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[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]

 
           THE BENEFITS OF OFFSHORE OIL AND GAS DEVELOPMENT

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

                        OVERSIGHT FIELD HEARING

                               before the

                       SUBCOMMITTEE ON ENERGY AND
                           MINERAL RESOURCES

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

         Saturday, August 13, 2005, in Port Fourchon, Louisiana

                               __________

                           Serial No. 109-29

                               __________

           Printed for the use of the Committee on Resources

  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                                   or
         Committee address: http://resourcescommittee.house.gov

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
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                         COMMITTEE ON RESOURCES

                 RICHARD W. POMBO, California, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska                    Dale E. Kildee, Michigan
Jim Saxton, New Jersey               Eni F.H. Faleomavaega, American 
Elton Gallegly, California               Samoa
John J. Duncan, Jr., Tennessee       Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland         Solomon P. Ortiz, Texas
Ken Calvert, California              Frank Pallone, Jr., New Jersey
Barbara Cubin, Wyoming               Donna M. Christensen, Virgin 
  Vice Chair                             Islands
George P. Radanovich, California     Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Grace F. Napolitano, California
    Carolina                         Tom Udall, New Mexico
Chris Cannon, Utah                   Raul M. Grijalva, Arizona
John E. Peterson, Pennsylvania       Madeleine Z. Bordallo, Guam
Jim Gibbons, Nevada                  Jim Costa, California
Greg Walden, Oregon                  Charlie Melancon, Louisiana
Thomas G. Tancredo, Colorado         Dan Boren, Oklahoma
J.D. Hayworth, Arizona               George Miller, California
Jeff Flake, Arizona                  Edward J. Markey, Massachusetts
Rick Renzi, Arizona                  Peter A. DeFazio, Oregon
Stevan Pearce, New Mexico            Jay Inslee, Washington
Henry Brown, Jr., South Carolina     Mark Udall, Colorado
Thelma Drake, Virginia               Dennis Cardoza, California
Luis G. Fortuno, Puerto Rico         Stephanie Herseth, South Dakota
Cathy McMorris, Washington
Bobby Jindal, Louisiana
Louie Gohmert, Texas
Marilyn N. Musgrave, Colorado
Vacancy

                     Steven J. Ding, Chief of Staff
                      Lisa Pittman, Chief Counsel
                 James H. Zoia, Democrat Staff Director
               Jeffrey P. Petrich, Democrat Chief Counsel
                                 ------                                

              SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

                     JIM GIBBONS, Nevada, Chairman
           RAUL M. GRIJALVA, Arizona, Ranking Democrat Member

Don Young, Alaska                    Eni F.H. Faleomavaega, American 
Barbara Cubin, Wyoming                   Samoa
Chris Cannon, Utah                   Solomon P. Ortiz, Texas
John E. Peterson, Pennsylvania       Jim Costa, California
Stevan Pearce, New Mexico            Charlie Melancon, Louisiana
Thelma Drake, Virginia               Dan Boren, Oklahoma
Bobby Jindal, Louisiana              Edward J. Markey, Massachusetts
Louie Gohmert, Texas                 Nick J. Rahall II, West Virginia, 
Richard W. Pombo, California, ex         ex officio
    officio

                                 ------                                
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on Saturday, August 13, 2005........................     1

Statement of Members:
    Gibbons, Hon. Jim, a Representative in Congress from the 
      State of Nevada............................................     1
        Prepared statement of....................................     2
    Jindal, Hon. Bobby, a Representative in Congress from the 
      State of Louisiana.........................................     3
        Prepared statement of....................................     6
    Melancon, Hon. Charlie, a Representative in Congress from the 
      State of Louisiana, Prepared statement of..................     9

Statement of Witnesses:
    Angelle, Scott A., Secretary, Louisiana Department of Natural 
      Resources..................................................    22
        Prepared statement of....................................    24
        Response to questions submitted for the record...........    30
    Borne, Dan S., President, Louisiana Chemical Association.....    64
        Prepared statement of....................................    66
    Danos, Hank, Chief Executive Officer, Danos & Curole Marine 
      Contractors................................................    55
        Prepared statement of....................................    56
    Davis, Mark, Executive Director, Coalition to Restore Coastal 
      Louisiana..................................................    40
        Prepared statement of....................................    42
    Falgout, Ted M., Executive Director, Greater Lafourche Port 
      Commission.................................................    37
        Prepared statement of....................................    39
    Guidry, Greg, Exploration Manager, Shell Exploration and 
      Production Company.........................................    49
        Prepared statement of....................................    51
    Randolph, Charlotte, President, Lafourche Parish, State of 
      Louisiana..................................................    34
        Prepared statement of....................................    36
    Readinger, Thomas A., Associate Director, Offshore Minerals 
      Management, Minerals Management Service, U.S. Department of 
      the Interior...............................................    11
        Prepared statement of....................................    15
    Smith, William Clifford, Chairman of the Board, T. Baker 
      Smith, Inc.................................................    58
        Prepared statement of....................................    59
        Response to questions submitted for the record...........    61
    Walker, Allen, Gulf Productions, Inc.........................    67
        Prepared statement of....................................    70

Additional materials supplied:
    Wells, Ken, President, Offshore Marine Service Association, 
      Statement submitted for the record.........................    74

 OVERSIGHT HEARING ON THE BENEFITS OF OFFSHORE OIL AND GAS DEVELOPMENT

                              ----------                              

                       Saturday, August 13, 2005

                     U.S. House of Representatives

              Subcommittee on Energy and Mineral Resources

                         Committee on Resources

                        Port Fourchon, Louisiana

                              ----------                              

    The Subcommittee met, pursuant to call, at 9:30 a.m., at 
the Operations Center, 108AO Rappelet Road, Port Fourchon, 
Louisiana, Hon. Jim Gibbons [Chairman of the Subcommittee] 
presiding.
    Present: Representatives Gibbons and Jindal.

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

    Mr. Gibbons. Ladies and gentlemen, good morning. This is 
the field hearing of the Subcommittee on Energy and Mineral 
Resources for the U.S. Congress. We are pleased to be here 
today.
    Before we begin this morning, we have a tradition. We would 
like to ask you all to rise, and we'll ask our Boy Scouts and 
Cub Scouts over here to present the colors and lead us in the 
Pledge of Allegiance.
    [Pledge of Allegiance.]
    Mr. Gibbons. We also have another tradition we do before we 
take testimony here: We swear in our witnesses. So, if I can 
get our witnesses to rise and raise their right hands and 
repeat after me.
    [Witnesses sworn.]
    Mr. Gibbons. Let the record reflect that each of our 
witnesses answered that oath in the affirmative.
    The process this morning will be to have opening statements 
from the Members here from Congress, and then we will ask our 
witnesses to testify, and then we will ask questions of them.
    I will begin by submitting my full and complete written 
statement that I have here for the record. What I would like to 
do is just take a moment, before I turn to Mr. Jindal and his 
statement, and tell you what my experience has been here in 
Louisiana so far.
    I have been hosted by Mr. Jindal and Mr. Melancon. They 
have invited our Committee down to this area to see the 
infrastructure, to see what it is that this great state is 
contributing to both the security and the economy of the United 
States.
    We took a trip out to Anadarko's deepwater drilling ship 
yesterday. We stopped by Chevron's rig that--the Petronius rig, 
and then we toured the LOOP area of the infrastructure and then 
came in and looked at the Port Fourchon facilities.
    Let me say that, throughout the whole day while we were on 
this little expedition, I met some of the greatest people I 
have ever met. I truly have to admit that, when we talk about 
heroes, we oftentimes talk about our military; but when you go 
out to these ships that are so far out in the middle of the 
ocean, the Gulf of Mexico, people who live out there for weeks 
on end, doing nothing but 12-hour shifts of hard work to 
provide the energy for this country, the energy that drives the 
economy, you have to admit, these are heroes for the American 
public.
    So, I want to say thank you for not only everything that 
your state does, but what the contribution of this great state 
and this industry provide for the rest of the nation.
    I come from Nevada. We are an extractive industry state, 
but ours isn't oil or gas. Our industry is mining. We 
understand what it takes to contribute to the economy, what 
work it requires, what commitment it demands from people.
    We are thrilled when we came here to be hosted by your 
Representatives in Congress, we are thrilled to be hosted by 
the industry, we are thrilled to be hosted by your community. 
It is fantastic to be here. I'm very pleased.
    I met one individual named Paul on the Petronius, he works 
for Chevron, and his wife is a school teacher. So, not only is 
Paul out there working 12-hour shifts for this country, his 
wife is teaching young boys and girls what it takes to be a 
hard-working, contributing part of our society as well.
    And these are the kinds of American heroes that are out 
here in our communities.
    So, I just want to finish up real briefly by saying thank 
you. Thank you from those of us in Nevada and thank you from 
those of us in Congress, who represent America, for what you do 
and what you give. We understand the problems. We understand 
the infrastructure needs. We understand the security much 
better today. We understand the problems with the coastal areas 
of this state much better today than we ever did before.
    The information that we will gather today will be taken 
back to the U.S. Congress to the Committee on Resources, and it 
will be very, very valuable to our--not only better 
understanding the problems, but interpreting what the solutions 
should be from the Federal side, so that we can do our job 
better to help you do your job, to make the quality of life we 
all enjoy so much better.
    With that, I want to thank all of you for coming. I want to 
turn now to Mr. Bobby Jindal from Louisiana for any opening 
remarks he might have.
    [The prepared statement of Mr. Gibbons follows:]

           Statement of The Honorable Jim Gibbons, Chairman, 
              Subcommittee on Energy and Mineral Resources

    American consumers are feeling the pinch caused by increased costs 
to produce and deliver goods and services while the federal government 
continues to foster domestic energy policies that restrict access to 
geologically prospective areas and discourage investment in the 
production of larger energy supplies here at home.
    Consequently, jobs are being sent overseas while our Nation retains 
high natural gas prices. Similarly, high oil prices also impact every 
aspect of our economy. From truckers and airline pilots getting goods 
to markets throughout the country to mothers and fathers loading up the 
car for a trip to grandma's house, the rising cost of oil has increased 
the economic burden for everyone.
    Increasingly, domestic U.S. energy production is found offshore 
where a majority of future oil and natural gas resources are believed 
to be located. In fact, according the Minerals Management Service, it 
is estimated that 60 percent of the oil and 59 percent of the natural 
gas yet to be discovered in the United States are located on the Outer 
Continental Shelf (OCS).
    Furthermore, domestic offshore oil and natural gas production 
currently provides approximately one-quarter of the natural gas and 30% 
of the oil produced in the United States.
    But this engine of energy supply is also a huge revenue raiser. In 
2004, the domestic offshore oil and gas development generated some $8 
billion in royalties.
    So, why don't we have more offshore oil and natural gas development 
in other areas of the country--on the Atlantic and the Pacific, or even 
just a few hundred miles from here in the Eastern Gulf of Mexico? It is 
my belief that these States just don't understand all the positive 
impacts associated with offshore energy development.
    That is the reason this Subcommittee meets today--to hear testimony 
on the benefits of offshore oil and gas development. From secure and 
reliable supplies of energy to jobs and economic growth, the domestic 
offshore oil and gas industry positively impacts the nation, its 
producing states and their communities.
    Now, is this system that employs thousands of Louisianans, provides 
huge tax revenue, and supplies the country with its energy needs 
perfect? No.
    And are there ``lessons learned'' that the federal government 
should take into account as it seeks to modernize its laws and looks to 
other offshore areas of the country for offshore development? Yes.
    For example, unlike the Mineral Leasing Act that governs onshore 
federal lands leasing, States do not share in federal revenues 
generated beyond their waters. Our Committee sought to change this 
anomaly in the Energy Security Act just signed into law by President 
Bush, but owing to Senate objections, the provision was not included in 
the new law.
    Our full committee Chairman Richard Pombo has stated that our 
efforts to extend a State revenue sharing provision on submerged lands 
beyond the State waters will continue, because we believe revenue 
sharing with Coastal States off whose shores federal leasing takes 
place is justifiable by precedent and practice, and should serve to aid 
communities who receive impacts from any offshore development.
    I expect we'll discuss these and a variety of other related issues 
today, and I welcome all our witnesses and thank them for coming out to 
testify before the Subcommittee on this beautiful Southern Louisiana 
Saturday in August.
    I also want to thank Congressman Melancon and Congressman Jindal 
for hosting the committee in their fine state.
    Before recognizing the witnesses, I now turn to my good friend from 
just north of here--Congressman Bobby Jindal--for any opening remarks 
he may wish to make.
    I also understand that a representative of Congressman Melancon is 
here and is prepared to deliver brief opening remarks on behalf of Mr. 
Melancon.
                                 ______
                                 

    STATEMENT OF THE HON. BOBBY JINDAL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF LOUISIANA

    Mr. Jindal. Thank you, Mr. Chairman. With your permission, 
I would also like to submit my official opening statement for 
the record.
    First of all, I want to thank so many people that are here. 
Obviously, our hosts for the last couple of days, starting 
obviously with the Chouests, but also Chevron and some of the 
others. The MMS and so many others have gone out of their way 
to show the Chairman and me and other Committee staff what is 
involved in producing energy for our great nation.
    I also want to thank our state representatives and senators 
that are here as well and that have come today to show their 
support for the area and the industry. I want to make just a 
few points.
    First of all, I am going to apologize to the Chairman and 
Charlotte for repeating a story that I shared with them last 
night at dinner. One of the reasons that I know that Charlotte 
and I both felt this was so important to have our Committee 
come down here, I want to share a story about my little three-
year-old girl.
    We took her strawberry-picking at the beginning of this 
year in Ponchatoula, Louisiana. Now, I'm going to tell you this 
story because it kind of reminds me of some of the attitudes 
sometimes here outside of Louisiana and Congress when it comes 
to producing energy.
    We were taking my little girl for her first time to go 
visit a farm. I said to her, ``Now, Sweetheart, we are going to 
see where strawberries come from and potatoes and onions'' and 
I said, ``You know where all those things come from?'' I was 
trying to prepare her for going out on this farm and riding the 
tractors and having a good time. She looked at me like her 
Daddy didn't know a lot. She said, ``Of course, Daddy, I know 
where those things come from. They come from Wal-Mart.'' They 
come from farms.
    Let me explain to you why that is important. So often when 
we debate our nation's energy needs, sometimes I believe there 
are people out there that think that energy just comes when you 
turn on a switch, or you go to the gas station and you listen 
to some people that don't want production, or don't want any 
type of production. And then they wonder why gasoline costs $3 
a gallon. They wonder why we are losing our industry overseas. 
They are wondering why Louisiana the last few years has already 
lost over 5,000 petrochemical jobs.
    My family--I was born and raised down here. My family has 
grown up in this industry. The reason we have jobs in my family 
is because there is an oil and gas industry. My wife is an 
engineer, my father is an engineer, my father-in-law is an 
engineer, my wife's uncles are all engineers. I was kind of the 
disappointment in the family. I couldn't be an engineer, so I 
went to Congress instead.
    But I want to make four quick points not only for the 
record but for my colleagues here. First is that Louisiana is 
proud to do more than its share to secure our nation's energy 
demands. We, as everybody in this room knows, we provide 25 to 
30 percent of the nation's energy; 18 to 20 percent comes 
through this port alone. For decades, we have done more than 
our share to make sure we have a domestic source of energy.
    Congress has just passed an energy bill reaffirming our 
commitment to becoming energy independent over the next 25 
years. We've got within North America reserves to do that. It 
will develop the technology and it will develop those fields. I 
don't think any of us needs a reminder of how dangerous it is 
for us to become overly dependent on foreign sources of energy. 
We have seen what that can do to our economy. We can see now, 
in an international competitive economy, we can see what that 
does for our dollar. We are now increasingly fighting China and 
other countries for limited energy resources.
    Second, I want to make sure that we are very aware of the 
infrastructure which is required to support that industry. 
Everybody here knows the importance of the Leesville Bridge. We 
had a nice conversation last night about the rising costs of 
that global economy is causing the cost to build our 
infrastructure to increase dramatically. And how foolish would 
it be for our country not to invest in a little bit of 
infrastructure to continue to have access to this great energy. 
To me, it seems like it is such an easy argument to make, that 
the Federal government should be working with us building that 
bridge, and working with us to help this port expand.
    The Chairman asked some great questions yesterday about the 
port's ability, and we will hear some testimony about the 
port's ability to accommodate growth, and what a great thing 
that here in this state we do want to accommodate that growth, 
we do want to expand the infrastructure. But we need our 
nation's help. We are willing to provide the nation's energy, 
but we need our nation's help.
    Which brings me to the third point. No conversation about 
this topic would be complete without a conversation on coastal 
erosion and subsidence. 30 miles a year. And, clearly, this is 
not just a Louisiana problem, this is a national problem. And 
we had a wonderful presentation last night. We will hear some 
more today about the problems, the levees and the other things 
that have contributed to not only the national economy and 
economic growth, but have also contributed to a loss of our 
land right here in Louisiana. We just have had this year 
already a record number of named storms so early in the 
hurricane season. We have seen levees that were built for Level 
4 hurricanes can't withstand Level 3 hurricanes. We are losing 
our barrier islands. We're losing the marshlands that not only 
protect our fragile and unique ecosystem, but protect lives and 
protect property.
    Now, this Committee was very supportive of a provision we 
got in the House-passed energy bill that would have given 
Louisiana a recurring source of revenues of a billion dollars a 
year. With the Chairman's indulgence, I want to make this point 
very strongly. Other states that have drilling on their Federal 
land get to keep 50 percent of those revenues. The State of 
Texas gets to go out 10 miles off their coast. All we asked for 
in the House-passed energy bill was just 18 percent. Listen, 
we're not even asking for the billions of dollars you made in 
previous years; we're not even asking for 50 percent that other 
states get. We just want 18 percent. That would have been a 
billion dollars a year. Think what we could have done to 
restore our coast and rebuild the infrastructure.
    Now, I'm thrilled we are able to get through conference a 
billion dollars. I'm thrilled that Louisiana will get hundreds 
of millions of dollars over four years. Over $500 million. I'm 
thrilled that that will be shared with the parishes in the 
state. Don't get me wrong, that is the most money we have had 
from the Federal government for our coast in the history of 
our--in our country's history. I'm thrilled that we stand 
poised to get as much as $1.9 billion out of the water bill. 
I'm thrilled that we now have an explicit commitment from the 
Federal government that this is a Federal responsibility. We 
have an explicit commitment from them; they understand this is 
not just a Louisiana problem.
    But we have to make sure, and one of the reasons I'm so 
excited to have the Committee down here, we have to make sure 
the people in Congress understand, there is an ongoing Federal 
responsibility. This is not a problem that we've fixed. We are 
taking the first critical steps at a Federal level to address 
this. But in the same way that New Mexico, to pick one state, 
New Mexico gets $1 million a day from their Federal lands by 
sharing those revenues, it is only fair that Louisiana should 
also benefit.
    Fourth, and finally, is that one of the amazing things we 
were able to show the Chairman and other staff members is that, 
here in Louisiana, we are able to promote and encourage energy 
production, while at the same time also protecting and 
preserving our environment. It is not either/or here. As we 
were going out yesterday, we saw shrimp trawlers out there with 
supply boats. And the beautiful thing is, right here at this 
port, we've seen firsthand how you are dedicated to reclaiming 
fragile wetlands. At the same time, you are supporting our 
nation's energy needs, you are playing a very strong role in 
protecting and restoring our environment.
    Now, I could talk to you all morning. You are not here to 
hear from me, we are here to hear from you. I want to thank our 
witnesses for driving, flying, coming down here. I want to 
thank our local witnesses for hosting us, allowing us to come 
visit your parish. Thank you for allowing the Committee to come 
and learn. And I especially want to thank our Chairman for 
taking time out of his busy schedule to come here and spend a 
great amount of time. With that, I will yield back.
    [The prepared statement of Mr. Jindal follows:]

