this to the residents

in the audience and to others—because it actually has wonderful

explanations, in a very robust way, about what I’ve talked about

in terms of why we hydraulically fracture wells, how it’s done,

what the additives are, what they’re used for, and a lot of other information that I think takes some of the mystery about hydraulic

fracturing away.

So we conclude by saying that hydraulic fracturing has been, as

the chairman pointed out, in use for many decades. Our first well

in Oklahoma was fracked in March 1949. We’ve done 100,000 of

them and well-regulated by States. FracFocus is up for fluid disclosures. And we are continually improving our industry practices,

and the States are continuing to work to make sure that they have

the right regulatory framework for all of us.

So with that, I’ll conclude. And I’ll be happy to answer questions.

Chairman ISSA. Thank you. You’ve answered many questions by

your presentation.

[The prepared statement of Mr. Whitsitt follows:]

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Chairman ISSA. Mr. Layton.

STATEMENT OF STEVE LAYTON

Mr. LAYTON. Thank you. Good morning.

Chairman ISSA. I think you need to turn your mic on.

Mr. LAYTON. Good morning. My name is Steve Layton, the president of E&B Natural Resources Management Corp., and it is an

honor to appear before this committee as a representative of the

independent oil and gas producers operating here in the San Joaquin Valley.

E&B is a California-based, privately owned, independent oil and

gas company. We produce approximately 7,000 barrels of oil each

day and have 140 employees. Our primary objective is growth and

the replacement of our reserves.

It is important to note that E&B, along with many other independent oil producers, as Rock mentioned, reinvest virtually every

single dollar-and-some that they earn in order to replace produced

reserves and hopefully grow our respective companies. This significant and ongoing reinvestment of cash-flow by oil and gas companies is a vital but often overlooked part of the way this industry

must manage its business in order to stay in business. This is exactly what has happened to E&B as well as many other companies

in the United States, over the past 5 to 10 years particularly.

In 2003, E&B produced approximately 1,500 barrels of oil per

day, but by reinvesting cash-flow, along with the financial support

of banks, we implemented a growth strategy that led—led by field

redevelopment and acquisitions. Today our production is in excess

of 7,000 barrels of oil a day, and our employee count has grown

from about 20 to 140. I would also like to mention that this production growth being matched by the job growth is something that

we’re very proud of at E&B.

Today I would like to focus on development, also known as ‘‘organic growth’’ to some, because it is this type of production growth

that is important to all of us given the universal concerns about energy security. The industry’s ability to grow production has been

enhanced significantly by advances in exploration, drilling, production, and completion technology, including the fracking that we’ve

heard about just now. But these gains, as great as they are, can

be offset to a considerable degree by the ever increasing burden of

statutory and regulatory impediments that we face.

California’s and most on-shore fields are very mature, having

produced, in some cases, for more than a hundred years. The easily

captured, easily produced oil has already been exploited. For this

reason, the application of new technology has been a critical part

of our efforts to increase the production in these mature fields.

Perhaps the greatest evolution of technology in the San Joaquin

Valley involves the use of steam to heat and mobilize oil that would

otherwise be almost impossible to extract. Steam has been used for

over 40 years; yet, the technology continues to be refined, augmented, and improved and continues to unlock large volumes of

previously inaccessible reserves.

More specifically, I would like to reference a small parcel that

E&B owns in one of the nearby heavy oil fields. Five years ago, this

5-acre lease was producing just a few barrels a day. In 2007, we

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made a significant investment in the property and now have drilled

more than 20 wells and implemented a modern steam drive. With

the help of new drilling, completion, and thermal technology, this

little 5-acre parcel is now producing almost 300 barrels a day and

will produce in excess of a million barrels of oil before it is depleted. That equates to 1 million barrels of energy security from

just 5 acres.

In other fields, we have benefited greatly from the use of horizontal drilling to sweep and capture large untapped areas of very

mature oil producing reservoirs. The use of horizontals has given

us the ability to access substantial new reserves in these old fields.

One of these fields happens to be the primary driver of E&B’s

growth, and it is the site of a significant and ongoing drilling and

redevelopment program.

In the 1990’s, this field was on its last legs and appeared to be

headed for abandonment. About 5 years ago, we began the redevelopment program that started with re-drills and, eventually, new

vertical wells. And with the help of advances in well-completion

technology—I’ll mention fracking again—and improvements in artificial lift systems, our redevelopment efforts proved successful.

Last year we stepped things up a notch with the addition of a

horizontal well development program. Not only now are we able to

access reserves that would have been left behind, but after just 1

year, we’re now generating over 10 percent of our production with

less than 3 percent of our wells. We do expect this trend to continue and ultimately lead to a production rate in excess of 5,000

barrels a day. This is from a field that was almost abandoned 15

years ago.

Finally, when it comes to technology, I’d like to highlight the use

of 3-D seismic imaging to help capture untested and undrilled

sands containing significant quantities of oil and gas. In our case,

we’ve acquired 3-D seismic over several hundred square miles of

land recently, including several mature, old oil and gas fields, some

having produced since the early 1940’s and 1950’s.

3-D seismic is usually thought of as a tool to help explore for new

oil and gas fields, but it is also a very valuable tool to help hunt

for untapped reserves in and around many of the tired, old oil

fields that are all over California and many other States. It has

been said by many that the best place to find oil is in an old oil

field. Well, with the help of 3-D seismic and numerous other technological assets we have at our disposal, that statement is more

true than ever.

Moving on to the impediments. In a nutshell, just as technology

unlocks new oil and gas resources for companies, such as E&B, to

exploit, new rules and regulations and permitting delays combine

to hamper that effort. While unregulated and environmentally destructive practices have no business within our industry, I would

like to point out just a few examples of what I view as burdensome

regulations that have directly impacted our ability to produce more

oil.

The first concern is Federal permitting and multiple Federal

agencies. In our case, permits necessary to proceed with one of our

3-D surveys were delayed substantially by the U.S. Fish & Wildlife

Service. The first permit to conduct the survey was submitted to

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the Bureau of Land Management in December 2007. More than 16

months later, the required biological opinion was finally issued by

the Fish & Wildlife Service. This delay paralyzed the project for almost 2 years.

Then in early 2010, we made a decision to expand the project by

about 30 percent, which did require a modification of the project

area. Upon review, the BLM, in fairly short order I will say, notified us that they believed the modified survey area met all criteria

of the original permit and approved the plan. Unfortunately, Fish

& Wildlife didn’t see it that way and offered no explanation of why

they disagreed with the BLM. The net result of these conflicting

messages was a delay in this project for almost an additional year.

That’s a total of 3 years of delays because of these permitting

issues.

The second example concerns the impact of various environmental laws, more specifically, The Endangered Species Act. This

region has numerous threatened and endangered animals and

plants. Regulations are in place that require operators to survey

and determine whether any of these species would be impacted by

development in new areas. This, of course, is common sense and

environmentally sound; yet, these same laws apply to expansions

and development within existing fields.

For example, in one of our largest fields, we intend to implement

a steam flood that is directly adjacent to a very successful steam

drive project operated by a larger company. To produce the steam

necessary to heat the oil, we need to install a gas pipeline to fuel

the steam generators. As part of the permitting process, a biological study is required, including one to determine if the blunt-nosed

leopard lizard lives within the area of the pipeline. This actually

requires two biological surveys, one in April and another in October. Our concern is that this project is already in a very highly impacted area adjoining existing thermal operations.

Furthermore, much of the pipeline route follows existing pipelines; yet, none of this seems to be given any consideration within

the permitting process. It will be October before we can complete

the survey, which could very well keep this project from being developed for over a year.

Finally, I want to bring to the committee’s attention an example

of some impediments we also face on the State level. In our case,

it concerns permitting delays for another steam drive project.

In July 2010, we submitted an application to the California Division of Oil and Gas to reactivate a previous steam drive. Ten

months later, we have yet to receive authorization for this multimillion dollar project even though steam floods are currently underway in sections directly adjacent to ours. No explanation has

been offered by the Division of Oil and Gas for this delay.

In summary, it is without argument that the San Joaquin Valley,

despite its age and regulatory challenges, holds significant additional oil and gas reserves that companies like E&B, using the latest technology, can exploit. If we can access these reserves in a

timely and reasonable fashion, I have no doubt that all of the companies operating here in the Valley can add significantly to our Nation’s domestic oil and gas production and will hire, train, and provide continued employment to thousands of new workers. This will,

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without doubt, improve economic growth throughout this region

and, more importantly, will aid in the quest to provide our Nation

with a secure energy future. Thank you.

Chairman ISSA. Thank you.

[The prepared statement of Mr. Layton follows:]

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Chairman ISSA. Mr. Hull.

STATEMENT OF TUPPER HULL

Mr. HULL. Mr. Chairman, thank you very much. My name is

Tupper Hull. I am representing the Western States Petroleum Association today, and we’re very pleased to have the opportunity to

address you.

Western represents major petroleum, integrated petroleum companies that operate in California and other western States that we

represent them in, as well as some of the large independent producers that Rock mentioned and independent refiners as well. We

do think it’s very important that this hearing is being held in Kern

County, as others have mentioned. Kern County is responsible for

producing about 72 percent of the oil that’s produced in California

today. And California, as you know, is the third largest oil producing State in the United States.

Chairman ISSA. I apologize for interrupting you, but I talked to

the gentleman from Alaska, and he said as Alaska declines, he prefers that we mention we’re No. 2 now.

Mr. HULL. You anticipated. For a period of a couple of months

earlier this year, we were No. 2. Now we’ve slipped back to No. 3.

So I had to correct my testimony. But we’re giving them a run for

their money.

As others have mentioned, you know, the technology has played

such an important role in California, and not just prolonging the

life of the oil production but in the livelihood of the tens of thousands of men and women that work in this industry, men and

women who earn really good salaries and bring a tremendous

amount of expertise and diversity to this region as well as other

oil-producing regions in California.

You have asked us to talk about pathways to energy independence with a focus on hydrofracking, and I’m going to let others here

with a great deal more expertise in hydrofracking address that specific issue. But we don’t think any discussion about energy independence, or we would probably say energy security, is complete

without mentioning the 101⁄2 billion barrels of oil that the U.S. Geological Survey estimates is offshore of California in undiscovered

but technically recoverable reserves off the coast.

To give you some sense as to what 101⁄2 billion barrels would

mean to California’s energy security, if all that could be produced,

it would and could replace all of the oil we currently import from

foreign sources for 36 years. If you just look at our largest foreign

source of oil, which is Saudi Arabia, that 101⁄2 billion barrels—excuse me—could replace all Saudi imports for 155 years. It is a tremendous resource and one that we believe deserves consideration.

Now, we’re very aware of the tragic event that took place in the

Gulf of Mexico last year. We spent a lot of time explaining to the

media and others our view on that and why the production that

takes place in California occurs under conditions that are entirely

different, very different, than what is taking place in the Gulf of

Mexico in their deepwater exploration. The reserves on the outer

continental shelf in the Pacific are in much shallower water; the

pressures typically are much less than what was found in the

Deepwater Horizon accident. And the safety equipment that is emVerDate 17-JUN-2003 14:59 Oct 13, 2011 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68218.TXT KATIE PsN: KATIE
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ployed and the technology that’s used is much more accessible on

the production facilities in California.

For the last 40-plus years, a billion barrels of oil has been produced off of the California coast. And during that time, according

to—and I apologize. I can’t remember BOEMRE’s full name. It’s

the former MMS—estimated or has said that a total of 850 barrels

of oil have been accidentally released in the Pacific during that 40-

plus years.

Now, make no mistake. That’s 850 barrels too many. Our members get up every morning with a goal to ensure that not a drop

of oil spills in any form during their operations. But over a 40-year

period, we believe that’s not just a commendable safety record but

it reflects the kind of commitment and technologies that have been

developed to protect the environment while providing important energy resources to the Nation.

The issue of energy security is particularly acute in California

because as we say, California is an energy island. We are not connected to other refining and producing areas of the country by pipelines. Consequently, when there are upsets in supply or international events like we’re experiencing now that impact oil supplies, it’s very difficult to shift and move supplies around to balance

the markets. And so Californians pay a price in volatility and upward pressure on prices because of this isolation.

And so for that reason, we believe oil produced in California is

the most secure source of oil for us, it is the lowest cost source of

oil. And we believe this conversation you’re having today is the

most important conversation from an energy perspective that we

can have. Thank you very much.

[The prepared statement of Mr. Hull follows:]

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Chairman ISSA. Thank you. Thank you all for your testimonies.

As I said, this is a less formal environment; so I don’t think we’re

going to do 5 minutes. I think we’re going to go around multiple

rounds, and I’m going a little bit in reverse order.

Mr. Hull, when you said 850 barrels into a billion barrels, any

guess, just with the ships that come into the United States, how

much was spilled in the same time off-loading per billion barrels

of imported oil?

Mr. HULL. I wouldn’t venture to guess. It’s not really a number

my members would be happy to have me carrying around and talking about. I mean, obviously——

Chairman ISSA. Would it surprise you to know that just the stuff

coming out of bilges, that we regulate, far exceeds that.