 Statement of The Honorable Bobby Jindal, a Representative in Congress 
                      from the State of Louisiana

    I want to first thank Chairman Gibbons and his staff for conducting 
this hearing on the many benefits of the oil and gas industry and 
welcome them to Louisiana. It is one thing to hear of the benefits in 
Washington, but field hearings like these give members and staff an 
opportunity to see firsthand the successes and effects the industry has 
on the port area, state and country.
    As we will hear shortly, the oil and gas exploration on the Outer 
continental shelf is vital to Louisiana as well as our nation. Roughly 
twenty percent of our country's oil and gas comes through Port 
Fourchon. Production on the OCS directly results in 21,000 jobs and 
supporting industries employ an additional 55,000.
    As we attempt to reduce our dependence on foreign sources of energy 
and put a stop to rising prices at the pump, it is imperative that we 
look to the Gulf of Mexico to provide us with these valuable resources. 
It is estimated that 59% of the undiscovered oil and natural gas is 
located on the Outer Continental Shelf. However, the moratorium only 
allows for a little over half of the Gulf OCS to be explored. Louisiana 
has seen firsthand the benefits of opening the OCS up to safe and 
efficient exploration and production, and I look forward to hearing the 
testimony today that will elaborate on that point.
    Obviously, the primary benefit the 4,000 production platforms 
provide is the energy sources they are producing. However, these 
marvels of modern engineering also provide new habitat for marine 
species and, by acting as an artificial reef, protection for our coast.
    While the oil and gas industry in our state is producing necessary 
energy for our country, our coast and wetland areas are unfortunately 
being lost at a remarkable rate, approximately one football field per 
hour. I was pleased to see the recently passed energy bill include a 
provision that will provide Louisiana with $540 million to help battle 
coastal erosion. Unfortunately, that program only lasts through 2010 
and we need to continue to fight for long term assistance.
    To that end, I am grateful for the House Resources committee's and 
subcommittee's support for a provision that I authored and was included 
in the House version of the Energy bill that would have utilized the 
economic resources provided by the oil and gas industry to assist 
Louisiana and other coastal states yearly with billions of dollars to 
work towards projects that deal with coastal erosion and hurricane 
protection. The House version would bring $350 million to the state in 
the short term and more that $1 billion a year after 10 years.
    In order to continue to produce the oil and gas in our state that 
is necessary for our country, we need to preserve our coast and 
consider the environmental concerns that inevitable come with energy 
exploration and production. I look forward to working with my 
colleagues in Congress, as well as individuals such as those who are 
testifying today, to see that Louisiana continues to provide the energy 
needed to keep our country running, while at the same time enhancing 
efforts to save our precious coast and wetlands.
    Again I want to thank all of you coming today and look forward to 
hearing your testimony.
                                 ______
                                 
    Mr. Gibbons. Thank you, Mr. Jindal.
    Let me, before I turn to a representative from Mr. 
Melancon's office, recognize who I should have recognized very 
early on. That was the wonderful young Cub Scouts from Pack 333 
and their Cub Master, Leo Bourg, Assistant Cub Master Nathan 
Eymard--if I get your name wrong, it's because I took French in 
high school and probably forgot--Assistant Cub Master Aaron 
Guidry, and the scouts themselves, Brody Eymard, Bryant Eymard, 
Joseph Bourg, Alex Vedros, Jovan Fuselier and Max Guidry. I 
think we all owe them a round of applause.
    Thank you.
    Mr. Jindal. Your pronunciations reminded me of one other 
thing I wanted to point out to the audience. We made sure that 
the Chairman had several very good Louisiana seafood meals, and 
the highlight of many of these meals were the oysters prepared 
every which way we could possibly think of. The point being, to 
show him and just to remind the Committee that oysters are not 
endangered in Louisiana, despite the problems we're facing on 
the Gulf Coast. They may be endangered after all the oysters we 
ate this week, but I have a bill in front of the Committee to 
make sure that whatever Maryland does, if they want to declare 
their oysters endangered, that does not devastate our industry 
down here.
    So I want to thank you for agreeing to partake and taste 
all our oysters.
    Mr. Gibbons. It reminded me of how many times I want to 
come back.
    Thank you very much. I have to admit that I did learn a new 
French phrase, ``Laissez les bon temps roulet,'' during that 
whole evening affair, which I think was great.
    I would like to turn now to the Chief of Staff for Charlie 
Melancon, who is unfortunately recovering from an appendectomy 
and couldn't be here for this trip. He wanted to be here. We 
are going to ask that his chief of staff, Casey O'Shea, give 
his remarks.
    Casey, welcome. The floor is yours.
    Mr. O'Shea. Thank you, Mr. Chairman.
    On behalf of Congressman Melancon, I would like to thank 
all of the witnesses and all the elected officials and folks 
who worked so hard at Port Fourchon this morning for being 
here. With the Chairman's indulgence, I would like to read a 
statement into the record.
    ``As the only Cajun in Congress, I wish I could be with you 
in person this morning to welcome you to the Third District, 
the heart of Cajun Country. As you may already know, I recently 
underwent a routine, though unexpected, medical procedure and 
am unable to join you.
    ``Chairman Gibbons, thank you for your leadership on energy 
issues and thank you for allowing my testimony to be read into 
the record today. I would also like to present you a copy of 
Bayou Farewell: The Rich Life and Tragic Death of Louisiana's 
Cajun Coast, by Mike Tidwell, which will further underscore 
points in my testimony about the importance of Louisiana's 
coast and America's wetlands.
    ``Congressman Jindal, I appreciate your interest and 
steadfast support of Port Fourchon and the LOOP. Ted, your work 
is tireless and sometimes thankless. I want you to know how 
much the people appreciate what you do to keep Louisiana's only 
port on the Gulf of Mexico up and running.
    ``Mr. Chairman, Louisiana's delegation's work on behalf of 
Port Fourchon and the LOOP has been bipartisan and enormously 
fruitful. In the Transportation and Reauthorization Bill, we 
secured $60 million for improvements of La. 1, including the 
upgrade of the Leesville Bridge to Port Fourchon. The bridge is 
the weakest and most critical link in the La. 1 system, and its 
improvement is a key part of the ongoing La. 1 project.
    ``I also included language in the worded bill that extends 
authorization for the dredging of Port Fourchon by 6/10ths of a 
mile to encompass new marine terminals that were recently 
built. The bill also corrects a senate error that would have 
mistakenly had the effect of deauthorizing the project by 
deauthorizing Bayou Lafourche.
    ``The Energy Policy Act of 2005 included $540 million over 
the course of four years, beginning in Fiscal Year '07, for 
coastal restoration efforts here in Louisiana. Lafourche 
Parish, where we are today, will receive $9.76 million. 
Neighboring Terrebonne and Jefferson Parishes will receive $30 
million over four years, part of the nearly $117 million in 
direct assistance to the parishes of the Third Congressional 
District.
    ``The money secured through this Congress not only goes to 
protecting America's wetlands, but by protecting those natural 
barriers against hurricanes and flooding, and will also help 
secure our energy infrastructure at Port Fourchon.
    ``Also in the new energy bill, I demanded new tax credits 
that would give incentives for energy production. We achieved 
$11.5 billion in tax incentives over 11 years. $2.6 billion of 
that total includes direct incentives to the oil and gas 
industry, seven-year depreciation for natural gas gathering 
lines, refinery expensing provision and a small refiner 
definition for refiner depletion.
    ``Additionally, I was able to include language which allows 
a revenue-sharing mechanism to provide incentives for future 
alternative energy projects so that South Louisiana can remain 
in the forefront as new sources of energy are developed along 
our coastline. Our local oil and gas industry is constantly 
looking for new ways to compete in the global marketplace, and 
that's why I am proud to announce today the South Louisiana 
Economic Council's Caspian Sea Initiative. I have been working 
closely with the Kazakhstan government to develop a framework 
for our companies to access this huge oil and gas market. We 
will soon be releasing more information on how our companies 
will be able to take advantage of these new opportunities.
    ``Finally, I would like to announce my plans for a South 
Louisiana Energy Summit. I will be inviting representatives 
from across South Louisiana's energy industry to participate in 
a day-long summit to discuss the impact of the Energy Policy 
Act of 2005 with representatives of the relevant Federal 
agencies. Through these efforts and others, I will continue to 
do my part in Washington and work with those of you who 
service, support, plan and execute the operations of Port 
Fourchon and the LOOP. I know from my years in economic 
development that the energy industry is a key economic driver 
in the Third District. It's a simple equation: Energy equals 
jobs.
    ``I'm happy to continue that work as South Louisiana's 
Congressman and look forward to bringing more Federal attention 
to the LOOP and Port Fourchon. I will continue the process of 
educating the American public about the importance of the LOOP 
and Port Fourchon and to providing affordable energy to the 
nation. At a time when oil prices are over $60 a barrel, it is 
more important than ever to increase domestic production. The 
Port's prospects look good in this market environment.
    ``Mr. Chairman, Congressman Jindal, I thank you again for 
coming to see what Cajun ingenuity has built at Port Fourchon, 
and welcome to the Third District.''
    [The prepared statement of Mr. Melancon follows:]

   Statement of The Honorable Charlie Melancon, a Representative in 
                  Congress from the State of Louisiana

    As the only Cajun in Congress, I wish I could be with you in person 
this morning to welcome you to the 3rd District, the heart of Cajun 
country. As you may already know, I recently underwent a routine, 
though unexpected, medical procedure and am unable to join you. 
Chairman Gibbons, thank you for your leadership on energy issues and 
thank you for allowing my testimony to be read into the record today. 
I'd also like to present to you a copy of Bayou Farewell: The Rich Life 
and Tragic Death of Louisiana's Cajun Coast by Mike Tidwell which will 
further underscore points in my testimony about the importance of 
Louisiana's coast.
    Congressman Jindal, I appreciate your interest and steadfast 
support of Port Fourchon and the LOOP.
    Ted (Falgout), your work is tireless and sometimes thank less, I 
want you to know how much the people appreciate what you do to keep 
Louisiana's only port on the Gulf of Mexico up and running.
    Mr. Chairman, the Louisiana delegation's work on behalf of Port 
Fourchon and the LOOP shows that in spite of the rank partisanship that 
seems to delay and divide us at every turn in Washington, our 
delegation can still throw off our party labels and work together to 
get things done for the people of our state and nation.
    It is a good sign to all of us that the Committee has chosen Port 
Fourchon for this hearing. I thank the Chairman for bringing national 
attention to the critical nature of the facilities based here. Indeed 
for the first time in a long time there is a lot of good news coming 
from Washington. I'd like to share some of that good news with you and 
give you a glimpse of my vision for the future of the energy industry 
in South Louisiana.
    So here's the good news:
    Through the Transportation Reauthorization bill, we have secured 
$60 million dollars in improvements for LA-1 including an upgrade for 
the Leeville Bridge to Port Fourchon. The bridge is the weakest and 
most critical link in the LA-1 system and its improvement is a key part 
of the ongoing LA-1 project. The small two-lane draw bridge currently 
in place is the only evacuation route for thousands of Lafourche Parish 
residents and energy workers, and the entry point for 18% of the 
nation's energy supply. I would like to especially thank Roy Francis 
and the LA-1 coalition for their leadership on this important project.
    I have also included language in the WRDA bill that extends 
authorization for Port Fourchon by 0.6 mile. This will allow the Corps 
to maintain the Port's channel for an additional length that 
encompasses new marine terminals that were recently built. The bill 
also corrects a Senate error that would have mistakenly had the effect 
of de-authorizing the Port Fourchon project (by de-authorizing Bayou 
Lafourche).
    I hope that we use this hearing as an opportunity to educate the 
rest of the nation about Port Fourchon and the LOOP's role in 
satisfying our demand for affordable energy. But with every opportunity 
comes a challenge. The challenges that now confront us are serious and 
systemic. Our coast is vanishing at the rate of a football field every 
30 minutes. The half billion dollars secured for coastal restoration by 
the bipartisan work of our delegation through the energy bill represent 
an historic commitment on the part of the federal government and is a 
good down payment. But coastal erosion is a $14 billion dollar problem 
that is unrelenting. It will take a serious and concerted effort for 
many years to come to bring back to Louisiana all the resources it 
deserves to rebuild her coast after decades of fueling the economic 
engine of our country.
    The Energy Policy Act of 2005 included $540 million over the course 
of four years (beginning in Fiscal Year '07) for coastal restoration 
efforts. 35% of that money will be divided between coastal parishes. 
The other 65% of the $540 million goes to the state for its efforts in 
coastal restoration. The good news there is that much of that money 
will likely be spent in South East Louisiana because that is where the 
most immediate need is. Local government has some latitude with the 
coastal money, but they must have their plans approved by the state and 
the Department of Interior. Lafourche Parish where we are today will 
receive more than $9.76 million. Neighboring Terrebonne Parish will 
receive $12.8 million over four years. The money secured this Congress 
not only goes to protect America's Wetlands, but by protecting those 
natural barriers against hurricanes and flooding it will also help 
secure our energy infrastructure at Port Fourchon.
    My work for the Port started in the 1970's when I was the head of 
the South Central Regional Planning and Development Commission. At that 
time there wasn't much more than a water line and an old shell road 
where the Edison Chouest facility now stands. Mr. Chairman, in the 70s 
we realized that we were in a unique position to create jobs, jobs, 
jobs, for the people of South Louisiana by turning that water line and 
old shell road into what you see today. The work was hard and people 
like the Chouests who undertook the effort knew that there was risk 
involved, but they did it anyway and their investment has become the 
focal point of deepwater oil and gas activities that services 75 
percent of Gulf of Mexico deepwater production.
    I am happy to continue that work as South Louisiana's Congressman. 
I look forward to bringing more federal attention to the LOOP and Port 
Fourchon. I will continue the process of educating the American public 
about the importance of the LOOP and Port Fourchon to sustaining 
affordable energy prices to the rest of the nation. At a time when oil 
prices are over $60 a barrel it is more important than ever to increase 
domestic production. The Port's prospects look good in this market 
environment. In the recently passed energy bill, I demanded new tax 
credits that would incentive-ize energy production. We got $11.5 
billion in net tax incentives over 11 years. $2.6 billion of that total 
includes direct incentives to the oil and gas industry: seven year 
depreciation for natural gas gathering lines, a refinery expensing 
provision, and a small refiner definition for refiner depletion. It was 
a promise I made on my campaign and I am excited to say that we kept 
that promise in my first 6 months in office. The Minerals Management 
Service projects that Port Fourchon will service 44 percent of pending 
future deepwater plans. I intend to do everything in my power as your 
Congressman to continue to increase domestic production in the Gulf of 
Mexico.
    In the new global economy, we must maintain our competitive edge. I 
am always looking for new markets to expand our home-grown oil and gas 
industry. Those small and medium size companies need to compete in a 
global marketplace. That is why I am proud to announce today the South 
Louisiana Economic Council's Caspian Sea Initiative. I have been 
working closely with the Kazakhstan government to develop a framework 
for our companies to access this huge oil and gas market. During a 
recent mission to Kazakhstan, SLEC representatives met with the 
Kazakhstan Minister of Energy and Resources and we now have his 
endorsement for this very important initiative. We will soon be 
releasing more information on how our companies will be able to take 
advantage of these new opportunities.
    Finally, I would like to announce my plans for a South Louisiana 
Energy Summit. I will be inviting representatives from across South 
Louisiana's energy industry to participate in a day long summit to 
discuss the impact of the Energy Policy Act of 2005 with 
representatives of the relevant federal agencies.
    Through these efforts and others I will continue to do my part in 
Washington and work with those of you who service, support, plan and 
execute the operations of Port Fourchon and the LOOP. I know from my 
years in economic development that the energy industry is a key 
economic driver in the 3rd District. It is a simple equation: energy = 
jobs.
    Mr. Chairman, thank you again for coming to see what Cajun 
ingenuity has built at Port Fourchon, and welcome to the 3rd District.
                                 ______
                                 
    Mr. Gibbons. Thank you very much. Appreciate that.
    Ladies and gentlemen, for those of you who may not know, 
the people sitting on either side of Mr. Jindal and I are 
either Committee staff or personal staff. We bring our staff 
with us. They do the hard work: Making sure that we stay on 
time, stay on course, and making sure that the information that 
we gather here today gets back into the congressional record. 
As you see them here, they will be taking notes and making sure 
that we run on time.
    What I would like to do now is introduce our first panel 
that we have today.
    Mr. Gibbons. We have Tom Readinger, Associate Director, 
Offshore Minerals Management Service; we have Scott Angelle, 
Secretary, Louisiana Department of Natural Resources; we have 
Charlotte Randolph from Lafourche Parish, President of 
Lafourche Parish; Ted Falgout--I'm mispronouncing that----
    Mr. Falgout. I've been called a lot worse.
    Mr. Gibbons.--Executive Director of the Greater Lafourche 
Port Commission; Mr. Mark Davis, here as the Executive Director 
of the Coalition to Restore Coastal Louisiana.
    Ladies and gentlemen, welcome to the Committee. We look 
forward to your testimony. We will begin, just go from left to 
right, starting with Mr. Readinger.
    Tom, the floor is yours.
    By the way, we have asked them all to kind of limit their 
statements to five minutes. We can have great flexibility, 
since I'm in charge, and nobody is going to care. But your 
written statement will be submitted for the complete record. If 
you want to summarize and talk extemporaneously, we encourage 
that as well.
    Thank you. Tom, the floor is yours. We look forward to 
hearing from you.

   STATEMENT OF TOM READINGER, ASSOCIATE DIRECTOR, OFFSHORE 
                  MINERALS MANAGEMENT SERVICE

    Mr. Readinger. Thank you, Mr. Chairman. On behalf of the 
MMS and the United States Department of Interior, I certainly 
appreciate the opportunity to appear here today to provide the 
Committee information concerning the vital role of the Federal 
offshore lands for meeting the nation's energy needs. As you 
said, Mr. Chairman, I have submitted written testimony, and 
right now I will summarize and highlight some key points 
concerning--especially at your request, that I address the 
benefits that the Nation obtains and derives from the Federal 
outer Continental Shelf.
    The principal benefits can be divided in three categories. 
First, the energy benefits that are generated from--really, as 
a value to the Nation to sustain our quality of life.
    Second, the economic benefits, which derives to both 
consumers and producers, are generated in the private sector of 
our economy.
    Third, environmental benefits attributable to a program, 
which I would like to talk about, that compares favorably 
compared to other supply options the country faces. I will also 
touch on, very briefly, the secondary information benefits 
derived from the conduct of the program which help inform the 
public policy debate.
    As to the energy benefits, the Federal OCS is a major 
supplier of oil and gas for the domestic market, contributing 
more oil and natural gas for U.S. consumption than any single 
state or country in the world. A steward of these resources on 
1.76 billion acres of the nation's OCS, MMS has over the past 
30 years managed production, which cumulatively has totaled 15 
billion barrels of oil and more than 155 trillion cubic feet of 
natural gas. To give you some point of reference, that is 
enough oil to supply the entire nation's needs for three full 
years and enough natural gas for seven years.
    Today, MMS administers more than 8,400 leases and oversees 
4,000 facilities on the OCS, accounting for 30 percent of the 
nation's oil production and 21 percent of natural gas 
production. Within the next five years, offshore production 
will likely increase that share and provide more than 40 
percent of our domestic production, 26 percent for gas, owing 
primarily to deepwater Gulf of Mexico discoveries supported 
right here by the facilities in Port Fourchon.
    The deepwater activity in the Gulf/production from sites--
we use to measure a thousand feet of water or greater--has been 
a major United States economic and energy success story. There 
are now about 140 deepwater discoveries, of which more than 90 
are producing. This has helped increase total offshore 
production from 980,000 barrels per day in 1995 to 1.7 million 
barrels per day in 2003.
    And the same ingenuity that you witnessed yesterday, 
Congressman, in deepwater, is also evidenced in the shallow 
water deep-gas Shelf drilling, where operators are targeting 
deep horizons for natural gas reservoirs, drilling to 15,000, 
20,000 and even up to 35,000 feet deep through extremely high 
temperature and pressure conditions.
    As is the case for deepwater, the Administration has 
provided economic incentives to promote investment, encourage 
it, in these high-risk, high-cost ventures. The new Energy 
Policy Act of 2005 codifies and extends such incentives. The 
new Energy Act also directs MMS to manage the development of 
nonconventional renewable energy resources on the OCS, and we 
intend to apply and adapt the same guiding principles we use in 
our oil and gas program, along with Secretary Norton's 
directives to consult with local and state officials and other 
affected parties to make the balanced decisions we need to 
efficiently manage these resources.
    Turning to economic benefits, MMS has documented program 
contributions to Federal revenues, private sector producer and 
consumer benefits; and, three, related direct and indirect 
employment. OCS lease sales and production have generated more 
than $156 billion in Federal revenues from bonus bids, rentals 
and royalties.
    Annual revenues range from $4 to $10 billion each year and 
are likely to increase with high energy prices and increase 
production from deepwater discoveries in the Gulf. This amount 
of money doesn't count the tax revenues associated with Federal 
production which also provides the Federal treasury a 
significant--billions of dollars, I'm sure.
    MMS has documented substantial private sector benefits. 
They are difficult to measure, any economist will tell you, but 
we do have some models that have generated estimates that 
private sector value from the OCS could range from two to five 
times the Federal revenue apportioned. If you are interested in 
that, we have documented that in each of our programs 
supporting documentation that we put out. For the current 
program in April of 2002, we issued a report that provides by 
planning area some of this value that is generated.
    The OCS oil and gas industry directs employment that 
accounts for 42,000 workers, mostly in the Gulf of Mexico area, 
concerning direct employment; but indirectly, if you count what 
suppliers provide to support the industry, we estimate that 
there are another 90,000 or more jobs throughout the country.
    Another indirect economic benefit relates to advancements 
in technology that are attributable to offshore ventures. Over 
the last 30 years, technological advances in offshore have made 
production safer, more environmentally sound and more 
economically efficient. In the area of exploration, 
technological advances help companies better identify 
prospects, allow for more effective well placement, improve the 
development of resources, reduce the number of dry holes and 
cut exploration time.
    Regarding environmental benefits, MMS environmental 
analyses and studies help provide decisionmakers a basis to 
balance environmental impacts that may occur. Yes, our studies 
do show that impacts may well incur, as in all industrial 
activities; however, the record is also very clear that most of 
the potential impacts can be mitigated, and there is clear 
evidence that the impacts are decreasing as technology 
improves.
    Over the past three decades, MMS has documented a 
continuous improvement in the OCS environmental and safety 
records. The oil spill rate has declined each decade resulting 
in a 67 percent decrease over this 30-year period. Offshore 
production today is proving to be, indeed, one of the safest 
ways to supply our nation's energy needs.
    In fact, concerning the discussion that you often hear 
about how the argument is phrased, you often hear how 
alternatives to domestic production, such as conservation and 
efficiency, are environmentally preferable. However, we believe 
that framing the discussion in those terms can really present 
an essentially false choice comparison.
    For example, MMS analysis for the current five-year program 
reveals that, indeed, adoption of the no-action alternative, 
not producing the OCS, is more likely to result in increased 
importation of oil by tanker than conservation.
    In economic terms, importing oil is the most likely supply 
substitution alternative to not pursuing domestic production of 
hydrocarbons. If the responsible development of the OCS 
alternative is environmentally preferable, it would logically 
follow that environmental benefits would result from pursuing 
this better alternative.
    OK. But what does the record show in this comparison? Well, 
it shows that the OCS natural gas production ranks favorably in 
comparison to, say, imported oil, from an environmental 
standpoint. You don't have any oil spill risks, natural gas is 
good for meeting clean air standards and so on.
    For oil production, the record reveals that the risk of an 
oil spill from the OCS oil and gas has decreased over the last 
30 years, and is about six or seven times less than the risk 
posed by tankering imported oil. While the trend for both, 
tankering and the OCS, has declined, looking at the period from 
1985 to 2001, for every billion barrels of oil transported, 
worldwide tankers filed about 53,000 barrels; whereas, OCS 
production lost about 8,000 barrels.
    Of note, according to a recent national academy report, 
natural seeps of oil from underground accumulations emit 150 
times more oil into the North American ocean environment as 
compared to OCS.
    Policymakers have also realized substantial information 
benefits owing to the conduct of the program. Environmental and 
technological issues raised by state and local governments, 
environmental groups, industry, and others, have helped shape 
our research agenda. Much of MMS's research is accomplished, 
indeed, through cooperative funding from universities, 
interagency agreements and joint funding with industry.
    Owing to this, the environmental studies program is 
responsible for numerous scientific discoveries, such as sperm 
whales in the Gulf of Mexico; deepwater chemosynthetic sea 
communities; the documentation of artificial reef communities 
that provide habitat for unique biological communities. They 
are also responsible for the discovery of deepwater coral 
communities, never before discovered until very recently out in 
the deepwater and intertidal biological communities offshore 
California.
    In those small ways, the conduct of the OCS program has 
increased the science base for our nation's OCS resources.
    In conclusion, the environmental record of the OCS program 
is outstanding and improving. No significant platform spill has 
occurred in the last 35 years. Over the last 34 years, looking 
at the California situation, over 1 billion barrels of oil were 
produced. Over that time, on average, about 33 barrels of oil 
were spilled each year. In comparison, over the same time 
period, natural seeps release 140,000 barrels annually offshore 
of southern California.
    Natural gas production offshore represents one of the most 
environmentally sound energy investments this country could 
make. A decision to not produce the OCS also carries with it 
environmental consequences. Mostly, it will mean more imported 
oil and LNG to meet our nation's needs. Importing these 
resources poses risks to the worldwide environment, as well as 
financial and security costs.
    Finally, Mr. Chairman, you might also ask, will these 
benefits continue? There are estimates that the OCS holds about 
60 percent of the undiscovered U.S. reserves of oil and 40 
percent of natural gas. The OCS also may hold a tremendous 
potential for more natural gas in the form of these methane 
hydrates that industry and government are studying.
    However, our estimates are highly uncertain in this regard. 
Estimates for conventional resources are based on old data and 
old technology. There has been no seismic exploration in many 
areas for over 25 years and no exploration drilling.
    The new Energy Act calls for the MMS to conduct an 
inventory of OCS potential, but this review will be limited by 
these constraints. We will, however, review and consider 
alternative geologic theories to provide policymakers some 
measures of the bounds of this potential.
    As part of all this analysis, we will consider the 
significant exploration results from worldwide offshore 
drilling, for example, offshore Canada and Africa, which could 
provide useful geological analogs for some of our frontier 
areas. But regarding this longer-term view, I must also note 
that there are long lead times for accessing frontier areas of 
the OCS. Lease sales cannot be held unless they are on a five-
year program. Once the sale is held, it can take five to ten 
years for drilling to commence. Commencement of production can 
take another five years after discovery.
    In a very real sense, Mr. Chairman, regarding OCS policy 
decisions, if we wish to continue with these OCS benefits that 
we are seeing, the future is now. In this time of uncertainty, 
the MMS stands ready to respond to apply our science and 
technology and management principals to benefit the nation.
    Mr. Chairman, this concludes my statement. Please allow me 
on behalf of MMS and the Department to express our sincere 
appreciation for the continued support and interest of this 
Committee for the Federal offshore program.
    [The prepared statement of Mr. Readinger follows:]

Statement of Thomas A. Readinger, Associate Director, Offshore Minerals 
    Management, Minerals Management Service, U.S. Department of the 
                                Interior

    Mr. Chairman and Members of the Committee, my name is Thomas 
Readinger, Associate Director, Offshore Minerals Management. I 
appreciate the opportunity to appear here today to highlight for you 
the significant and vital role of Federal offshore lands for meeting 
our Nation's energy needs.
    In response to your request, I will address the benefits the nation 
obtains from the federal Outer Continental Shelf (OCS) program. The 
major program benefits can be divided into three general categories: 
(1) energy benefits, (2) economic benefits, and (3) environmental 
benefits. I will also touch upon the secondary information benefits 
derived from the conduct of the program which help inform the public 
policy debate.

Federal Offshore Energy Program--General Context
    As this committee well knows, energy use sustains our economy and 
our quality of life. This is why high energy prices and increasing 
dependence on foreign energy supplies raise important national policy 
issues.
    The President's 2001 National Energy Policy (NEP) report laid out a 
comprehensive, long-term energy strategy for securing America's energy 
future. This strategy derived from the conclusion that the issue was 
complex, long in the making, and without a short-term solution. The 
recommendations recognize that, to reduce our rising dependence on 
foreign energy supplies, we must increase domestic production, while 
also pursuing energy conservation and the use of alternative and 
renewable energy sources. Achieving the goal of secure, affordable and 
environmentally sound energy supply would require diligent, concerted 
efforts on many fronts for both the supply and demand sides of the 
energy equation.
    Good stewardship of resources dictates that we use energy 
efficiently and conserve resources. Fossil fuel development is only a 
part of the solution to our Nation's energy challenge.
    The recently enacted Energy Policy Act of 2005 recognizes the need 
for diversifying our energy sources and directs specific government 
actions intended to move our nation toward a more secure future. 
Important provisions of the new law will define the future for our OCS 
energy contribution.
    The Outer Continental Shelf Lands Act directs the Secretary of the 
Interior to make resources available to meet the nation's energy needs. 
The accompanying Congressional Declaration of Policy states, ``The OCS 
is a vital national resource reserve held by the Federal Government for 
the public, which should be made available for expeditious and orderly 
development.'' The Administration has directed the Minerals Management 
Service (MMS) to meet this charge through specific policy initiatives 
provided in the President's National Energy Policy plan. This direction 
is all the more critical in the face of increasing strains on worldwide 
energy supply. Congress and the President have now enacted energy 
legislation that will not only make conventional energy sources more 
available and economically attractive, but also allow for the orderly 
development of non-conventional and renewable resources on the Outer 
Continental Shelf.
    As the Department of the Interior's offshore resource management 
agency, the MMS has a focused and well established ocean mandate--to 
balance the benefits derived from exploration and development of oil, 
gas and marine minerals resources with environmental protection and 
safety impacts.

Current Energy Picture
    Oil is vital to the American economy. Currently, oil supplies more 
than 40 percent of our total energy demand and more than 99 percent of 
the fuel we use in our cars and trucks. With crude oil prices currently 
around $60 per barrel, consumers are bearing the cost. Gasoline prices 
in 2005 are projected to remain high, at an expected average of $2.28 
per gallon for the April to September summer season, 38 cents above 
last summer. High world oil demand will likely continue to support 
crude oil prices and increase competition for gasoline imports. In 
spite of these high prices, U.S. petroleum demand is projected to 
average 20.9 million barrels per day in 2005, up 1.7 percent from 2004.
    According to the Energy Information Administration, over the next 
20 years, Americans' demand for energy is expected to grow at an annual 
rate of 1.4 percent. This growth projection incorporates continued 
gains in energy efficiency and movement away from energy-intensive 
manufacturing to service industries. Despite a continuing emphasis on 
expanding renewable sources of energy, petroleum products and natural 
gas are projected to account for almost 65 percent of domestic energy 
consumption in 2025, a slightly larger share than today.
    U.S. natural gas consumption is expected to grow from 22 trillion 
cubic feet (tcf) in 2003 to almost 31 tcf in 2025. Domestic production, 
however, is expected to grow only from 19.1 tcf to 21.8 tcf, meeting 
only about 30 percent of demand growth. In the past, any difference 
between the growth in demand and the growth in domestic production was 
predominantly met by imports of gas from Canada. However, Canada's 
National Energy Board has concluded that their future production will 
not support increased U.S. imports. Most additional supplies will need 
to come from Alaskan natural gas and from imports of liquefied natural 
gas (LNG).
    Predictably, markets are responding to this outlook with higher 
energy prices, and an increased demand for OCS resources. This is 
apparent from recent interest in lease sales and an increasing pace of 
exploration and development. The mandates of OCSLA, the NEP, and the 
Energy Policy Act direct MMS to make available energy resources to 
contribute to the nation's economic well-being and energy security.