Mr. HULL. I don’t think there’s any question that the risks associated with tankers and the volumes of oil that are coming into

California every day to serve this market far outweigh the risks of

producing here in the State of California in the Federal waters offshore.

Chairman ISSA. Mr. Layton, I’m going to ask you a question, and

pretend that I’m representing the other side of the equation for a

moment. I think it would be helpful.

Isn’t it true that you’re in an incredibly profitable industry, one

in which the American people pay far more for their fuel than one

would ordinarily figure it takes to extract and deliver it?

Mr. LAYTON. This industry, without question, is experiencing a

very profitable period. You can look at the earnings releases of the

public companies. I guess it depends on how you view it. If——

Chairman ISSA. Well, let me give you the followup for a second.

Whenever you have a really profitable industry, one in which foreign competition is not really competition because we need them,

therefore, we must buy from them—it’s not a question of ‘‘Do we

buy from you?’’ Or ‘‘Do we buy from Qatar?’’ Or any other place,

whether it’s oil or natural gas. The fact is: We have to import more

than half of all we consume in oil and beginning to become a net

importer in natural gas if we don’t reverse the trend.

In a sense, don’t we have a world market, such as Saudi Arabia,

where their lift cost is about $8, that gets into port for $8 a barrel—we’re delivering them the difference between $8 a barrel and

$140 a barrel. Well, your margins, your lift costs, are dramatically

higher.

What would you expect, for example, the lift cost of a typical Bakersfield delivery of a barrel of oil to be, all in all?

Mr. LAYTON. In the steam drive projects that I mentioned in my

testimony——

Chairman ISSA. Yes.

Mr. LAYTON [continuing]. We will—a typical operation, we’ll

spend $40 to $50 a barrel to extract the oil, including the cost of

steam.

Chairman ISSA. And if you looked at the regulatory costs or, if

you will, the delays, the excess that you spoke about in your testimony, how much of that is, in fact, an additional tax on this lift

cost that you have.

Mr. LAYTON. It is easily another 10 to 20 percent on top of our

regular lifting costs. And it certainly depends on the area. It does

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vary, but it is significant. The delay and the uncertainty, although

difficult to quantify in terms of a dollar-per-barrel lifting cost, it is

equally as harmful as high lifting cost because it doesn’t allow you

to plan.

In our business, as I see it, stability equals security. Stability in

the sense that we need a stable regulatory and tax environment operating. And if we have it, we can provide additional oil production

that does ultimately lead to more energy security for this country.

Back to your question on the profitability, as I said, it depends

on how you look at it. If you look at it as a company that takes

those profits and puts them in a shoebox and buries it in the backyard, that’s not such a good thing. But if you go to what really is

happening—and I testified to and Rock mentioned—those profits

are reinvested. That reinvestment leads to more energy security.

And if you look at what’s happened with the total production from

the United States in the last few years, you’re going to see a big

difference in the production curve. We’re on the incline now.

Chairman ISSA. I want to go back to that quickly. You’re on the

incline with a $40 cost, of which probably 10 or more is produced

by excesses in regulatory costs, over your competitors because an

$8 competitor is getting $140 a barrel because there’s not enough

supply. Is that a fair statement.

That’s what I was trying to get to in that rhetorical question,

that, in fact, you triple your production—if America becomes close

to self-sufficient, the Saudis’ $140-a-barrel oil, which costs them $8

a barrel, or the Kuwaitis’, which costs them $6 a barrel to lift,

they’ll have to match the market, which would certainly drop into

the $60, $70.

What I’m saying, in a way, is: Aren’t you here asking us to give

you the ability to produce enough to actually reduce the price of oil

and the excess profitability that exists in the world today?

Mr. LAYTON. If we, as producers, are successful in what I think

is a universal quest, to grow production, we understand the net result will be lower oil prices for the rest of the country. I mean,

that’s what happens with supply and demand. You have more supply, the price goes down. And we’re trying to provide more supply.

Chairman ISSA. Mr. McCarthy mentioned my background in

business. I’ve worked a lot in engineering, but the truth is that my

love was economics. And there’s nothing I like more than figuring

out if you drop the price of energy—and almost everything we

produce and everything we do is leveraged off energy—you drop the

price of everything else.

So thank you for your comments on that.

Mr. FARENTHOLD. Thank you very much, Mr. Chairman. At the

risk of being inhospitable, my first question to Mr. Hull is: You

mentioned California was No. 3 and Alaska was No. 2 in oil production.

Chairman ISSA. Or the other way around.

Mr. FARENTHOLD. Or the other way around, depending on the

month. Who is the solid No. 1 then?

Mr. HULL. I don’t seem to recall that fact, Congressman. It’s

Texas and I started my career at the Houston Post back many

years ago and covered the industry and found it fascinating.

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Mr. FARENTHOLD. Let me visit, then, for a second, Mr. Hull,

about the—your group represents a wide variety of companies,

from the big ones to the little ones.

Mr. HULL. Primarily the large companies. We have a small membership of 26 companies. We’re not a broad-based organization.

We’re the household names in the oil and natural gas business.

Mr. FARENTHOLD. So if somebody were going to refer to the ‘‘evil

oil companies,’’ they probably would be referring——

Mr. HULL. It would be Big Oil, yes, sir.

Mr. FARENTHOLD. So let me ask you. You hear about record profits within your industry, and you’re always hearing about dollar

amounts, but can we talk a little bit about percentage amounts?

What’s the typical percentage on return on y’all’s investment.

Mr. HULL. What’s fascinating about the periods we go through

now—because I get to handle a lot of these questions—is we never

really talk about this when the prices are depressed. I think we forget that in 2008 we had a period of extraordinarily high crude oil

prices in August. By December, crude oil was trading at $30 a barrel, and the price of gasoline came down by a comparable amount.

So we think it’s important to talk not only about percentages—

because you’re right. These are the largest commercial enterprises

on the face of the earth. The billions upon billions that are invested

and required to bring these resources to market are enormous. And

over a period of time, when you balance out the highs and the

lows——

Mr. FARENTHOLD. An average.

Mr. HULL [continuing]. The oil and natural gas business makes

about 6 to 61⁄2 cents for every dollar they sell, their gross sales.

Mr. FARENTHOLD. How does that compare to other industries.

Mr. HULL. About a penny, a penny and a half less. So if you’re

an investor, manufacturing, as a whole, is generally more profitable than the oil and natural gas business over time.

Mr. FARENTHOLD. And also, you’re typically public-traded companies, the ‘‘bigs.’’

Mr. HULL. Right.

Mr. FARENTHOLD. And the owners of those companies, typically,

what, pension funds, mutual funds? Those are some of your largest

shareholders.

Mr. HULL. Absolutely.