Energy Benefits
    The Federal OCS is a major supplier of oil and natural gas for the 
domestic market, contributing more oil and natural gas for U.S. 
consumption than any single state or country in the world. As steward 
of the mineral resources on the 1.76 billion acres of the Nation's OCS, 
MMS has to date managed OCS production that cumulatively totals 15 
billion barrels of oil and more than 155 trillion cubic feet of natural 
gas for U.S. consumption.
    Today, MMS administers more than 8,400 leases and oversees over 
4,000 facilities on the OCS, which account for about 30 percent of the 
Nation's domestic oil production and 21 percent of our domestic natural 
gas production. Within the next 5 years, offshore production will 
likely account for more than 40 percent of oil and 26 percent of U.S. 
natural gas production, owing primarily to deep water Gulf of Mexico 
discoveries.
    As the federal OCS mineral resource management agency, MMS has 
worked diligently for over 20 years to create an efficient framework 
for OCS mineral resource development. Guiding principles include: 
conservation of resources; assurance of a fair and equitable return to 
the public for rights conveyed; protection of the human, marine, and 
coastal environments; involvement of interested and affected parties in 
planning and decision-making; and minimization of conflicts between 
mineral activities and other uses of the OCS. MMS also has over two 
decades of experience working with coastal states regarding coastal 
zone management issues. The U.S. Commission on Ocean Policy in its 
report, ``An Ocean Blueprint for the 21st Century,'' stated, ``the 
scope and comprehensiveness of the OCS oil and gas program can be a 
model for the management of a wide variety of offshore activities.'' We 
must now meet the challenge of new responsibility provided in the 
Energy Policy Act, to manage the development of non-conventional and 
renewable energy resources on the Outer Continental Shelf. We intend to 
apply, and adapt, these same guiding principles, along with Secretary 
Norton's directives for consultation with affected parties, to manage 
these resources in the public's interest.
    MMS has implemented a number of National Energy Policy directives 
to increase domestic energy supplies and enhance national energy 
security by ensuring continued access to offshore Federal lands for 
domestic energy development, and by expediting permits and other 
federal actions necessary for energy-related project approvals.
Energy Benefits from Gulf of Mexico Deep Water and Deep Gas Horizons
    The U.S. is now in its tenth year of sustained expansion of 
domestic oil and gas development in the deep water area of the Gulf of 
Mexico (Gulf). Deep water oil production has risen 386 percent and deep 
water gas production is up 407 percent since 1996. Deep water means 
that from water surface to where a drill bit first touches mud is about 
1,000 feet.
    In 2004, operators initiated production on 14 new deep water 
projects and announced another 12 new deep water discoveries. 
Anticipated production from fields with names such as Thunder Horse, 
Atlantis, and Mad Dog, and will dramatically increase OCS production in 
2005 and 2006. We expect that it will be several years before deep 
water areas of the Gulf reach their full potential. The deep water 
activity in the Gulf has been a major U.S. economic and energy success 
story.
    There are now about 140 deep water discoveries of which more than 
90 are producing. This has helped to increase total offshore production 
from 980,000 barrels per day in 1995 to 1.7 million barrels per day in 
2003. Additional deep water rigs are being built or moved to the Gulf 
from other parts of the world. The number of deep water exploration 
wells drilled in 2004 increased 27 percent compared to 2003.
    The same industry ingenuity witnessed in deep water is also 
evidenced in shallow water shelf drilling operations where operators 
are targeting deep horizon natural gas reservoirs that require drilling 
15,000, 20,000 and in some instances 35,000 feet deep through extremely 
high temperature and pressure conditions. Currently, operators are 
drilling the Blackbeard project to more than 35,000 feet--6 miles. This 
well will take almost a year to drill and there is no guarantee of 
success.

Energy Benefits--Hydrates
    The Nation's energy potential may not rest entirely on conventional 
hydrocarbon resources. Industry and government scientists are now 
studying the possibility that a unique and puzzling frozen ``ice'' 
crystal may hold the key to future energy resources. Methane hydrates 
are naturally occurring ice-like solids in which compressed gas 
molecules are trapped. Hydrates are found in locations with high 
pressure and low temperature. Over 98 percent of natural gas hydrate 
resources are estimated to occur in offshore ocean sediments. 
Discovering a method to locate, produce and transport the gas from 
formations to the market is the key to unlocking their potential energy 
benefits. Researchers drilled two wells in the Gulf earlier this year 
in hopes of advancing our understanding of this potential energy 
resource.

Energy Benefits--Estimates of Remaining OCS Resources
    There has been a steady upward trend in the portion of domestic 
energy production from public lands. Overall, Interior-managed 
resources today account for about 32 percent of the nation's total 
energy production, up from 13 percent in 1970. OCS contribution is 
projected to grow significantly over the next few years as the OCS is 
believed to hold about 60 percent and 41 percent of the Nation's 
remaining undiscovered oil and gas resources, respectively. It also may 
hold a potential future supply of methane hydrates that could, if it 
proves safe to develop, supply another important source of natural gas 
for domestic consumption.
    MMS conducts a comprehensive national assessment of the 
undiscovered oil and gas resources on the OCS every 5 years. The main 
objective of these assessments is to forecast the oil and natural gas 
endowment of the U.S. OCS for planning purposes, but there is much 
uncertainty in the estimates due to a lack of data in many areas, 
especially in those OCS areas which have been off limits to exploration 
and development for many years.
    The Energy Policy Act requires us to conduct analyses and inventory 
the oil and gas resources from all OCS areas within 6 months and every 
5 years thereafter. The MMS has begun developing this inventory by 
reanalyzing existing seismic data with new analysis techniques and in 
light of new drilling information from Canada and Mexico.

Energy Benefits--Alternative Uses of the OCS
    The oceans may also hold the key to realizing significant potential 
new energy sources to support America's growing energy needs--for 
example: wind, wave, and solar energy. New authority in the Energy 
Policy Act now gives us the ability to manage alternative energy 
resources with the same balanced view toward meeting our nation's needs 
for energy; safe working conditions; and a clean, healthy environment. 
Placing the management of these various ocean energy resources in one 
agency provides MMS an opportunity to balance the multiple interests in 
development of our nation's resources.
    This new Energy Policy Act provision provides a structure for 
managing certain offshore activities that were never contemplated when 
previous statutes were enacted. It provides the basic tools for 
comprehensive management of energy-related activities on the OCS. These 
tools include the authority to grant rights to the seabed for energy-
related projects, through competitive or non-competitive means; charge 
appropriate compensation for use of the seabed; ensure safety and 
environmental protection through regulation, inspection, and 
enforcement; and require financial surety to ensure any facilities are 
removed and the seabed restored at the end of project life. As it does 
for its other offshore activities, the Department will provide a focal 
point for a coordinated review and approval process involving all 
affected parties.
    In addition, the Energy Policy Act now specifies that we can 
authorize energy or marine related uses of existing OCS facilities. 
Platforms built for oil and gas activities can now be used for other 
approved activities. There are proposals to convert platforms to a 
variety of uses, including aquaculture, scientific research, and LNG 
terminals. The oil and gas industry is also contemplating ancillary 
projects, such as staging areas and emergency medical facilities, to 
support ongoing activities in the deep water Gulf of Mexico.

Economic Benefits
    The economic benefits associated with federal OCS energy 
development are substantial by any measure. MMS has documented economic 
contributions to (1) federal revenues, (2) producer and consumer 
benefits to the private sector, and (3) related direct and indirect 
employment.
    OCS lease sales and production have generated more than $156 
billion in federal revenue from bonus bids, rentals, and royalty 
payments. Annual revenues range from $4 to $10 billion and are likely 
to increase with the higher energy prices and increased production from 
deep water discoveries in the Gulf. Tax revenues associated with 
federal production also provide significant contributions to federal 
revenues.
    In addition, MMS has documented substantial private sector economic 
benefits as required under the OCSLA section 18 analysis for each 5-
Year Program. Though difficult to measure, our economic models have 
generated estimates that reveal that private sector and consumer 
benefits can range from 2 to 5 times higher than the federal revenue 
benefits. In economic terms, these benefits include both supply-side 
producer surplus (the difference between product price and production 
costs) and demand-side consumer surplus (the difference between 
consumer willingness to pay and the product price).
    The OCS oil and gas industry directly employs about 42,000 workers, 
mostly in the Gulf of Mexico area. Indirect employment by suppliers and 
other companies that support the industry is estimated to account for 
another 90,000 or more jobs throughout the country.
    The billions of dollars MMS collects annually from energy companies 
for offshore and onshore oil and gas leasing and production constitute 
one of the largest sources of non-tax revenue to the Federal 
Government. OCS leasing and production provides the majority of oil and 
gas annual revenue collected by MMS--about 66 percent of the $8 billion 
collected in FY 2004.
    Economic incentives adopted as a result of the President's NEP 
promote discovery of new sources of energy for the Nation and stimulate 
domestic oil and natural gas production. For 2001-2005 OCS lease sales, 
we continued the royalty incentive program--first established by the 
Deep Water Royalty Relief Act of 1995--to promote continued interest in 
deepwater leases, and expanded the incentive program to promote 
development of new natural gas from deep horizons in the Gulf's shallow 
waters. A new regulation in January 2004 extended the deep gas 
incentive to existing leases, issued before the incentives were first 
provided in 2001, to promote additional deep drilling for natural gas 
on the shelf. MMS has also developed policies for extending lease terms 
to aid in planning wells to be drilled to sub-salt and ultra-deep 
prospects, accounting for the additional complexity and cost of 
planning and drilling such wells. MMS has also provided economic 
incentives for all Alaska OCS lease sales to promote leasing interest 
and encourage oil and gas exploration development in this area of high 
cost and little infrastructure. The recently enacted Energy Policy Act 
formalizes and extends some of these incentives and gives us new 
opportunities to encourage companies to step into extremely challenging 
areas like offshore Alaska and in ultra-deep water depths (>2,000 
meters). We are working now to develop the regulations to implement 
these additional incentives.

Economic Benefits--Technological Advances
    In the last 30 years, technological advancements in the offshore 
oil and natural gas industry make production safer, more 
environmentally sound, and more economically efficient. In the area of 
exploration, technological advances help companies better identify 
prospects, allow for more effective well placement, improve the 
development of resources, reduce the number of dry holes, and cut 
exploration time.
    Once production begins, advanced recovery techniques allow for 
increased production, recovering 50 percent more oil and 75 percent 
more gas from a well than was recovered 30 years ago. Improved 
reservoir management reduces the amount of water produced. Other 
improvements include better treatment of produced water, better air 
pollution control, more energy-efficient production, and reduced 
emissions of greenhouse gases.
    Technology applied to reservoir management includes artificial 
lift, for increased production; downhole oil/water separation; and 
advanced data management. Advancements in materials engineering have 
led to the increased use of advanced composite materials for parts of 
structures and mooring systems. These materials are strong, 
lightweight, and able to withstand the offshore environment.
    Offshore technologies today allow remote control of drilling 
operations from control rooms that are miles away; dynamic positioning 
of drill ships using multiple engines that are the size of the meeting 
room we are sitting in; floating production platforms; anchoring cables 
to hold facilities in place that are made of a combination of 
traditional steel and synthetic materials; pipe laying ships that can 
lay pipelines in thousands of feet of water. In fact, the recent 
Thunder Horse development required over one hundred technological 
advancements--things that had not been done before--to bring online the 
largest oil field discovered in the U.S. in the last 30 years.

Environmental Benefits--Safety and Accident Prevention
    MMS environmental analyses and studies provide decision-makers a 
basis to balance potential environmental impacts or costs associated 
with OCS development with national energy and economic benefits. These 
documents reveal that impacts occur, as in all industrial activities. 
However, the record also is clear that most of the potential impacts 
can be mitigated and there is evidence that the impacts are decreasing 
as technology improves.
    In general the MMS regulatory requirements and monitoring of 
operations are specific and stringent. For example, we require:
      specific training for offshore workers in well control 
and production safety systems;
      regular testing and maintenance of drilling, production, 
and pipeline safety systems;
      that submissions for approval of exploration and 
development/production plans include comprehensive environmental 
reports and oil spill contingency plans; and
      application of the best available and safest technology.
    MMS also has a comprehensive accident investigation program to help 
prevent recurrence of similar incidents; and an effective and vigorous 
civil and criminal penalties program.
    Over the past three decades, MMS has documented a continuous 
improvement in the OCS environmental and safety record. We have seen 
the oil-spill rate continue to drop each decade resulting in a 67 
percent decrease over this 30 year period. Offshore production today is 
proving to be one of the safest ways to provide for our nation's oil 
and natural gas energy needs.
    The MMS and the offshore oil and gas industry share the paramount 
goal of preventing offshore accidents. MMS has increased its inspection 
activities more than 60 percent since 1999; and thanks to technological 
advances and industry's commitment to safety, the number of Lost 
Workday Incidents is down 65 percent since 1996.
    MMS has a permanent workforce inspecting offshore facilities for 
compliance with safety regulations and has particular expertise in 
structural engineering and environmental mitigation. The MMS conducts 
almost 25,000 inspections of offshore facilities each year. MMS 
recently began an interagency partnership with the U.S. Coast Guard, in 
which MMS conducts inspections on behalf of that agency. The MMS also 
partners with Federal, state, and local agencies in standardizing oil 
spill plan requirements, response standards and in conducting regular 
drills.
    MMS continues to investigate technology, practices, and procedures 
that might further reduce risks to offshore workers and the 
environment. In that regard, our offshore program has benefited 
tremendously from our international research partnerships. For the past 
25 years, we have worked with international agencies on offshore safety 
research projects--one quarter of our 529 safety and pollution 
prevention projects have involved international partners or 
contractors. Participating countries include Canada, Norway, the United 
Kingdom, Sweden, Germany, France, Italy, Mexico, Brazil, Argentina, the 
Netherlands, Kazakhstan, Japan, Russia, Australia, and South Korea. 
This cooperation enables us to leverage our research funds and gain 
access to the world's leading technical specialists.

Environmental Benefits--Supply Substitution
    The discussion concerning environmental risks from oil and gas 
development is often framed as a false choice between increased energy 
conservation/efficiency and increased development of this resource. But 
as the President's National Energy Policy outlines, a balanced approach 
relies on both greater energy efficiency and wise stewardship and usage 
of our nation's energy resources. We recognize conservation alone will 
not make up for our growing demand for oil and gas. MMS analysis 
reveals that adoption of the ``no action'' alternative--no development 
of OCS resources--is more likely to result in increased oil importation 
than conservation. Environmentally sound use of OCS resources will 
allow our country to meet this need.
    What then does the environmental record show concerning how the OCS 
compares to other supply alternatives? From an environmental 
standpoint, OCS natural gas production ranks favorably in comparison, 
say, to imported oil, which increases tanker traffic into U.S. waters 
and often comes from countries with less stringent environmental 
requirements. As to OCS oil production, the record reveals that the 
risk of an oil spill has decreased over each of the past three decades 
and is about 6 or 7 times less than the risk posed by tankered imports. 
Although the trend is improving for both sources, based upon the data 
for the period 1985-2001, for every billion barrels transported, 
worldwide tankers spill about 53,000 barrels, whereas OCS production 
loses about 8,000 barrels for every billion barrels produced. For the 
most recent decade the OCS rate was down to 6,500 per billion barrels. 
Of note, according to a recent National Academy report, natural seeps 
of oil from underground accumulations emit 150 times more oil into the 
North American ocean environment than U.S. OCS production.

Information Benefits--Science Based Decision-Making
    MMS is committed to rigorous scientific research to ensure that 
decisions are based on the best available information. Environmental 
and technological issues that have been raised by state and local 
governments, other federal agencies, environmental groups, and 
industry, help shape our research agenda. Much of MMS research is 
accomplished through co-operative funding with universities, inter-
agency agreements, and joint funding with industry.
    MMS conducts applied research specific to issues associated with 
OCS mineral leasing and development through its Environmental Studies 
Program, its Oil Spill Research Program, and its Technology Assessment 
and Research Program.
    This is a particularly exciting time for ocean science and resource 
management, and the MMS is in a unique position to participate with 
other agencies as a developer, implementer, and user of our Nation's 
ocean and coastal science data. The U.S. Commission on Ocean Policy 
recommended the development of an Integrated Ocean Observing System 
(IOOS). In response to this recommendation, the Administration, in its 
U.S. Ocean Action Plan, stated support for the development of IOOS. 
Under the U.S. Ocean Action Plan, a governance structure has been 
established to oversee the development of IOOS. The Joint Subcommittee 
on Ocean Science and Technology has established an Interagency Working 
Group on Ocean Observations. MMS was identified as a key component of 
the plan as demonstrated by its November 2004 Notice to Lessees (NTL) 
establishing an ocean current monitoring and data-sharing program in 
the Gulf of Mexico; a cooperative effort between MMS, NOAA, and the OCS 
industry. Due to a need for more site-specific data for forecasting 
ocean currents that may affect structural design, fatigue criteria, or 
daily operations--issues which fall squarely under the societal goals 
of IOOS--MMS and its partners established and implemented an ocean 
current monitoring and data-sharing program in the Gulf of Mexico. 
Under this program, deepwater oil and gas platform operators will 
collect ocean current data from deepwater drilling and production 
sites. They will then report their information to the NOAA National 
Data Buoy Center website, making it publicly available to help ensure 
that OCS activities are conducted in a safe and environmentally sound 
manner.
    MMS manages several other monitoring and study programs in 
partnership with other Federal or academic agencies focusing on many 
aspects of ocean science. MMS also supports the goal of advancing 
international ocean science and policy. The MMS takes an active 
approach to identify and become involved in international initiatives 
that promote better integration of safety and environmental concerns 
into offshore decision-making. To do this, MMS focuses on:
      monitoring, developing, and refining safety and 
environmental standards;
      technical and information exchanges with our 
international regulatory counterparts; and
      providing technical advice to the U.S. Department of 
State.
    The MMS Environmental Studies program is responsible for a number 
of the discoveries, including: sperm whales in the Gulf of Mexico, deep 
water chemosynthetic communities, the documentation of artificial reef 
communities which provide habitat for unique marine communities as well 
as a preferred fishing prospect for charter boats, deep water coral 
communities, and the documentation of intertidal biological 
communities. In no small way, the conduct of the OCS program has 
increased the science base of the nation's ocean resources.

Conclusion
    The Department of the Interior's OCS program is a significant 
contributor to the nation's energy supply. With the increasing activity 
in the deepwater Gulf of Mexico, the contribution from federal offshore 
areas will increase substantially in the upcoming years. There are 
substantial national economic benefits from the program--federal 
revenues, private sector productivity gains, and employment.
    The environmental record of the OCS program is outstanding and 
improving. A significant platform spill has not occurred in the last 35 
years. Over the past 30 years of production offshore California, over 1 
billion barrels of oil have been produced with, on average, about 33 
barrels of oil spilled per year. In comparison, over this same time 
period, natural seeps ``spilled'' about 140,000 barrels of crude oil 
annually offshore Southern California. The program's excellent spill 
record has improved dramatically in each of the last 3 decades, 
according to the recent study by the National Academy.
    Regarding the longer term, there are long lead times for accessing 
frontier areas of the OCS. Lease sales cannot be held unless they are 
scheduled in a 5-year program. Once a lease sale is held, it could take 
5 to 10 years for drilling to commence. Commencement of production 
could take another 5 years after a discovery. In a very real sense, 
regarding OCS policy decisions, if we wish the OCS to continue 
contributing this significant role, the future is now.
    The expansion of MMS's ocean responsibilities on the OCS will also 
expand our oceanographic information needs. As such, MMS, NOAA, USGS, 
and other partners are already working to ensure that OCS relevant 
information needs are better integrated into the IOOS through even 
closer stakeholder input. These efforts also include working with all 
the Federal partners on the Interagency Working Group on Ocean 
Observations. The flurry of recent scientific news releases concerning 
record-breaking wave heights recorded in the Gulf of Mexico during 
Hurricane Ivan--information from research supported by the MMS and the 
Office of Naval Research--highlight the importance of ocean 
observations for proper stewardship of OCS resources.
    Natural gas production offshore represents one of the most 
environmentally sound energy investments this country could make. A 
decision to not produce OCS resources also carries environmental 
consequences. Mostly, it will mean more imported oil and LNG to meet 
our nation's energy needs. Importing these resources poses risks of 
potential environmental impacts as well as financial and security costs 
to the nation.
    In this time of uncertainty, MMS stands ready to respond--to apply 
our best science, technical experience, and sound management principles 
to benefit the nation.
    Mr. Chairman, this concludes my statement. Please allow me to 
express my sincere appreciation for the continued support and interest 
of this committee for MMS's programs. I would be pleased to answer any 
questions you or other members of the Subcommittee may have at this 
time.
                                 ______
                                 
    Mr. Gibbons. Thank you, Mr. Readinger. I also want to thank 
the MMS for yesterday and allowing us and facilitating our tour 
of the offshore facilities that we took. It was very important, 
and your testimony is very important to the overall 
understanding of that.
    We turn now to the Secretary of Louisiana's Department of 
Natural Resources, Mr. Scott Angelle.
    Welcome, Scott. The floor is yours.

            STATEMENT OF SCOTT ANGELLE, SECRETARY, 
           LOUISIANA DEPARTMENT OF NATURAL RESOURCES

    Mr. Angelle. Thank you, Mr. Chairman, and welcome to you 
and the distinguished Congressman from Louisiana and the staff 
members here. It is indeed a pleasure to welcome you here to 
the eighteenth state of our great Union where we talk a little 
different, if you haven't noticed, and sometimes we act a 
little different, like we did last night.
    Louisiana is the most unique and diverse state in the 
country, and perhaps today you have the most important 1,000 
acres of real estate in America's energy production.
    Louisiana is the epicenter of crude oil/natural gas 
exploration, production, refining and distribution for the 
nation, as well as for imports for foreign crude oil and 
liquified natural gas. I make that statement with an immense 
sense of pride on behalf of all the citizens of Louisiana who 
are currently--approximately 34 percent--34 percent of the 
nation's natural gas supply, and almost 30 percent of the 
nation's crude oil supply is either produced in Louisiana, 
produced offshore Louisiana, or moved through the states and 
its coastal wetlands, some of which you are seeing on your 
visit here this week. Together with the infrastructure in the 
rest of the state, this production is connected to nearly 50 
percent of the total refining capacity in the United States.
    As most of you know, and as Congressman Jindal has said, 
the offshore area beyond 3 miles from the Louisiana coast is 
Federal territory. Other than any 3-mile transition zone, the 
Federal government receives all of the mineral revenue from 
production in the OCS. Based on 2004 data, OCS production--
you've heard a lot about OCS production--OCS production off 
Louisiana's coast alone constitutes 91 percent of the oil and 
75 percent of the natural gas production from all of the OCS in 
America. Louisiana provides our nation with one of the largest 
contributing factors to America's strategic security and 
economic prosperity, which allows for the high standard of 
living that we all enjoy.
    Here is one example of how that translates. The pump price 
of gasoline has recently been hitting the $2.50-per-gallon 
range in many parts of the country. If it were not for 
Louisiana's role in petroleum supply, Americans would likely be 
paying in the range of $4 per gallon for gasoline today. That 
does not take into account the price for electricity, food and 
all the other things fueled by or made from oil and natural 
gas.
    Offshore petroleum production is essential to the well-
being of the United States. As you are aware, there are not 
many coastal states that allow new production. Currently, the 
states are only Alabama, Alaska, Louisiana and Texas. Offshore 
production provides economic prosperity for coastal states in 
the form of jobs, and for the service industries, providing the 
logistic support for the offshore industry.
    While the jobs are important, and the energy is critical to 
fueling America, we have come to understand that what we are 
doing here in Louisiana is nation-building. Men and women of 
Louisiana work hard to explore, produce, transport, refine and 
distribute oil and gas. Through this work, we know we are 
building a stronger America. And I am here to tell you that we 
are proud of what we have done when it comes to producing the 
energy to fuel this great country. But I am also here to tell 
you that we are prepared and we want to do more for this 
country. We simply need your help.
    Louisiana has suffered some negative impacts in the past 
from offshore production, but we know that oil and gas 
production is compatible with protecting and preserving the 
environment with now the oversight of several state and Federal 
regulatory agencies. Yes, we have to deal with some of these 
legacies of the past, but that's because Louisiana pioneered 
offshore production in the days before modern technology, 
before the awakening of America's environmental consciousness 
and before the advent of environmental regulatory agencies.
    Louisiana's first oil well was drilled onshore in 1901. The 
first oil well ever drilled over water was in Louisiana in 
1910, and it was in north Louisiana, in Caddo Lake. The first 
well drilled offshore Louisiana was in 1938. Things have 
changed dramatically since then. Louisiana is not looking back, 
we are looking to the future. With your help, we will create an 
even stronger energy pulse for America. We understand our role. 
One of our roles is to produce the fuel for America.
    You may be asking yourself, what can you do to make the 
energy pulse stronger in America in Congress? One of the many 
ideas that industry executives and government officials has 
examined is extending Section 29 of the IRS code to deep and 
ultra deep production, and to immediately begin sharing with 
the states a portion of the royalties from drilling in shallow 
waters of the Gulf.
    And finally, access, access, access, to open up some of the 
other areas of America to oil and gas development. Louisiana is 
continuously challenging itself to build a stronger energy 
pulse for America, but our biggest opponent is the elements of 
nature and the Federal decision to levee the Mississippi River. 
Louisiana loses more than 24 square miles a year of our coastal 
land, believed to be the fastest rate our planet, and we cannot 
continue to fight alone. We need your help to keep the energy 
pulse of the Nation beating strongly.
    One way to achieve a strong energy pulse is to share with 
the coastal-producing states some of the offshore revenues 
generated off their coasts. This would encourage coastal states 
to pursue more development and, in turn, would help offset 
infrastructure costs that are associated with that development. 
When states like Wyoming, New Mexico, Colorado and others host 
drilling on Federal on lands onshore, they receive 50 percent 
of those revenues in direct payments and, consequently, have 
the financial resources to support that infrastructure.
    In Fiscal Year 2004, Wyoming and New Mexico together 
received about $928 million from those revenues, which we 
believe is an appropriate revenue-sharing procedure. We just 
want that rule to apply to us as well.
    In contrast, for example, in 2001, of the $7.5 billion in 
revenues produced in the Federal OCS, only a fraction of 1 
percent went back to the coastal states. We believe this 
inequity is truly profound. Production off Louisiana's shore 
alone contributes an average of $5 billion. Of that $7.5 
billion, $5 billion alone comes from Louisiana. It is the 
second largest source of revenue for the Federal government, 
and that is when oil and gas was less than half of the $60 per 
barrel it is selling for today.
    We ask two questions: Doesn't it make sense to encourage 
the coastal-producing states, which provide that revenue and 
energy supply for the benefit of the rest of the nation; and 
doesn't it make sense that the Nation protect those who make 
these resources possible? The total value of the Louisiana 
Federal offshore infrastructure and onshore infrastructure 
support, including pipelines and port facilities, is over $100 
billion. This infrastructure is vulnerable if not protected by 
the state's barrier islands, saltwater marshes and freshwater 
wetlands. As these erode and disappear, infrastructure is 
exposed to the open sea and all of its fury.
    The coastal impact assistance money provided in the Energy 
Policy Act of 2005 that you just helped us pass--and on behalf 
of all the people in Louisiana, we thank you for your efforts--
is tremendous news. Yet, the $540 million provided over four 
years, as Congressman Jindal says, for coastal restoration, is 
only a down payment for the $14 billion needed to solve this 
problem.
    In conclusion, it is vital to the nation's security and 
prosperity that new energy sources be developed. The OCS is 
probably the single most promising area of the U.S. to obtain 
significant new energy supplies, whether conventional oil and 
gas, imported oil, imported LNG, wind and ocean energy. The 
development requires the support of coastal states to 
cooperate, supply and maintain critical production and support 
infrastructure. Louisiana is prepared to cooperate.
    By receiving an equitable share of revenue generated 
offshore, coastal states that do not currently allow offshore 
development will have an incentive to consider it, and the 
coastal states that do will be in a position to further develop 
it, and ensure that its production will be made available to 
the rest of the nation.
    Louisiana stands ready to provide the leadership to build a 
stronger nation with a strong energy pulse. We believe that 
good relationships are like good bank accounts: You got to make 
a few deposits to make a few withdrawals. And when it comes to 
energy, Louisiana has made her fair share of deposits to this 
country.
    [The prepared statement of Mr. Angelle follows:]

               Statement of Scott A. Angelle, Secretary, 
          Department of Natural Resources, State of Louisiana

    Mr. Chairman, Mr. Ranking Member, and distinguished members of the 
House Committee on Resources, it is indeed my pleasure to welcome you 
to Louisiana--America's Energy Corridor. Louisiana is the epicenter for 
crude oil and natural gas exploration, production, refining, and 
distribution for the nation, as well as for imports of foreign crude 
oil and Liquified Natural Gas. I make that statement with an immense 
sense of pride on behalf of the citizens of the State of Louisiana in 
reflection of the enormous contribution Louisiana makes to the energy 
supply of your constituents and to the rest of the citizens of this 
great nation.
    It is imperative that we, as a nation, stop reacting to energy 
situations imposed on us by outside forces, and instead, proactively 
start shaping our energy future. One of the ways to do that is to 
develop the full potential of the nation's offshore energy resources 
and to assist those states that make that production possible off their 
coasts. This can be accomplished by sharing with those coastal 
producing states some of the offshore revenues generated off their 
coasts. This would encourage those states to pursue more development, 
and it would help offset infrastructure costs those states incur that 
are associated with that development.

Supplying the Nation: Louisiana--America's Energy Corridor
    Where we are right now at Port Fourchon, is ground zero for the 
offshore petroleum supply of the nation. Louisiana has a long and 
distinguished history of oil and gas production, both on and offshore. 
Currently, approximately 34% of the nation's natural gas supply and 
almost 30% of the nation's crude oil supply is either produced in 
Louisiana, produced offshore Louisiana, or moves through the state and 
its coastal wetlands, some of which you are seeing on your visit here 
this week. Together with the infrastructure in the rest of the state, 
this production is connected to nearly 50% of the total refining 
capacity in the United States.
    When it comes to developing the nation's offshore petroleum 
resources, there simply would not be much if it were not for 
Louisiana's leadership and participation. The offshore territory off 
Louisiana's coast is the most extensively developed offshore territory 
in the entire world. As most of you know, the offshore area beyond 3 
miles from Louisiana's coast is federal territory called the Outer 
Continental Shelf, or OCS. Other than in a 3-mile transition zone, the 
federal government receives ALL of the mineral revenue from production 
in the OCS. Based on 2004 data, OCS production off Louisiana's coast 
constitutes 91% of oil and 75% of natural gas production from all U.S. 
OCS areas combined. Additionally, Louisiana OCS territory has produced 
88.8% of the 14.9 billion barrels of crude oil and condensate and 82.3% 
of the 150 trillion cubic feet of natural gas ever extracted from all 
federal OCS territories since the beginning of time.

Offshore Energy Development and Economic Prosperity
    This service that Louisiana provides to the nation is one of the 
largest contributing factors to America's strategic security and 
economic prosperity, which make possible the high standard of living 
that we all enjoy in this country. Let's look at just one example of 
how this translates to you. The pump price of gasoline has recently 
been hitting the $2.50 per gallon range in many parts of the country. 
If it were not for Louisiana's role in the petroleum supply of the 
nation, you and your constituents would likely be paying in the range 
of $4.00 per gallon for gasoline today, and that does not address how 
sky-high prices would be for electricity, food, and all of the other 
things fueled by, or made from, oil and natural gas.
    Offshore petroleum production is not only good for the country, but 
it is essential to the well-being of the USA. Offshore production is 
also good for coastal producing states, and there are not many of us--
coastal states, that is, that allow new production off our coasts. The 
list currently consists of only Alabama, Alaska, Mississippi, 
Louisiana, and Texas. Even without being able to share in the mineral 
revenue produced for the federal treasury off our coasts, offshore 
production produces economic prosperity for coastal states in the form 
of jobs for the service industries providing the logistics support for 
the offshore industry. This includes, among others: equipment and 
materials suppliers; food service; helicopter and boat transportation; 
communications services; engineers, geologists, boat and rig crews; 
other industry staff and employees; and many others. The offshore 
industry also supports many jobs far removed from the coastal states, 
including a multitude of employees who, because of the week on, week 
off type of schedules, commute up to 500 miles or more from places like 
Arkansas, Tennessee, and Georgia to work offshore in the Gulf.

Offshore Development Includes LNG
    Stepping up to the plate to help the nation obtain new supplies of 
energy including LNG (liquefied natural gas), Louisiana is the home of 
the largest throughput facility (Southern Union in Lake Charles) of the 
four existing LNG import terminals in the U.S., and it is undergoing 
more than a doubling of capacity from 1 billion cubic feet per day to 
2.5 billion cubic feet per day. While almost every state in the nation 
is trying to prevent the siting of any new LNG facilities, Louisiana is 
the site of the largest permitted LNG import terminal in the nation 
(Cheniere Energy's 2.6 billion cubic feet per day facility in Sabine 
Parish).
    Louisiana is also the home LOOP (Louisiana Offshore Oil Port), the 
only deepwater offshore oil import terminal in the world.
Offshore Development and Preserving the Environment Are Compatible
    I am also here to tell you, that oil and gas production is 
compatible with protecting and preserving the environment. Louisiana 
can look at experience and footnote that offshore development and the 
associated onshore infrastructure construction and operations are done 
in an environmentally responsible way today and are done so under the 
oversight of several state and federal regulatory agencies.
    Louisiana has suffered some negative impacts in the past from 
offshore production. And, yes, we still have to deal with some of those 
legacies of the past, but that is because Louisiana pioneered offshore 
production in the days before modern technology, before the awakening 
of America's environmental consciousness, and before the advent of 
environmental regulatory agencies and regulations.
    Louisiana's first oil well was drilled in 1901. The first oil well 
over water in the world was in Louisiana in 1910 in Caddo Lake. The 
first well drilled off the coast of Louisiana was in 1938 near Creole, 
Louisiana. Louisiana was the site of the first well drilled out of 
sight of land in 1947. Things have changed dramatically since 1910, 
1938, 1947, or even 1960, 1970, or 1980. Simply put, it was like the 
old Wild West out there. Just as in other industries in other parts of 
the country in other times, there was once a time, long, long ago, when 
almost anything in the name of progress was accepted. Everything is 
different now. That era and those practices have nothing more in common 
with modern exploration, production, and environmental techniques than 
transportation by horse and buggy in 1800's has in common with jet 
airliners flying overhead today.