Mr. FARENTHOLD. So pretty much probably anybody in this room

or watching on the Web, if they have a retirement plan or own a

mutual fund, are probably the owners of one of your companies.

Mr. HULL. Absolutely. I don’t have the exact figures right in

front of me, but you’re absolutely right. The vast majority of owners of Big Oil are pension funds and individual investors who have

their retirement savings in these companies’ ownership.

Mr. FARENTHOLD. I apologize for going—just questioning with

you. I hope I’ll have another round or two so I can ask some other

people.

I wanted to visit a second about offshore. You talked about offshore in California; you talked for a minute about the tragedy with

the BP blowout in the Gulf of Mexico. Being from Texas, let’s talk

a little bit about the Gulf of Mexico, if you wouldn’t mind.

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The U.S. oil companies aren’t the only ones drilling in the Gulf

of Mexico, are they?

Mr. HULL. You know, I don’t believe so. But I have to be honest

with you. Our purview includes only the western United States. I’m

not familiar with who’s operating in the Gulf of Mexico.

Mr. FARENTHOLD. As a lawyer, I don’t ask you questions you

have to answer to.

And you’ve actually got China drilling off the coast of Cuba;

you’ve got the State oil company in Mexico that’s drilling in the

Gulf of Mexico as well.

So regardless of what amount of regulation we put on our domestic oil companies, we’re not going to have any effect on what China

and Mexico do. We can’t change the way they drill.

Would that be an accurate statement?

Mr. HULL. I think that’s correct, sir. I mean, I think the chairman mentioned too that while we are seeing prices at these very

high levels, apparently related to the unrest in the Middle East,

the longer-term picture is not just, you know, their—these other

emerging economies are very actively and aggressively out in the

world market looking for new production opportunities, they’re buying a tremendous amount of oil, and it’s creating upward——

Mr. FARENTHOLD. So do you think a better regulatory scheme or

better way for the taxpayers to spend their money, rather than

making it more difficult for y’all to drill in the Gulf and compete

and make permitting and all these regulations, might be to invest

a little bit of time and money some response, training and technology, so in the event something happened in a well owned by or

operated by another country, we’d be able to respond to that as

well as if something happened locally.

Mr. HULL. I lost the question. I apologize.

Mr. FARENTHOLD. Rather than putting excessive regulation on

our domestic companies, making life difficult for them to compete,

let’s say, in the Gulf of Mexico, where you’ve got Mexico and China

also drilling—something happens on a Mexican and/or a Chinese

drilling rig and there’s a blowout or a leak or something, wouldn’t

we be better off, rather spending our time and effort regulating domestic companies, coming up with responses that would benefit

any worldwide oil company, training and technology?

Mr. HULL. Well, I think the U.S. oil and gas industry have led

the world in developing those kinds of responses. In California, of

course, we have huge resources on standby 24/7 to respond and

have developed, along with other regions of the country, this technology that really is used worldwide to respond to any accidents

that occur.

Mr. FARENTHOLD. Well, I’m over time. I’ll let everybody else have

a turn.

Chairman ISSA. I assure you, we will—as long as our witnesses

are willing to indulge us, we would like to learn all we can.

Mr. MCCARTHY. I thank all the witnesses for their testimony.

And it really comes down to why we’re having the hearing and why

we’re having this challenge. We use more energy than we produce

in this country. Having said that, that means we have to get it

from somewhere else; so we pay for it from somewhere else.

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The challenge that I’ve always faced in this job is: There are

many times we think in California—we realize other States compete with us. We have the ability to say which State produces

more. We watch every day when a company leaves California or

somewhere else because they maybe give a little better price. We

never really think that America competes with other countries, but

we do. And energy is probably the No. 1 industry that you can find

that could happen. If we make it harder here, we will still buy it

somewhere else.

Now, this country has faced a lot of challenges. And normally

when we face a challenge, we meet a goal and we go forward.

We’ve done that in World War II. We achieved our goal. When we

found that Russia went to space first, we made a goal for us and

in a decade, we were going to go to the moon. We faced our attention on that.

For too long in energy, we only face our attention when the problem gets too big, and then we put our attention there, then we forget about it when it comes down so don’t have the ability to go

there. If anybody’s ever lived in a community that has oil, you’ve

seen the booms and the busts. If you’ve lived in this community,

you watched a time where the cost to lift it was more than the barrel you could even sell it for. But you could not shut it down so you

had to maintain it.

I have found that the country gets very divided. Now, a time that

we all get united is usually during the Olympics. Why is it that we

cheer for our country? We never ask them whether they’re Republican or Democrat. But the other reason why we cheer so strongly

is because America gets a level playing field. We do a 100-yard

dash, we all start at the same starting line; we all have the same

finishing line.

So we’ve got to think from that mindset too, that when we make

stuff more difficult here, someone else can still be drilling someplace else that have different protections on the coast then we

would have.

And so taking some of that, I thought some of this—some of this

ability is what I saw here today. I loved the presentation where

you’ve actually shown how it was going.

Now, technology has changed. And probably the best analogy I’ve

heard from somebody, if you think of a bathtub and you fill it with

water—picture that underground, that’s a natural resource. An old

way of doing it was putting a lot of straws into the bathtub and

trying to get that water out. Horizontal is fundamentally different.

Now we can just go to the drain and use one. So that’s one over

the land, and that’s one ability to bring it up in a different capacity, and it’s environmentally safer.

When oil was first discovered in Kern County, it was untapped.

It was a lake. There’s pictures of people in a boat, not of water but

of oil. It’s a fundamentally different place of where we have it now

and our protection.

But I want to take that technology a little further, and I want

to followup with Mr. Whitsitt.

When you do the fracking, you had shown in your graph that

there has been some people bring up the issue about the water

table and the protection. If you can walk me through that one more

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time to show where fracking goes and where the water table is and

what protections we have in going and using the technology.

Mr. WHITSITT. Great question, Congressman. Water tables or the

aquifers that are drinkable are essentially shallow, and with very

few exceptions, as I’ve indicated, a few hundred feet below the surface.

The States require and we, with our practices, implement a very

strict regimen of sealing off those water sources at the surface or

close to the surface with multiple layers of steel and cement, and

then the frack job is done through those layers that seal off the

water.

Mr. MCCARTHY. And when you normally do the fracking, how

farther down is that from the water table, itself.

Mr. WHITSITT. Thousands of feet, in most cases. Certainly 15,000

feet is not uncommon. We, at Devon, are doing 8,000 to 10,000 to

12,000 feet, and so you’re well below, far below the water sources.

In Canada—I will mention too—and this goes to other things

we’re doing to try to protect both water quality and—quantity and

quality. We actually in our heavy oil operations in Canada have

found ways to use non-potable water; so we use no freshwater to

generate steam. And we’re trying to find areas where we can do

things like that all the time because we are very much in tune with

concerns that are very legitimate, particularly in the west, about

water issues.