Louisiana's Role as a Producing and Consuming State
    Energy is the lifeblood of an industrialized nation and a key 
economic driver for the country. A reliable and affordable supply of 
energy is necessary for economic development, prosperity, and 
expansion. Although technological improvements and investments in 
energy efficiency have reduced this country's energy consumption per 
unit of Gross Domestic Product over the past 20 years, increased 
economic prosperity is still dependent on increased energy consumption. 
In the U.S., the availability of energy has generally been taken for 
granted, but recent blackouts in California and other parts of the 
country, the emergence of 60 plus dollar per barrel oil and $7 to $8 
per million BTU natural gas, and the drive to build terminals to import 
foreign natural gas in the form of a cryogenic liquid, have highlighted 
the need for addressing energy supply.
    I come to you representing a state to which energy is its middle 
name. The words Louisiana and energy are almost synonymous. Among the 
50 states, Louisiana ranks (2004 Energy Information Administration--EIA 
data):
      1st in crude oil production
      2nd in natural gas production
      2nd in total energy production from all sources
    The importance of energy to Louisiana is further highlighted in the 
following rankings in which Louisiana is (2003 EIA data latest 
available):
      2nd in petroleum refining capacity
      2nd in primary petrochemical production
      3rd in industrial energy consumption
      3rd in natural gas consumption
      5th in petroleum consumption
      8th in total energy consumption
      but, only 22nd in residential energy consumption
    Usually, when national energy issues are discussed, Louisiana is 
cast in the image of a rich producing state floating in a sea of oil 
and gas that is being inequitably shared with the consuming states. 
Often misunderstood or overlooked, is the fact that about two thirds of 
the production from the state is in the Louisiana federal OCS (Outer 
Continental Shelf) territory and, hence, produces no revenue for the 
state, while at the same time incurring significant infrastructure 
support costs to the state, which I will discuss in more detail later.
    Also often overlooked or not explained, is the fact that, though 
Louisiana is the 2nd highest energy producing state in the nation, 
Louisiana is also 8th highest in total energy consumption. Therefore, 
Louisiana is more of a consuming state than 42 other states! This story 
is never told, nor are Louisiana's difficulties as a key consuming 
state given much concern at the federal energy policy level. Thus, when 
Louisiana, the energy producing state speaks, it is also Louisiana, the 
energy consuming state speaking. Louisiana is inexorably tied into the 
issues of all states in the nation, whether considered producing states 
or consuming states. However goes the energy situation in Louisiana, so 
goes the energy situation in the United States of America.

Louisiana's Role as a Through-Processor of Hydrocarbons for the Nation
    All of the preceding represents only the direct supply line of oil 
and natural gas. Additionally, Louisiana's 8th highest ranking among 
the states in energy consumption is attributable to the fact that 
Louisiana is consuming most of this energy as a through-processor of 
energy supplies for the rest of the nation, consuming colossal amounts 
of energy for their benefit. An example of how Louisiana is consuming 
energy resources for the primary benefit of other states is petroleum 
refining. The energy equivalent of 10% of Louisiana's entire petroleum 
product consumption is required just to fuel the processes that refine 
crude oil into gasoline, diesel fuel, jet fuel, heating oil and other 
products consumed out of state. The oil refining industry employs only 
about 10,400 workers in the state; whereas tens of millions of jobs 
throughout the country are dependent on the affordability and 
availability of the products from the continued operation of these 
refineries and associated petrochemical facilities in Louisiana.
    Many other examples could be cited of the numerous energy intensive 
natural gas and oil derived chemical products Louisiana (and also 
Texas, Oklahoma, and California) through-processes for the rest of the 
U.S. per unit of output, these industrial processes in Louisiana are 
characterized as capital (equipment), energy, raw material, and 
pollution discharge intensive, and low in labor requirements and dollar 
value added, essentially the opposite of the downstream industries in 
other states that upgrade these chemicals into ultimate end products. 
Much of the energy Louisiana technically consumes is really the 
transformation of oil and gas into primary chemical building blocks 
that are shipped to other states where the final products are made, 
whether it be plastic toys, pharmaceuticals, automobile dash boards, 
bumpers and upholstery, electronic components and cabinets, synthetic 
fibers, or thousands of other products dependent on this flow of energy 
and high energy content materials out of Louisiana.

OCS Infrastructure and Its Impacts and Needs
    It is important to understand that there is no free lunch. 
Louisiana, like other coastal producing states, sustains impacts on 
coastal communities and bears the costs of onshore infrastructure 
required to support this production activity.

Saving Louisiana's Wetlands that Protect Offshore and Onshore 
        Production Infrastructure
    Louisiana's unique and fragile coastal wetlands introduce yet an 
additional issue: land loss. Louisiana loses more than 24 square miles 
of our coastal land each year. In fact, if what is happening today in 
coastal Louisiana were happening in our nation's capital, the Potomac 
River would be washing away the steps of the Capitol today, the White 
House next year, and the Pentagon soon after that. In fact, during the 
course of this morning alone, Louisiana will lose a football field wide 
area from the Capitol Building to the Washington Monument.
    There are many causes of this coastal erosion in Louisiana, 
including what may be the most significant factor: building levees and 
channeling the Mississippi River. Whatever the cause of its demise, the 
health and restoration of Louisiana's coastal wetlands are vital to 
protecting the offshore and onshore infrastructure that is essential 
for the continuation, as well as the expansion, of offshore energy 
production in the Gulf of Mexico.
    Once the State realized the magnitude of the coastal erosion 
problem, we got serious about doing something about it. In 1980, the 
coastal restoration permitting program was moved to the Department of 
Natural Resources (DNR). In 1981, $40 million of state oil and gas 
revenue was set aside in a legislative trust fund for coastal 
restoration projects. The State has a dedicated revenue stream of up to 
$25 million per year, depending on the level of revenue collections 
from oil and gas production within the state, to replenish the fund. In 
the past few years, that replenishment stream has been at the $25 
million level. In 1989, the Office of Coastal Restoration and 
Management was created in DNR, and the magnitude of the program was 
greatly expanded.

The War Against the Elements
    Let me emphasize something extremely important to this nation's 
energy supply. Here along the coast, WE ARE AT WAR. It is a war in 
which the enemy is the elements of nature. It is an enemy with names 
like Andrew, Ivan, and Dennis--hurricanes. It is an enemy with names 
like wave erosion, storm surges, sedimentary subsidence, soil 
consolidation, salt water intrusion, and leveeing of the Mississippi 
River.
    We are part of a team called the USA, but it often seems like Team 
USA expects Louisiana and a few other coastal states to have 
supernatural power to go out, wage war against the elements and bring 
back the victory prize of oil and gas supplies and mineral revenue for 
the whole country armed only with a slingshot, like the Biblical David, 
when the enemy is a Goliath throwing 50-foot waves, 25-foot storm 
surges, and 150 mile per hour winds against the fragile wetlands that 
protect and make possible America's offshore production infrastructure.
    If you see something wrong with that picture, you are right. As you 
sit here at Port Fourchon on the pulse of the nation's vulnerable 
energy heart, I hope you will recognize the need to do more to help us, 
the coastal producing states, keep the energy pulse of the nation 
beating strongly for the benefit of you and your constituents.

Extent of Louisiana Infrastructure Supporting OCS Production
    The total value of the Louisiana OCS infrastructure and the onshore 
infrastructure supporting it is difficult to ascertain. The estimated 
depreciated investment in offshore production facilities is over $85 
billion, depreciated offshore pipeline infrastructure is over $10 
billion, and public coastal port facilities is $2 billion, for a total 
of approximately $100 billion, depreciated, and not counting highways, 
sewer, water, fire and police protection, schools, and other public 
works structures that also have ongoing operation and maintenance 
costs. The replacement of all of this would be several times the $100 
billion depreciated figure. It also does not count the onshore coastal 
infrastructure of pipelines, storage facilities, pumping stations, 
processing facilities, etc.
    This infrastructure is vulnerable if not protected by the State's 
barrier islands and marshes. As these erode and disappear, 
infrastructure is exposed to the open sea and all of its fury. As the 
coast recedes, near shore facilities become further offshore and 
subject to greater forces of nature, including subsidence, currents, 
and mudslides. Erosion in the coastal zone is already beginning to 
expose pipelines that were once buried.

A Wake-up Call from Hurricane Ivan
    To bring home the point of infrastructure vulnerability, we need 
only look back to this past Summer. Hurricane Ivan was not even a 
direct hit on Louisiana's offshore and coastal oil and gas 
infrastructure, striking two states away; yet, its effects on the 
nation's supply of oil and gas were significant, even many months after 
it hit. Most of the damage occurred along pipeline routes rather than 
actual structural damage to the producing platforms. As of February 14, 
2005, when the Minerals Management Service (MMS) released its final 
impact report on Ivan, 7.42% of daily oil production and 1.19% of daily 
gas production in the Gulf of Mexico was still shut-in. The cumulative 
shut-in production through February 14 was 43.8 million barrels or 
7.25% of annual Gulf of Mexico OCS production and 172.3 billion cubic 
feet of natural gas or 3.9% of annual Gulf of Mexico OCS gas 
production.
    As more of the protection from Louisiana's barrier islands and 
coastal wetlands wash away, increasingly more of this offshore 
production will be damaged or destroyed by even less powerful storms 
than Ivan, and particularly by storms whose paths more directly pass 
through the producing areas off of Louisiana's coast. Direct hits to 
the prime production area by hurricanes and tropical storms will cause 
incalculable damage to this production infrastructure, as well as to 
the onshore support infrastructure.

How to Increase Offshore Energy Production
Share Offshore Revenue with the States that Allow Offshore Production
    The most effective way to help is to assist those states that make 
offshore energy production possible off their coasts. This can be 
accomplished by sharing with those coastal producing states some of the 
offshore revenues generated off their coasts. This would encourage 
those states to pursue more development, and it would help offset 
infrastructure costs those states incur that is associated with that 
development. Louisiana, like other coastal producing states, sustains 
impacts on coastal communities and bears the costs of onshore 
infrastructure to support this production activity.
    When states like Wyoming, New Mexico, Colorado, and others host 
drilling on federal lands onshore, they receive 50% of those revenues 
in direct payments, and consequently have the financial resources to 
support that infrastructure. In Fiscal Year 2004, Wyoming and New 
Mexico together received about $928 million from those revenues, which 
IS an appropriate revenue sharing procedure.
    In contrast, for example in 2001, of the $7.5 BILLION in revenues 
produced in the federal OCS area, only a fraction of one percent came 
back to those coastal states. The inequity is truly profound.
    We are pleased this committee is investigating ways to increase 
offshore energy production. The need to sustain the existing supply 
that Louisiana provides must simultaneously be addressed. The most 
effective answer to both issues is to share offshore revenues with the 
coastal producing states that make that production possible. It is 
critical that coastal producing states receive a fair share of revenues 
to build and maintain onshore infrastructure and, in Louisiana's case, 
to help stem our dramatic land loss, which is occurring at a rate 
believed to be the fastest on the planet.
    Production off Louisiana shores alone contributes an average of $5 
BILLION dollars a year to the federal treasury, its second largest 
source of revenue. And, that was when oil was less than half of the $60 
plus per barrel price it is selling for today.
    Does it not make sense to encourage the coastal producing states 
which provide that revenue for the benefit of the rest of the nation? 
Does it not make sense, that when so many, like the U.S. Ocean 
Commission, are targeting offshore OCS revenues to pay for worthwhile 
preservation of natural resources, that this nation first protect those 
who make these resources possible?
    Already, in Louisiana's coastal zone, many of the pipelines and 
other infrastructure that our wetlands have historically protected are 
now exposed to open Gulf of Mexico conditions. I shudder to think of 
the production infrastructure damage and the economic impacts to this 
nation, had Ivan gone a relatively few miles further west with a direct 
hit on the infrastructure off Louisiana's shore. According to analysts, 
oil prices would realistically have hit $75 dollars a barrel. Since oil 
prices have risen since then, the price rise would be even higher now.
    Maintaining any ongoing operation requires reinvestment to 
maintain, repair, and replace worn out or outdated equipment and 
facilities. As any farmer can tell you, you cannot just take from the 
land forever without putting something back into the operation. Out of 
the harvest of crops, the farmer has to set aside a portion as seed to 
plant for the next harvest. He has to fertilize the land to replace 
depleted nutrients, plow and till the soil, rotate crops, control 
runoff and erosion, irrigate, apply pesticides and herbicides, buy and 
repair machinery. Likewise, to maintain, much less increase, production 
from off our coasts, we must reinvest in the infrastructure that makes 
all of the activity possible, whether it be port facilities, roads to 
transport equipment and supplies, erosion control, or barrier island 
and wetlands storm protection.

Assistance from the Energy Policy Act of 2005
    The Coastal Impact Assistance Money provided in the Energy Policy 
Act of 2005 that you just helped pass is tremendously good news for the 
state's coastal restoration efforts. Yet, the $540 million provided 
over four years for coastal restoration is only a drop in the bucket 
compared to the total of $14 billion needed over 20 to 30 years for 
Louisiana's unique coastal restoration needs.

En act Legislation to Extend Section 29 Tax Credits to Deep and Ultra-
        Deep Production in States Allowing Offshore Production and to 
        Immediately Share with the States 50% of the Royalties from 
        Deep Drilling in the Shallow Waters of the Gulf:
    Section 29 of the Internal Revenue Service (IRS) Code granted a tax 
credit for the production of natural gas from unconventional resources 
(coal bed methane and tight sands gas). The effect of the application 
to coal bed methane gas production was astounding in those areas of the 
country that have significant deposits of this kind, which is not along 
the Gulf Coast. Natural gas reserves from coal bed methane rose from 
6.3% of U.S. reserves at the end of 1993 to 9.9% at the end of 2003. 
Annual natural gas production from coal bed methane rose from 4.2% of 
U.S. dry gas production in 1993 to 8.2% by the end of 2003.
    Deep natural gas reserves (15,000-24,999 feet sub-surface) and 
ultra-deep gas reserves (greater than 25,000 feet sub-surface) are the 
next most immediate resources for meeting the supply and deliverability 
needs of the U.S. market. These resources should be granted the same 
tax credit as was granted to coal bed methane producers. The resulting 
stimulus to production should be at least equal to the coal bed methane 
results, and would very likely far exceed it in time as capital is 
brought to bear on this drilling domain. The federal Minerals 
Management Service (MMS) has recently instituted significant deep shelf 
royalty incentives for the shallow federal waters of the Gulf of Mexico 
shelf. This does no good for the adjacent state waters and onshore 
areas. The Section 29 credits need to be instituted for state waters 
and onshore areas, at least in those states allowing federal offshore 
production.
    Another thing that is needed immediately, is to share with coastal 
producing states 50% of the royalties from new deep drilling in the 
shallow federal waters on the shelf. The MMS royalty deep shelf 
suspension program is a good program, but it is draining investment 
from our parishes by shifting drilling across the boundary line into 
federal waters, causing loss of investment and tax revenue from lost 
drilling in state territory. Louisiana should receive 50% of royalties 
from deep drilling on the shelf immediately.

Encourage New Energy Sources and Technology
    Recent studies show that the Gulf of Mexico has a significant wind 
energy potential. Although wind power does not have the energy density 
of petroleum, it is an inexhaustible, renewable source of clean energy. 
Again, much to my consternation, it appears that there are many parts 
of the country that use a lot of energy and want it at low prices, but 
do not want production of any kind, anywhere near them, including wind 
energy. Again, Louisiana is stepping up to help encourage this clean 
energy source. The State of Louisiana is currently working with private 
sector investors who are interested in developing wind farms in state 
and federal waters off Louisiana's coasts. My office submitted wind 
power legislation which the Louisiana Legislature passed earlier this 
year to facilitate offshore wind power development in Louisiana's State 
offshore waters.
    Natural gas hydrates probably offer the greatest untapped energy 
resource the nation has. The Oil and Gas Journal recently reported that 
the U.S. Geological Survey estimates that methane hydrate deposits are 
greater than all other forms of fossil fuels combined. Large deposits 
of gas hydrates are believed to lie below the offshore waters of the 
U.S. Unfortunately, technology to tap these resources needs to be 
developed. Once the technology is available, the first areas to be 
developed will be the areas adjacent to the existing offshore producing 
areas where the infrastructure is in place to get it to shore and into 
the nation's pipeline distribution system. The federal government needs 
to fund meaningful research into developing the technology to produce 
gas hydrates, assessing the resource base, and delivering it.

In Conclusion
    It is vital to the nation's security and prosperity that new energy 
sources be developed. The federal government has proven that it has the 
ability to steer investment, as in the case of deep water drilling in 
the Gulf and coal seam gas. In addition to its significance in 
producing 30% of oil and 23% of natural gas produced domestically, 
which is mostly off Louisiana, the OCS is probably the single most 
promising area for the U.S. to obtain significant new energy supplies. 
These supplies, whether conventional oil and gas, imported oil, 
imported LNG, wind and ocean energy, or gas hydrates, need the support 
of coastal states to cooperate and to supply and maintain critical 
production and support infrastructure.
    LNG facilities are being built where the existing U.S. pipeline 
infrastructure exists (essentially Louisiana and Texas) in order to get 
the gas from the coast into the delivery system to supply the nation. 
The same will be true when the technology is developed to commercialize 
methane hydrate production off the coasts. This Louisiana and Texas 
infrastructure will also be used when deep and ultra-deep shelf 
production comes on stream. This is another reason why offshore revenue 
should be shared with the coastal producing states and why the 
extension of Section 29 tax credits should be extended to deep gas 
exploration at least in the states that are allowing onshore and 
offshore drilling and allowing the siting of LNG facilities to make 
energy available to the rest of the country.
    With effective policies and incentives, the federal government can 
steer investment into the offshore areas, and by receiving an equitable 
share of revenue generated offshore, the coastal producing states can 
be in a position to ensure that this production will be made available 
to the rest of the nation. As the granddaddy of all producing states, 
literally and figuratively, Louisiana desperately needs immediate 
revenue sharing financial assistance from a source not subject to 
annual appropriations, to continue to maintain existing, and to develop 
future energy supplies for the nation.
    It would be a travesty for the Congress to enact national energy 
legislation without substantial OCS revenue sharing in the form of 
direct payments to the coastal producing states from the revenue 
derived from offshore production, similar to the automatic payments for 
drilling on federal lands onshore, and before any other dispersal of 
those monies.
    Thank you for coming to Louisiana and for this opportunity to 
appear before you.
                                 ______
                                 

           Response to questions submitted for the record by 
                       Secretary Scott A. Angelle

1.  At this point it would seem that, if the federal government ever 
        worked out a system whereby oil and gas development could occur 
        in a least a portion of the Eastern Gulf of Mexico, that 
        portion would be nowhere near the Florida coast. Is Louisiana 
        prepared to continue to support--through Port Fourchon, for 
        example--any offshore activity that might occur there?
    Louisiana regards the full exploration and development offshore all 
coasts of the U.S. to be in the strategic and economic interests and 
benefit of the nation. Louisiana is ready and willing to support the 
development in the Eastern Gulf up to the full limits of the capability 
of the infrastructure. There are physical and economic limits as to 
what is the ultimate development activity level the state could expand 
to accommodate. With sufficient funding, in the form of dedicated 
revenue sharing assistance, the state could readily expand capabilities 
to support major new offshore development in the Eastern Gulf.

2.  If the federal government could move legislation that provided some 
        sort of revenue sharing to states that support offshore 
        development, what sort of ``sharing'' would you like to see?
        a.  An annual hard dollar amount?
        b.  A percentage of OCS revenues?
    Either approach or a combination of the two could work. Our 
preference would be for the state to receive 50% of revenue from all 
production in the Louisiana federal offshore area (MMS Central Gulf 
Planning Region) and a portion of revenues from the production in the 
Eastern Gulf logistically supported from Louisiana infrastructure. That 
would provide sufficient revenue for the state to address both the 
massive funding needs of coastal erosion and wetlands restoration in 
the state, as well as funds to update and expand the ports and other 
coastal and onshore infrastructure needs created by existing and 
expanded development of the Eastern and Central Gulf.

3.  Does this revenue sharing need to be dollars that are directly 
        funded? Or can they be appropriated? Why?
    It is crucial that these shared funds be directly funded. In 
Louisiana, we urgently need these funds for multi-billion dollar 
capital projects that require extensive research, planning, design, 
construction, monitoring, and management outlays. For coastal 
restoration projects alone, Louisiana needs a minimum of $14 billion 
(in today's dollars) over the next 20 to 30 years. Added to that are 
other large capital projects such as widening, elevating, and / or 
replacing highways across the marshes, port development and expansion, 
water supply, drainage, and flood control.
    Construction and maintenance of highways is a very expensive 
engineering challenge in Louisiana's vast coastal wetlands. These 
highways, such as Louisiana Highway 1, the only land route to Port 
Fourchon, are the logistical supply lines for hundreds of thousands of 
truck deliveries to and from the ports, as well as the transportation 
routes of the offshore workforce. In times of hurricane and other 
serious storm threats, these highways are the only escape route to 
higher ground for tens of thousands of coastal and offshore families 
and workers. Additionally, state and local governments must supply 
public safety and health services such as fire, police, municipal waste 
disposal, hospitals, etc.
    The preceding projects require long term planning horizons, large 
capital expenditures, and long term expenditure commitments. It is not 
feasible to accomplish these objectives with unstable or unreliable 
funding sources, such as would be the case with annual appropriations 
subject to varied Congressional and Presidential budget considerations 
each year. Additionally, Louisiana is only asking for the same revenue 
sharing percentage (50%) and mechanism (automatic direct payments 
exempt from the appropriation process) that is used to share revenue 
with states that have oil and gas production from federal lands 
onshore.

4.  Would you prefer to see that the federal government set up a system 
        prescribing how states would be eligible for this money?
    No, we would prefer the mechanism now used to share revenue with 
states for oil and gas production from federal lands onshore.

5.  Would you prefer to see that the federal government set up a system 
        prescribing how states could spend this money?
    No, we would prefer the mechanism now used to share revenue with 
states for oil and gas production from federal lands onshore.

6.  Mr. Falgout, noted in his testimony that the oil and gas industry 
        co-exists with many other coastal users, and that it doesn't 
        have to be one or the other. The committee agrees with him that 
        it is a false choice to believe America must choose one or the 
        other. Mr. Davis also noted a similar theme in his testimony 
        that the ``belief that OCS development is incompatible with 
        environmental stewardship and the best interests of communities 
        is widespread and it runs deep''. I open this question to the 
        entire panel. How then, can a Florida, or a California, be 
        convinced that the industry can--and does--coexist with other 
        uses, and the environment? Please provide specific examples if 
        you can.
    Perhaps answering the question of how can a Florida or a California 
be convinced of this, requires answering the question, ``Why should 
they take a chance?'' As things are now, what reason does a coastal 
state have to allow drilling off their coast? They look at Louisiana, a 
state that could not cooperate more to facilitate offshore drilling, 
and see how Louisiana, as a COOPERATIVE state, is treated by the 
federal government when it comes to revenue sharing, funding coastal 
restoration, wetlands mitigation assistance, etc., and have to wonder 
what overriding benefit is in it for them.
    They get the benefit of the energy and revenue produced off 
Louisiana's coast without having to risk any costs or damage, real or 
perceived, by exposing their coastal areas to any oil and gas activity.
    Add to this the fear created by lack of familiarity. As people 
learn more about a subject, experience it, and see its effects, they 
get more comfortable. Louisiana has a long experience with oil and gas 
production, and a large percentage of Louisiana citizens are familiar 
with the industry and know how exploration and production are done 
today.
    A visit to Louisiana's coastal ports in areas such as Venice and 
Port Fourchon will make it very clear that a major saltwater sport 
fishery is associated with offshore oil and gas platforms. Large 
numbers of fisherman pursuing snapper, mackerel, tuna, cobia, spotted 
seatrout and many other species concentrate much of their successful 
angling efforts around offshore oil and gas production platforms off 
Louisiana. The fact that Louisiana's commercial fisheries landings 
(dominated by coastal-dependent species) lead all other Lower 48 States 
is also evidence that oil and gas development is compatible with high 
levels of biological productivity.
    Most of Louisiana's environmental issues related to oil and gas 
development stem from two primary factors. One, Louisiana has a unique 
coastal wetlands geology (See the answer to question 7 below for more 
on this.), which has made Louisiana's coast ultra-sensitive to 
disturbances of any kind, and there have been many, both man-made and 
natural. Two, Louisiana was the pioneer in developing coastal and 
offshore oil and gas development dating from back in the days of little 
knowledge of, almost no awareness of, and no regulation of, 
environmental impacts. Times, experience, technology, regulation, and 
conscientiousness related to oil and gas development and preserving the 
environment have all changed since the pioneer days. As a legacy of the 
past, it is true that pipelines originating in the OCS have had 
significant adverse impacts on Louisiana's coastal wetlands and barrier 
shorelines. Over the years, however, modern construction techniques and 
improved technology have substantially reduced such impacts. For 
instance, even large pipelines can be directionally drilled under 
barrier islands to minimize damages to those sensitive features.
    Louisiana can look at experience and show that offshore development 
and the associated onshore infrastructure construction and operations 
are done in an environmentally responsible way today and are done so 
under the oversight of several state and federal regulatory agencies. 
We have been the proving ground, and others can benefit from our 
experience.

7.  This committee appreciates the willingness of your state to play 
        host to a large percentage of the oil and gas that fuels our 
        economy. Furthermore, we commend you for taking initiative to 
        address the coastal erosion problems you are currently facing. 
        How much money do you think it will cost to fully address the 
        coastal erosion problems as you see them?
    As I mentioned in response to question 3 above, Louisiana needs a 
minimum of $14 billion (in today's dollars) over the next 20 to 30 
years. Louisiana has quite a unique geology relative to the rest of the 
country. The Louisiana coast is geologically the youngest part of the 
U.S. and, prior to manmade interference from leveeing and channeling 
the Mississippi River and other activities, was still accreting land 
mass faster than it was losing it to subsidence, erosion, salt water 
intrusion, sea level rise from global warming, and other causes. The 
science of coastal geology and the expertise of coastal engineering to 
counter these forces is in its infancy, as it has never in the history 
of civilization, been attempted on the scale it must be implemented in 
South Louisiana. Also, we are dealing with a situation that is 
continuously subject to changing dynamics, such as more frequent and 
more powerful hurricanes, the apparently increasing effects of global 
warming, etc. Hence, we cannot be assured that, ten or more years down 
the road, we will find that the estimated $14 billion price tag is an 
adequate estimate.

8.  What is the average amount of 8(g) money flowing to Louisiana 
        today? Has this number been steady? Building? Declining?
    Section 8(g) settlement payments, which had increased to an annual 
amount of $8.4, ended in 2001. Since then, the state has been receiving 
only the 27% share of royalties (including rentals and bonuses) for the 
3-mile wide Section 8(g) zone. This 8(g) royalty payment varies up and 
down with oil and gas prices and production activity. Below are the 
8(g) payments (excluding the discontinued settlement payments) to 
Louisiana for 1993 through 2003. We do not have a figure for 2004 yet, 
but estimate it to be about $38 million:
        1993 -- $14.5 Million
        1994 --  20.6
        1995 --  15.0
        1996 --  23.1
        1997 --  26.6
        1998 --  20.2
        1999 --  15.3
        2000 --  22.7
        2001 --  40.6
        2002 --  11.9
        2003 --  29.6
        2004 --  38.0 (Estimated)

9.  In your written testimony you recommend extension of Section 29 tax 
        credits to deep and ultra-deep natural gas production in the 
        Gulf of Mexico. Please explain the benefits that you believe 
        would come from such action.
    Deep natural gas reserves (15,000-24,999 feet sub-surface) and 
ultra-deep gas reserves (greater than 25,000 feet sub-surface) are the 
most immediately available resources capable of providing a substantial 
increase in domestic production of natural gas. Substantial deep gas 
reserves are known to exist, and a deep gas well can have the 
productive capacity many fold over that of coal seam wells and as much 
as five to ten times that of conventional shallower wells. For example, 
a typical coal seam gas well may produce 100,000 cubic feet (CF) per 
day, a good conventional 15,000 foot well could produce 1 to 2 million 
CF per day, and a deep gas well could produce in excess of 50 million 
CF per day. The richest deep gas domain known in the U.S. underlies the 
onshore area and adjacent offshore shallow water shelf of the Gulf of 
Mexico. A 1998 study of the Potential Gas Committee put estimates of 
the U.S. deep gas resource base at possibly 170 Trillion Cubic Feet. 
The deep gas domain along the Gulf Coast underlies the existing surface 
infrastructure of pipelines, gas processing plants, and other drilling 
/ production support infrastructure to move this gas into the U.S. gas 
supply immediately.
    One problem is that, while productivity increases with depth in 
elevated reservoir pressure wells, drilling costs rise exponentially 
with well depth, and the drilling of one deep well takes a year or 
more. For example, conventional wells less than 15,000 feet normally 
cost between $100,000 and $2 million to drill. The deeper 15,000, plus 
foot range wells average around $6 million, 20,000 foot wells about $16 
million, and 25,000 to 30,000 foot wells are in the range of $25 
million, plus. Hence, the capital at risk for a dry hole is 
substantial, which makes the ability to fund such ventures difficult. 
Additionally, deep wells require leading edge drilling technology. Due 
to the limited amount of deep drilling done, few companies have the 
experience, technological capabilities, and financial resources to 
undertake this high return, but high risk activity. Of the few 
companies that have the ability to drill in this domain, most are the 
major oil companies, who have focused their financial resources on the 
more lucrative oil reserves of the deep water Gulf and drilling in 
foreign countries. Substantial new financial incentives could 
significantly reduce the entry hurtle, increase the reward to risk 
ratio, and reduce barriers to capital access, particularly for the 
independent companies who now do most of the onshore drilling in this 
country.
    The effectiveness of using the Section 29 credit approach has 
already been demonstrated. Section 29 of the Internal Revenue Service 
(IRS) Code granted a tax credit for the production of natural gas from 
unconventional resources (coal bed methane and tight sands gas). The 
effect of the application to coal bed methane gas production was 
astounding in those areas of the country that have significant deposits 
of this kind, which is not along the Gulf Coast. Natural gas reserves 
from coal bed methane rose from 6.3% of U.S. reserves at the end of 
1993 to 9.9% at the end of 2003. Annual natural gas production from 
coal bed methane rose from 4.2% of U.S. dry gas production in 1993 to 
8.2% by the end of 2003.
                                 ______
                                 
    Mr. Gibbons. Thank you, Mr. Secretary. While you may speak 
funny, you speak very clearly for the people of Louisiana and 
this country. We really appreciate what you have said. You are 
a strong advocate for your position and it comes across very 
clear. It is greatly appreciated, what you have said today.
    We turn now to the President of Lafourche Parish, Charlotte 
Randolph. Thank you. We enjoyed our time we spent last night 
getting to know each other and look forward to your testimony.

               STATEMENT OF CHARLOTTE RANDOLPH, 
                  PRESIDENT, LAFOURCHE PARISH

    Ms. Randolph. Good morning to you, Chairman Gibbons. It was 
a delight last night.
    Congressman Jindal, good morning, as well. Mr. O'Shea, on 
behalf of Congressman Melancon, and to the other members here, 
on behalf of the residents of Lafourche Parish, I would like to 
formally welcome you today to Port Fourchon, the hub of 
Louisiana's offshore oil and gas industry and a portal to much 
of the nation's oil imports.
    Port Fourchon is at the tail end of Lafourche Parish, yet, 
we are eager to report that this tail is wagging the dog.
    Lafourche had been supporting and encouraging the 
exploration of oil and gas for over 60 years. The economy of 
the parish has been and continues to be dependent on oil and 
gas revenues. The majority of the top taxpayers in the parish 
are involved in the petrochemical industry, both directly and 
in service-related businesses. Oil royalties from onshore 
operations comprise 5 to 10 percent of our revenues and provide 
funding for capital improvement projects, roads, bridges and 
drainage projects. Royalty revenues recently provided 
collateral for a $15 million road improvement program in the 
central and northern parts of Lafourche Parish.
    These revenues allow us to maintain the infrastructure of 
our communities and supplement basic operations, such as the 
detention center, our court system and the district attorney's 
office. The funds are also used to partner with the state and 
Federal governments to stabilize and protect Louisiana Highway 
1, the only link to Port Fourchon.
    Forty-five years ago, Act 222 of the Louisiana legislature 
created the Greater Lafourche Port Commission. The people of 
the Tenth Ward of Lafourche Parish agreed to tax themselves to 
create this port. The men who comprise the commission over the 
years developed Lafourche Parish into the focal point of the 
Gulf of Mexico's domestic deepwater oil and gas production, 
changing the economy of Lafourche. Unskilled laborers were able 
to secure good paying jobs and comfortably retire years later. 
Fishing boats were converted into oil field service vessels, 
creating companies that are now supporting the third generation 
of family members and employing thousands.
    As a testament to our prowess in industry, Lafourche 
mariners were integral to the successful development of oil 
fields in the North Sea. The experience in the industry allowed 
many local residents to prosper when the North Sea was 
flourishing.
    The construction of the Louisiana Offshore Oil Port in 1979 
is an important milestone in our parish's history. LOOP is a 
consortium of private energy firms operating the offshore 
terminal for offloading imported oil, conducting business from 
a facility located in Galliano, and maintaining an east-west 
LOCAP pipeline network. For many years, LOOP was the top 
taxpayer in Lafourche Parish. They were removed from the top 
spot by a marine service company. Pipeline companies are also 
among the top ad valorem taxpayers.
    Lafourche Parish starts nearly 90 miles to our north, in 
the sugar cane fields along our namesake, Bayou Lafourche. The 
economic engines providing for our citizens include 
agricultural, seafood, shipbuilding and the oil and gas 
industry. Thus, our motto, ``Feeding and fueling America.'' We 
are that significant.
    While oil and gas is often described as a cyclical 
industry, nothing is more unpredictable than the agriculture 
and fishing industries. Both succeed and fail at the hands of 
Mother Nature. Our founding fathers were fishermen and farmers, 
for we are rich in resources. Yes, we have come to rely on the 
more stable oil and gas industry for our economic sustenance.
    The shipbuilding industry has also flourished in 
conjunction with the oil and gas industry. Large and small 
shipyards dot Bayou Lafourche and the Intracoastal Waterways.
    The energy industry does not only support our residents and 
Lafourche companies. Workers from throughout the region, the 
state and many other states travel here for shift work, 
bringing home better paychecks than they could have earned 
where they live and perhaps finding a good-paying job here when 
none was available back home. They also leave behind precious 
sales taxes, which pay for our schools and police departments. 
The parking lots of Port Fourchon and the offices of the boat 
companies contain many vehicles with out-of-state license 
plates. The trucking companies, which traverse our highways, 
bring products from many different parts of the United States, 
providing jobs in the very important support industry 
throughout this country.
    Pipelines buried deep under sugar cane fields and cattle 
pastures far north of here provide the property taxes for 
recreation centers.
    I would be remiss if I failed to mention the philanthropic 
aspect of our partnership with oil and gas. Major companies 
have provided a generator for an evacuation center, sponsorship 
for BeachSweep here at Port Fourchon, the underwriting of 
special projects at recreation centers and renovations to our 
churches. No fund-raising effort is complete without generous 
donations from oil-and-gas-related companies.
    On a personal note, I'm an avid fisherman. It is the best 
opportunity to escape close to home. Sometimes we go far enough 
out into the Gulf where my cell phone doesn't work. And I have 
to endure the admonishments of my husband for casting toward 
the porpoises. There may be no fish there, but watching them 
play is peaceful.
    Also nearby are the trawlers, reminding us of our heritage 
and harvesting the wonderful shrimp which abounds here.
    Everywhere you look, there are oil and gas structures and 
commercial marine vessels. We coexist happily. Thank you, 
gentlemen.
    [The prepared statement of Ms. Randolph follows:]