We also try recycling where we can; we do it where we can. And

we also blend water; so we use flowback water to put in the next

job, if we’re able to do that. And we’re making progress on that

technology all the time as well.

Mr. MCCARTHY. Now, we all know that one form of energy is not

going to get it done. We also know that as advancements go, we

will have renewables that have great potential for the future, but

we need that bridge. The challenge that we have is that we have

to have a policy that allows us, with the ebbs and flows of the cost,

to actually bring the cost down. Because our economy, 70 percent

is based on consumption.

With the price of oil rising so rapidly, what happens is: People

are still paying that cost to business, and they’re taking consumption out of the economy; so our economy drops. But that price still

goes someplace else and goes out to another economy.

So, Rock, you brought up insight talking about the taxes, that

they are very similar and the same taxes based upon any other

business. Which of you could explain that a little further.

Mr. ZIERMAN. Well, there’s been a lot of discussion about whether

or not oil companies receive subsidies. And I was trying to make

the distinction between a subsidy and a tax treatment.

In fact, first of all, the actual components that are within the administration’s budget that they want to eliminate target independent producers, not major oil. So that’s the first distinction.

Most of those tax treatments are not available to major integrated

oil companies; they’re only for the independents.

But the second, more important point that I was trying to make

is: A subsidy is a cash payment from the government for doing

some sort of activity. It’s quite different if you are having a debate

within the IRS about how to treat a certain expense. And we woule

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be happy to have that debate. But keep in mind, the only way that

you have this debate and the only way that you have these expenses is if you’re deploying capital. And that’s exactly what our

companies are doing is they’re deploying capital. And the question

is: How best can they redeploy the new capital?

And that’s what a lot of these tax treatments were designed for.

Given the fact that this is highly risky, it’s very expensive, and our

energy security depends on it, the taxes in the teens and 1920’s,

a hundred years ago, were designed in order to encourage the rapid

reinvestment of this capital back into the oil and drilling programs.

And that’s exactly what we’ve experienced.

Mr. MCCARTHY. If you do not invest the risk, you cannot get the

tax.

Mr. ZIERMAN. That’s correct.

Mr. WHITSITT. Can I just add one point here, please? I’d just inject for Devon—and we are a large independent exploration and

production company.

The recent proposals by the administration, just on the intangible drilling costs—which are the real costs, as Rock has pointed

out, in drilling a well—it’s clearing the land, doing the environmental remediation. If those proposals were put in place, it would

cost Devon about a billion dollars in the first year. And that would

equate to our complete drilling program in the Barnett Shale—as

I mentioned, is where the shale revolution really started, and it’s

the most prolific area in the country.

To us, we have to say, ‘‘What is that all about?’’ That looks to

us like it is totally a wrong-headed policy that actually would penalize the companies that are most efficient at producing domestic

resources that power this Nation.

Mr. MCCARTHY. I want to go to Assemblywoman Grove because

she has witnessed, one—and kind of all your presentations—the redundancy of regulation, not just with oil, with renewables, trying

to find—from wind and solar out in East Kern.

But from her own personal experience in a business, finding out

because of what California does, we’re setting up business in another State.

So I wonder if you can touch on, one, redundancy, what you are

viewing outside in the district as well with our ability to produce

more energy in America.

Ms. GROVE. Thank you. With all due respect, I would like to address just one thing prior to. We talked about taxes or tax that you

guys were just addressing.

Industry, meaning the oil industry, is now at 41.4 percent of tax.

And if California liberal politicians have their way—what we’re

fighting up in that building right now—and they did a 121⁄2 percent

oil severance tax—it will increase the industry tax to 53.9 percent.

Now, to give that number some perspective, if you take Apple in

2010, they paid 28 percent of its revenue or profit to the government—Apple did—while it generated more profits than Chevron.

So in perspective, the oil industry is being punished on a tax base

and—than other employment agents or industries.

If you go back to—Mr. Chairman, you had a question earlier

about the ‘‘average products of goods and profit.’’ And everyone in

business knows that somebody could say, ‘‘Well, you run a $25-milVerDate 17-JUN-2003 14:59 Oct 13, 2011 Jkt 000000 PO 00000 Frm 00066 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68218.TXT KATIE PsN: KATIE
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lion-a-year corporation,’’ but after you pay payroll taxes, workers’

comp, liability insurance, and you get down to net profit, it’s less—

it’s around $100,000, not in the millions.

So if you take Apple, for instance, again, in a comparison, the average products sold are about 25 percent above the cost of materials and production for marketing and sales. And if you use that

for the same—in comparison to with Exxon, Exxon’s profit margins,

in comparison, were about 8.7 percent. And that’s hardly the windfall that people are proclaiming.

If you take the oil industry as a whole, they have 111⁄2 percent

basic on profit and making that the 45th most profitable industry

of the year. That is hardly close to the top 10. So just to clarify

those two things.

And then back to your question, Mr. McCarthy. I’m sorry. You

know, from a business standpoint, being a third- and sometimes

fourth-tier contractor for the oil industry, the job multiplier that we

have—and I ran on jobs. You know, we have 21⁄2 million people unemployed in the State of California, which affects our Federal revenue as well. And when I ran on jobs and you look at what industry can place in these jobs, you talk about the job multiplier.

A lot of individuals in the testimony have referenced the oil industry jobs. And I’m going to name a few local companies. If you

take one oil field job in a platform, you have engineers, and you

have site engineers, you have chemical engineers, you have mechanical engineers, you have people that are the ‘‘job multipliers’’

is what I call them.

If you build a site, you have an excavation crew, a site crew, a

gravel crew. The gravel is produced someplace, mainly in one of the

facilities that we have either on the Grapevine or in Mojave. You

have trucking companies that transport that gravel to the site. You

have everything from all those companies that are supported by

oil—or Big Oil—small oil, independent oil. These are small businesses that thrive on this industry. You have people that supply

more paper and pencils and products, like from Stinsons or

O’Leary’s. You’ve got the simple things like Mona at Speedway

Market where 90 percent of the people that go to work in the oil

fields stop and purchase stuff from her for their daily consumption

of food and breakfast.

So when you look at the small business that thrives on this industry, the jobs that are created and not created from private business because of the limitations with permit delays through the Division of Oil and Gas—or I’ve seen projects delayed out in the oil

industry where a blunt-nosed leopard lizard is onsite and they

CAUTION-tape it off and everybody sits around and waits for this

lizard to leave.

You talk about—Mr. Layton talked about a description of a job

that’s being delayed, where the activity of this blunt-nosed lizard

is at certain times of the year; so you just have to stop working

until this lizard finds its way to another location or goes into some

type of hibernation. Those things don’t make any sense when it

comes to job creation.

The oil industry and job creators are very conscious of things

that need to be done to protect our environment and our land, but

California and the Department of Fish & Game and Federal EPA

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is way overreaching and has become completely unreasonable, to

the hindrance or full-out assault to private-sector job creation.

Chairman ISSA. Assemblywoman, if I can followup on that. Is

there really any difference, in your estimation, between the crazy—

or the excess, as you’re describing, in oil and the same excesses

that are occurring that are delaying green energy roll-off? Because

this is also an area of the State that has the potential to provide

an awful lot of solar and other energy. Don’t you find the same

thing to be true, that the same self-inflicted wounds are hurting

our ability to reach any reasonable goal of renewables?

Ms. GROVE. That’s exactly true. And it’s not only in renewable

energy. You take—in East Kern, which I represent as well, there

was a solar plant that wanted to put a solar facility in the Mojave

Desert, where the sun is, and it was not able to do that because

of a Mojave ground squirrel.

You look at industry—just private business industry across—

from development. I have a developer in Taft who’s had a certain

piece of property who cannot develop that property and provide affordable housing in Taft, where we have a large oil production

area, because of squirrels that live on that property. And you have

to tag them and put a little antenna on them and transfer them

to—you know, double the amount of property.

So the environment——

Chairman ISSA. You saw all that on Animal Planet. It was very

impressive, the tracking. It’s not very productive for mankind, I

guess, but——

Ms. GROVE. It is not, and not productive for job creation in our

State and in our Nation. You know, I recently had the opportunity

to go to Texas. And it was very interesting——

Chairman ISSA. And see the Governor, I understand.

Ms. GROVE. I did. I got to meet Governor Perry.

And what was interesting is that we talked to—the Department

of Railroad oversees their permit process in Texas for some—I’m

not really sure about that, because the Railroad is—the permit

process.

And keeping the same environmental protection, protecting our

land and being conscious of our planet, they issue permits within

2 to 5 days, project permits, where we’re sometimes delayed for up

to years. That, and then the environmental delays with endangered

species on these projects and properties causes jobs that we desperately need here in our State and our Nation to be delayed as

well.

Chairman ISSA. Rock, you said something, and I want to try to

put it in the record in a way that people who are not involved in

the oil industry can understand.

You know, I came from the electronics industry. We watched the

government come up with this interesting one that—our patents. If

we had a patent and we went through and we paid the legal fees,

we had to amortize the patent over the life of the patent. All the

cost we pay to lawyers. So you pay the lawyers today; you finally

get your patent—and by the way, if they turned down the patent,

you could write it off.

But you actually had something worthwhile; so you got it, and

you had to amortize. Then if you had to sue somebody to defend

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your patent, you had to put all of that into, if you will, a long-term

depreciation schedule because the government wanted your profits

today, even if you had spent them in trying to create profits for the

future.

Isn’t that basically the same kind of wrong-minded thinking that

American companies are seeing? Except in your case it’s a drill bit,

that when you dull the drill bit, you break a bunch of equipment

as you’re drilling down, and you set it aside and send it off to salvage. It’s gone. You’ve spent—you bought it, you paid for it, you

spent it, and you disposed of it. They now want you to amortize

that over the useful life of the oil well.

Isn’t that essentially what—because you say intangible. And to

me, money out of my pocket that I know I spent, that they want

me to pretend I didn’t spend for 20 years, that’s not intangible. Is

that the intangible we’re talking about here today?

Mr. ZIERMAN. That’s exactly right. We’re talking about mud, cement, testing, some drilling operations that you’re talking about,

all the things that are happening before a well is completed or any

production has come online.

Chairman ISSA. You know what’s amazing is America is a funny

place. We talk about how we support business, we really care about

it; but people in Washington, in my position, have done some amazing things.

I was in private business when NAFTA was passed. And whether

you were for or against NAFTA, 1 day I found out NAFTA had

been signed, and I found out as a result of NAFTA, I was going

to have to wire-transfer weekly my payroll withholding taxes instead of sending a check. And the reason was because your predecessor, Bill Thomas, and all the other guys, they had a couple of

billion they needed revenue to make NAFTA pencil out. So they got

it by accelerating the speed with which every business in America

would send money to the government. Now, it only scores a onetime event because they just accelerated the speed with which they

got it from a couple of weeks or a quarter for small companies to

immediate.

We’re still doing that today, and it’s one of the frustrations I

have. I want your industry to expense everything, absolutely, that

is consumed. I certainly want you to capitalize your long-term assets. If you’ve got a casing there, it’s reasonable to have it over the

life. But I want your capital to be put back to work as quickly as

possible. I want Devon Energy to have a smaller bank line to put

in more wells. And the amazing thing is, I can’t get my government

to go along. I can’t even get the Ways and Means Committee to go

along.

Let me go to another question that I wanted to understand, because fracking, which is not new technology, isn’t what we’re talking about here today. What we’re talking about is better fracking.

Is that right?

Mr. WHITSITT. That’s right. The new applications of fracking.

Chairman ISSA. And if I understood correctly, if we’re concerned

about the watershed, we’ve been concerned about it for 60 years,

because you’ve been fracking for 60 years.

Mr. WHITSITT. Correct.

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Chairman ISSA. And we should know—we shouldn’t need Secretary Chu to endlessly study something you’ve been doing for 60

years.

Let me understand something. When you go down once but you

go far further, as far as what you yield, the only difference in that

is that you have—only have one area of risk, which is that casing,

for far greater gain. Is that correct?

Mr. WHITSITT. The casing is placed for a couple of reasons. One,

we’ve been talking about, obviously, is to protect the water sources.

That’s primary, and it happens in every well. There are other applications of casing, to prevent the hole from collapsing and those

kinds of things. But the fact is—and what I think you’re alluding

to is—that we’ve been doing this for a long time. The technology

gets better; the materials gets stronger; the knowledge of how we

do this—and many times we do it along that horizontal length of

pipe—it all improves. And we’ve seen remarkable efficiency gains.

And one more thing that is really remarkable today is: We’re

doing much more of what we call ‘‘pad drilling,’’ where we can actually do these multiple horizontal wells from one surface location so

that we don’t have to disturb the surface multiple places around

this gas field. So, again, the technology just continues to improve.

Chairman ISSA. Well, and that’s what I was leading to. And I appreciate your clarifying my questionable question, because this is

something where I’m still learning what you’ve spent a lifetime

knowing.

You’ve got less exposure to the watershed because you’re going

less times for the total amount you’re getting.

Mr. WHITSITT. Correct.

Chairman ISSA. Your risk, of course, always is—when you first

drill through a water area, until you get it sealed and you’re comfortable and all the tests are done, there’s always some risk.

Let’s just say hypothetically that you hit oil, because, on occasion, the earth’s oil is much closer than you thought it would be,

but you eliminated all that risk before you start going horizontal.

So in a sense, horizontal is getting more from this already mitigated, small risk that you had when you first drilled, what—I

guess in Oklahoma is—what is it, 1.2 million wells they’ve drilled

or something?

Mr. WHITSITT. We’ve drilled a lot of wells and fracked 100,000

of them in Oklahoma.

But also, the other point I would make too, Congressman, is that

in the shale plays, in particular, which is really the revolutionary

thing now, once we are there——

Chairman ISSA. This is heavy, by the way. Anyone who didn’t

pick this up—when I set it back down, you’ve got to figure, this is

pretty darn dense rock.

Mr. WHITSITT. It’s pretty amazing that we’re actually getting the

gas to migrate through that rock to the wellbore.

And what I was going to say is that, also, when we are doing this

in the shale plays, it almost becomes a—in those particular areas—

something that we can replicate with less and less—almost zero—

risk. Of course, there’s always some.

But I think—in the Barnett Shale, I don’t think we had a dry

hole in thousands of wells for Devon. But that’s because we’ve fiVerDate 17-JUN-2003 14:59 Oct 13, 2011 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68218.TXT KATIE PsN: KATIE
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nally nailed this technology. It’s right to your point, that it’s American ingenuity, it’s innovation, trying to put these things together

in different ways in these different shale plays.

Chairman ISSA. Now, I’m only going to have about two more

questions, but they’re going to probably be ambiguous; so steer me

through to the right answer to the questionable question.

When you used to go down and try to find a pocket of gas, methane, etc., all the combinations of what you find down there, it was

hide-and-go-seek, and then when you found it, it could be quite a

surprise. There was a risk because this is volatile; you don’t know

what pressure you’re going to poke into and so on. You’re out of

that business for the most part. You’re going into a low pressure

but into rock rather than into a big pocket of gas with this technology.

Isn’t that true?

Mr. WHITSITT. Well, the pressures do vary. There are some highpressure areas and lower-pressure areas.

And I would say too that, as was mentioned earlier, along with

the improvement in the completion techniques of the fracking and

the drilling of the wells, we have had very significant, and continue

to have very significant, seismic and geophysics type of technology

improvements. And, again, it’s putting all that together so that we

know where we’re going to find resources more accurately and we

can drill fewer wells to find them and have more success.

Chairman ISSA. The reason I ask that question is: Like most people who don’t know your technology, who watch TV, I had watched

some years ago about what happens if you hit that pocket and you

shatter the impermeable layer that had kept it there for a long

time. You can, in fact, have natural gas flowing freely to the surface, and that has happened a few times in history, at least enough

for television to capture it.

In the case of this technology, you’re going through the impermeable layer, through the sand that was already there, back into

the core rock that had not released it. So in a sense, it’s a much

safer operation because you’re not up against, if you will, the great

protection against gas free-flowing up.

Mr. WHITSITT. It’s much safer, and it’s much safer for other reasons as well, which is that our materials and our processes and our

practices are so much better today as we’ve learned through the

years because of the very incidents that you’ve talked about.

Chairman ISSA. Now, one last question for you, and then Rock’s

got an answer for a question that I asked earlier, I think.

This is a heck of a solid piece of rock. I looked at your presentation. And as I look at you going diagonally here and then there,

I get the feeling that there’s no question you’re releasing more than

otherwise was released. Is there available technology or an available percentage you can give me? What did we used to get when

we just caught what happened to have bubbled up and was sitting

there under the withholding chamber, what are we getting today

when you frack, typically, and how much is really down there if

you continue to improve your fracking to where you can sort of get

it all?

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Mr. WHITSITT. Well, I don’t know how to answer the first part

of the question in a global sense, but if you look at that one slide,

there’s a very dramatic representation from one area.

But I will say that the Potential Gas Committee—and these are

the resource estimators that are the experts in this country and,

really, known worldwide—they’ve just come out with yet another

estimate of more natural gas that’s recoverable in this country,

something on the order of probably in North America, 2,500 trillion

cubic feet, at least 20 trillion or so a year now.

So you can see. It’s well more than a hundred years, it continues

to grow with technology. And that’s got to be exciting for the country.

Chairman ISSA. Well, certainly for those of us who heard that we

were going to get our last drop of oil or our last drop of gas and

we were going to need renewables already because it was all going

to be gone, to find out that there’s plenty more, obviously, I’m excited about oil, because I don’t want us importing oil from unfriendly areas. But I’m even more excited about natural gas, because all of the green lobbyists who have ever come to see me—

and many have—they all talk about how if we can just get off that

dirty coal and get onto clean natural gas, what the benefit would

be. Thank you for what your company is doing to take us from ‘‘X’’

carbon per Btu to a fraction of what it would be if we go from coal

to natural gas.

And, Rock, you get the last answer to that question.

Mr. ZIERMAN. Well, I just wanted to mention another application

of the directional drilling, and that is: Offshore California. Offshore

production is a very emotional issue on the West Coast, but I want

people to be cognizant of the fact that you can utilize this technology offshore California as well by using existing platforms or

even onshore locations. You can directionally drill to some of the

10 billion barrels that Tupper was mentioning without installing

any new platforms.

And I will also mention in closing that the MMS made that prediction in 1985. They have not been permitted since then to update

their reserve numbers. That same year, they estimated that in the

Gulf, there were 9 billion barrels of oil potential; 25 years later and

6,000 platforms later, which is what’s been installed in the Gulf,

the reserve number is now 45 billion. So even though we’ve been

producing from 6,000 offshore platforms for 25 years, we have five

times as much reserve. And that gets to Steve’s point: Where the

oil is where the oil is. And it has been in the past.

Mr. MCCARTHY. Mr. Chairman, can I just touch on that.

We have Vandenberg Air Force Base there. You have the ability

on the base to drill horizontally out; so you’re never even offshore.

And there’s one thing that happens in Santa Barbara that’s

much different. We have a natural seepage of oil onto the beach.

And an individual came to my office that was showing me the statistics of the growth of that and what that does to the birds and

the environment and the others. The ability to take that out, where

the natural seepage—where you can control it, where it’s coming

through, to protect the environment from the seepage in the direction of where it’s going. And you can do that now, because of techVerDate 17-JUN-2003 14:59 Oct 13, 2011 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68218.TXT KATIE PsN: KATIE
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nology, in a much more environmentally safe way that you talked

about.

Mr. ZIERMAN. In fact, the seepage is over a hundred barrels a

day. So when Tupper was talking about the 800 barrels over 30

years, or whatever the figure was, represents about 8 days of what

Mother Nature does every day.

Mr. MCCARTHY. And if you would relieve that and direct it, it

would not be causing environmental concerns and problems that it

is currently.

Mr. ZIERMAN. That’s correct.

Mr. MCCARTHY. I yield back.

Mr. FARENTHOLD. Thank you very much. I’d like to ask a couple

of questions to Mr. Whitsitt. We appreciate your operations, actually, in South Texas. You’re a great employer.

Chairman ISSA. You keep going right to the edge of our indulgence here. I said it was going to be casual and friendly, but, you

know, let’s just stop rubbing it in. First of all, you haven’t said

Oklahoma once. If you keep saying Texas over California, I’ll start

rubbing Oklahoma against you, and I know what that does to

Texas.

Mr. FARENTHOLD. Especially when it comes to football.

Chairman ISSA. Exactly.

Mr. FARENTHOLD. But let’s talk a little bit about the water. That

is actually of more interest to California than it is to Texas.

Though we are a semiarid State, we have a great deal of water resources.

The bulk of the water that y’all use in hydraulic fracking operations, you recycle. I mean, you pump it down there, and you bring

it back. Is that not correct?

Mr. WHITSITT. We recycle where we can. I wouldn’t say it’s the

bulk of the water. We’re getting better at this all the time. But

where we can recycle, we can recover about 40 percent of the water

and then blend it with freshwater and that kind of thing.

Mr. FARENTHOLD. So let’s compare a fracking operation to

amount of energy produced. If you can’t just do this in your head,

that’s OK. But I think you were saying that a typical gallon of ethanol takes 120 gallons of water in irrigation. So to create a gallon

of gasoline in a fracked well, it’s got to be in order of magnitude

different.

Mr. WHITSITT. I think what we’ve said in the testimony is—and

this is very interesting—that the amount of water it takes to frack

a well that will produce, I think, up to 3 billion cubic feet of gas—

that’s a lot of gas—would produce about 120 barrels of ethanol.

Mr. FARENTHOLD. So let’s talk a little bit about—we’re talking

about how much natural gas there is. We’re starting to see technology develop where automobiles, buses, and fleets are starting to

run on natural gas. And, again, I apologize if I’m getting out of

your area of expertise.

But just—if you take the Btu output, or the energy output, of a

natural gas versus gasoline to power a vehicle, do you have an idea

or does anybody on the panel have an idea what the cost of a gallon of gasoline, if we were using natural gas in vehicles, would be?

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Mr. WHITSITT. I think in Oklahoma City, if I remember correctly,

the latest numbers that I’ve seen for an equivalent was about

$1.39.

Mr. FARENTHOLD. So the natural gas, $1.39, equivalent of what

we’re now paying, $5. Potentially a great economic boom. Is that

technology—I assume that technology is pretty close. I mean, I see

natural gas buses everywhere.

Mr. WHITSITT. Well, Congressman, I had a natural gas powered,

dual-fuel Buick in 1995. I had a fueler right in my garage that ran

off my house, house gas system. And that technology is out there.

It’s a matter of economics. It’s a matter of getting the range on the

vehicles. They are coming. And particularly, with fleets and—I

think the market is sorting that out. It’s a great benefit to the

country.

Mr. FARENTHOLD. And I remember as I was growing up—I guess

it was—it would have been 30 years ago—we had butane-powered

farm trucks. That’s a mature technology.

Now, I want to shift back to one broad, kind of general question,

if you would. I noticed in your resume that you actually—public

policy was something you studied in college. Let’s take a big, broad,

general picture of the energy policy of this country.

As I look at it now, we’re promoting an energy policy that’s looking to do away with some of your tax credits. We’re looking at an

increased regulatory burden. If you were going to concoct an energy

policy that was adverse to creating affordable energy for everybody—and maybe I shouldn’t ask this—can you think of something

we’re not doing to make it worse?

Mr. WHITSITT. It’s difficult. Let me just correct a couple of things

that you said and kind of build on that.

First of all, we don’t get tax credits.

Mr. FARENTHOLD. You’re—I didn’t read the talking points memo,

but what the other side calls ‘‘tax credits’’ are basically the same

fair business treatment that any other industry gets.

Mr. WHITSITT. That question that you asked is a great question

because, first, energy policy should do no harm. And it seems like

we’ve got things turned upside down on their head now, where we

are trying to do things with energy policy that would punish those

that are doing the right thing efficiently for the country. We are

ignoring sources of energy that are safe and secure—I’ll give you

one example that this committee might be interested in, and that

is, when we look at North America, we have the most sophisticated

gas market in the world. And it is relatively insulated from the rest

of the world. Not totally but relatively.

And the oil market we also have—our largest supplier of oil outside the United States is Canada, and yet we are stalling in putting additional capacity through the Keystone XL pipeline from

Canada to bring more oil into the United States and it’s incomprehensible why we would be doing that.

Again, the State Department has found the environmental consequences are not great. And we can use the energy; we need it.

And, again, I could go down the list, Congressman, but it really reflects what you just said.

Mr. FARENTHOLD. Thank you very much.

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Chairman ISSA. All good things must come to an end, and in this

case, mostly, it’s we borrowed this room. So I want to close.

First of all, I want to thank the Courage Campaign, who came

up and gave me a petition with a relatively limited amount of information but an awful lot of people who care about this issue. I

understand there are some other companies and individuals who

brought items today. If you’ll bring them up before we leave, they

will all be included in the record.

Additionally, if you note our favorite URL,

americanjobcreators.com—if you go to americanjobcreators.com, especially for the young people—snicker, but please go there—consider looking and asking yourself what is standing in the way of

job creation. We don’t predetermine. We ask you to tell us what

you believe. And be specific. If you’ll do that, if you’ll join the endless numbers of people who have done that—originally it was based

on a few letters sent out and then a demand by job creators around

the country to have an opportunity to tell what they believe is stopping them.

With that, I will ask unanimous consent that we leave the committee report open for 7 days so that all Members can include

opening remarks and other extraneous material. We will, as I said,

collect information today and through americanjobcreators.com.

I’d like to thank our witnesses. You’ve been very kind with your

time. I would also suggest that if answers, based on our prompting,

come to you, please include those. We want to make the record

complete. This is the first on this particular portion, but we will

be looking at all aspects of energy self-sufficiency in the days to

come. So don’t be limited in your response.

And with that, the hearing is adjourned.

[Whereupon, at 11:52 a.m., the committee was adjourned.]

[The prepared statement of Hon. Eljiah E. Cummings and additional information submitted for the hearing record follow:]

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