              Statement of Charlotte Randolph, President, 
                  Lafourche Parish, State of Louisiana

    On behalf of the residents of Lafourche Parish, Louisiana, I would 
like to formally welcome you today to Port Fourchon, the hub of 
Louisiana's offshore oil and gas industry and a portal to much of the 
nation's oil imports.
    Port Fourchon is at the tail end of Lafourche Parish, yet we're 
eager to report that this tail is wagging the dog.
    Lafourche has been supporting and encouraging the exploration for 
oil and gas for over 60 years. The economy of the parish has been and 
continues to be dependent on oil and gas revenues. A majority of the 
top taxpayers in the parish are involved in the petrochemical industry, 
both directly and in service-related businesses. Oil royalties from 
onshore operations comprise five to ten percent of our revenues and 
provide funding for capital improvement projects--roads, bridges, and 
drainage projects. Royalty revenues recently provided collateral for a 
$15 million dollar road improvement program in the central and northern 
parts of Lafourche.
    These revenues allow us to maintain the infrastructure of our 
communities and supplement basic operations such as the detention 
center, our court system and the district attorney's office. The funds 
are also used to partner with the state and federal governments to 
stabilize and protect Louisiana Highway 1--the only link to Grand Isle 
and Port Fourchon.
    Forty-five years ago Act 222 of the Louisiana Legislature created 
the Greater Lafourche Port Commission. The men who comprised the 
commission over the years developed Port Fourchon into the focal point 
of the Gulf of Mexico's domestic deepwater oil and gas production, 
changing the economy of Lafourche. Unskilled laborers were able to 
secure good paying jobs and comfortably retire years later. Fishing 
boats were converted into oilfield service vessels, creating companies 
that are now supporting the third generation of family members and 
employing thousands.
    As a testament to our prowess in the industry, Lafourche mariners 
were integral to the successful development of oilfields in the North 
Sea. The experience in the industry allowed many local residents to 
prosper when the North Sea was flourishing.
    The construction of the Louisiana Offshore Oil Port in 1979 is an 
important milestone in our parish's history. LOOP is a consortium of 
private energy firms operating the offshore terminal for offloading 
imported oil, conducting business from a facility located in Galliano 
and maintaining an east-west LOCAP pipeline network. For many years, 
LOOP was the top taxpayer in Lafourche Parish. They were removed from 
the top spot by a marine service company. Pipeline companies are also 
among the top ad valorem taxpayers.
    Lafourche Parish starts nearly 90 miles to our north, in the sugar 
cane fields along our namesake Bayou Lafourche. The economic engines 
providing for our citizens include agriculture, seafood, shipbuilding 
and the oil and gas industry. Thus our motto ``Feeding and Fueling 
America''.
    While oil and gas is often described as a cyclical industry, 
nothing is more unpredictable than the agriculture and fishing 
industries Both succeed and fail at the hands of Mother Nature. Our 
founding fathers were fishermen and farmers, for we are rich in 
resources, yet we have come to rely on the more stable oil and gas 
industry for our economic sustenance.
    The shipbuilding industry has also flourished in conjunction with 
the oil and gas industry. Large and small shipyards dot Bayou Lafourche 
and the Intracoastal Waterway, building the vessels which work here and 
throughout the world.
    The energy industry does not only support our residents and 
Lafourche companies. Workers from throughout the region, the state and 
many other states travel here for shift work, bringing home better pay 
checks than they could have earned where they live. And perhaps finding 
a good-paying job here when none were available back home. They also 
leave behind precious sales taxes which pay for our schools and police 
department. The parking lots at Port Fourchon and at the offices of the 
boat companies contain many vehicles with out-of-state license plates. 
The trucking companies which traverse our highways bring products from 
many different parts of the United States, providing jobs int the very 
important support industry.
    Pipelines buried deep under sugar cane fields and cattle pastures 
far north of here in Lafourche provide the property taxes for 
recreation centers.
    I would be most remiss if I failed to mention the philanthropic 
aspect of our partnership with oil and gas. Major companies have 
provided a generator for an evacuation center, sponsorship for 
BeachSweep here at Port Fourchon, the underwriting of special projects 
at recreation centers, and renovations to our churches. No fundraising 
effort is complete without generous donations from oil and gas-related 
companies.
    On a personal note, I am an avid fisher. It's the best opportunity 
to escape close to home--sometimes we go far enough out into the Gulf 
where my cell phone doesn't work! And I have to endure the 
admonishments of my husband for casting toward the porpoises--there may 
be no fish there, but watching them play is so peaceful. Also nearby 
are the trawlers, harvesting the wonderful shrimp.
    And everywhere you look, there are oil and gas structures and 
commercial marine vessels. We coexist happily.
                                 ______
                                 
    Mr. Gibbons. Thank you, Ms. Randolph. That was very 
eloquently stated, and we certainly appreciate your perspective 
on life in Louisiana, as well as the benefits the oil and gas 
industry has provided for the people of Lafourche Parish.
    We turn now to Mr. Falgout. Thank you for your hospitality 
at the Port yesterday and today. We look forward to your 
testimony. The floor is yours.

STATEMENT OF TED FALGOUT, EXECUTIVE DIRECTOR, GREATER LAFOURCHE 
                        PORT COMMISSION

    Mr. Falgout. Thank you, Mr. Chairman. It is a pleasure to 
be here and have this opportunity to speak before you today. I 
guess now my comments are going to pretty well pattern 
Secretary Angelle and Parish President Randolph, so I guess we 
are telling the truth because we are all saying it in a little 
different way, a little different angle.
    On behalf of our Commission--and we have several 
commissioners here. I would like to recognize them. They are 
elected individuals. In fact, we are the only elected Port 
commission in this state. Let me recognize several of them 
here. Our president, Donald Vejay--where are you?
    Our Vice President, Jimmy Lafon, I saw him earlier. Harry 
Cheramie, Treasurer--excuse me, Secretary. Larry Griffin, 
Member; Chuckie Cheramie; Bo Martin, Commissioner.
    Did I miss anybody? I can't see back there very well, but 
these gentlemen are responsible for the policy and getting the 
port moving the way it is, and certainly, they play a big part 
in it and should be recognize for that.
    On their behalf, I want to welcome you to the very 
significant energy port, as has been pointed out, but we could 
not imagine a more fitting place to have this hearing, one more 
bountiful in resources than we have here in southern Lafourche 
Parish. It is quite clear that this country's richest oil and 
gas resources, by far, are located here in coastal Louisiana 
and the infrastructure necessary to produce it is here, present 
and operating, and we do it well with very little fanfare, as 
you know.
    So, this dominant industry co-exists with so many other 
coastal users. You got to fly over the coast yesterday. Just 
five minutes from here, you can drive down to the beach, and 
you will see families crabbing and fishing, you will see 
commercial shrimpers trawling in the Gulf offshore, you will 
see recreational fishermen catching speckled trout on the 
coast. You will see bird watchers. Then you will turn around 
and see 100 oil and gas production platforms sitting out in the 
Gulf of Mexico. And I think that's clear that it doesn't have 
to be either/or, which is the position of so many states. They 
can coexist, they work well here, and we are a prime example of 
that happening.
    The economic impact of the oil and gas industry in 
Louisiana, totals nearly $100 billion annually. And nowhere is 
it more prevalent than here in our community. Over the last 
decade, this region has consistently had some of the lowest 
unemployment rates in the country. It is not just the direct 
oil and gas jobs, it is the shipyard workers, the grocery 
stores, the hardware stores and so on. This industry certainly 
drives our economy.
    The impact of this Port on our community has been nothing 
short of phenomenal. Since the passage of the Deepwater Royalty 
Relief Act in 1995, offshore oil and gas activity in this Port 
has virtually exploded. And I know with 9/11, that is not a 
good term to use, but certainly, it has been phenomenal. Our 
market share of the drilling activity in the Gulf of Mexico in 
this last decade has increased from 12 percent to over 50 
percent of the drilling rigs operating in the Gulf of Mexico 
are being serviced by this facility. As a result of this, the 
Port has tripled in size, causing an unprecedented boom in 
construction.
    This activity has also had a very favorable impact on the 
tax base of our parish, as our parish president just indicated. 
The sales tax district that this Port is in, is roughly about 
one-third of the parish. It represents 58 percent of the taxes 
paid in this parish, just to give you some idea of its 
significance in sales tax. In ad valorem tax, eight of the top 
ten ad valorem taxpayers are oil-and-gas-related companies and 
have investments in the Port. The top taxpayer in this parish, 
which is the Port's largest lessee, Edison Chouest, owns three 
of the top ten taxpaying companies.
    Another example of maybe a not so visible benefit is that 
our potable water rates were subsidized, because almost a 
quarter of this parish's water supply is being consumed by the 
offshore activity in the Gulf of Mexico, and we call that 
export water. And it brings a premium charge, which results in 
a reduced household rate. So, actually, our households are 
subsidized by the offshore oil and gas usage of our potable 
water.
    The historical boom/bust nature of this industry certainly 
has had its impact. The bumper stickers that say, ``Last one 
out of Morgan City, turn out the lights,'' hopefully are behind 
us. As Mr. Readinger indicated, the deepwater Gulf of Mexico 
remains an expanding frontier and the deep Shelf gas is 
reviving fields that were thought depleted.
    But as we convey to this country the benefits of oil and 
gas development, this country must recognize the dominant role 
that coastal Louisiana plays now and what is being demanded of 
it in the foreseeable future.
    An astounding 90 percent of the oil and 80 percent of the 
natural gas from Federal waters is coming from offshore 
Louisiana. It was mentioned, in addition to that, with LOOP 
sitting 18 miles off of our coast handling 15 percent of the 
nation's foreign oil connected to over 30 percent of the U.S.'s 
refining capacity is just a huge--roughly 15 to 18 percent of 
the nation's energy supply has some correlation to Port 
Fourchon. If that is not significant, I don't know what is.
    Much of the support infrastructure for nearly a third of 
this country's oil supply is located in the most rapidly 
deteriorating and vulnerable areas of coastal Louisiana. The 
recent energy bill included a Coastal Impact Assistance 
provision, which is a start, and we are very appreciative of 
that effort. But, certainly, we think it fell short of direct 
revenue sharing, which we think is necessary.
    Until meaningful sharing of revenues directly with 
offshore-producing states occurs, it is my belief that there 
will not be enough incentive to attract other states into 
offshore production.
    Even if by some stretch of imagination, other states 
beginning allowing exploration off their coasts, unless 
something is done to protect coastal Louisiana and its critical 
oil and gas infrastructure, this country is on a collision 
course with an unprecedented energy shortage.
    I thank you for this opportunity.
    [The prepared statement of Mr. Falgout follows:]

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

    Mr. Chairman and members of the Committee, my name is Ted Falgout 
and I have been Port Director of Port Fourchon for 27 years. On behalf 
of our Commission I want to welcome you here, to this extremely 
significant energy port. I could not imagine a site more fitting to 
hold this hearing and one more bountiful in resources.
    This country's richest oil and gas resources by far, are located 
offshore from Louisiana, and therefore the majority of support 
infrastructure runs through or is dependent upon coastal Louisiana.
    This dominant industry co-exists with many other coastal users. 
Just 5 minutes from here you can drive down to the beach and see dozens 
of families crabbing and swimming, others bird watching, sport 
fishermen catching fish, commercial shrimp boats harvesting nature's 
bounty, and hundreds of oil and gas production platforms. It doesn't 
have to be one or the other which is the position of many states.
    The economic impact of the oil and gas industry in Louisiana totals 
nearly 100 billion and nowhere is it more prevalent than in our 
community. Over the last decade, our region has consistently had some 
of the lowest unemployment rates in the country. It's not just the 
direct oil and gas jobs; it's the shipyard workers, hardware, grocery 
stores and so on. This industry drives our entire economy.
    The impact of Port Fourchon on our community has been nothing short 
of phenomenal. Since the Passage of the Deepwater Royalty Relief Act in 
1995, activity of Port Fourchon has virtually exploded. The Port has 
tripled in size causing an unprecedented boom in construction; our 
market share of drilling activity has increased from 12% to over 50% 
since 1995.
    This activity has also had very favorable impacts on the tax base 
of our parish. The sales tax district the Port is in, is only about 1/
4% of the Parish in size, but generates 58% of the sales tax.
    Eight of the top 10 taxpayers are oil and gas related companies 
that have investments in the Port. The top taxpayer, the Port's largest 
lessee, Edison Chouest, owns 3 of the top 10 taxpayer companies.
    Another example of a not so visible benefit is that our parish 
enjoys some of the lowest potable water rates in the country, because 
almost a quarter of our supply is shipped offshore for use. Export 
water as it is called, brings a premium charge and therefore household 
rates are subsidized.
    The historical boom-bust nature of this industry has had its 
impacts. The bumper stickers saying ``The Last One Out of Morgan City, 
turn out the lights'' are hopefully behind us. The deepwater Gulf of 
Mexico remains an expanding frontier and deep shelf gas is reviving 
fields that were thought depleted.
    As we convey to the country the benefits of oil and gas 
development, this country must recognize the dominant role that coastal 
Louisiana plays now and what is being demanded of it into the 
foreseeable future.
    An astounding 87% of the oil and 80% of the natural gas from 
federal offshore waters is coming from offshore Louisiana. In addition, 
LOOP, this nation's only offshore oil port which handles about 15% of 
this country's foreign oil and is connected to over 30% of the U.S.'s 
total refining capacity, sits just 18 miles offshore to Fourchon.
    Much of the support infrastructure for nearly one third of this 
country's oil and gas supply is located in the most rapidly 
deteriorating and vulnerable areas of the Louisiana coast.
    The recent Energy Bill included a Coastal Impact Assistance 
provision which is a start, but fell short of direct Offshore Revenue 
Sharing with states. Until meaningful sharing of revenues directly with 
offshore producing states occurs, it is my belief that there will not 
be enough incentive to attract other states into offshore production.
    Even if by some stretch of the imagination, other states begin 
allowing exploration off their coast, unless something is done to 
protect coastal Louisiana and its critical oil and gas infrastructure, 
this country is on a collision course with an unprecedented energy 
shortage.
                                 ______
                                 
    Mr. Gibbons. Mr. Falgout, thank you very much for your 
testimony. I can understand much of what you just related to us 
and realize that Congress itself has fallen short in 
understanding the real implication of the revenue sharing part 
of that.
    In terms of sharing, I just wish that Louisiana would be 
willing to share its water with Nevada. We could have a 
wonderful partnership, and we would be able to subsidize a lot, 
I'm sure.
    Mr. Falgout. We can work up an arrangement. Maybe a gallon 
of water for a pound of rock out of your mines.
    Mr. Gibbons. We have a lot of rock. We could do just that. 
Thank you very much.
    We turn now to the Coalition to Restore Coastal Louisiana, 
Mr. Mark Davis. Mr. Davis, welcome. We look forward to your 
testimony. The floor is yours.

         STATEMENT OF MARK DAVIS, EXECUTIVE DIRECTOR, 
            COALITION TO RESTORE COASTAL LOUISIANA.

    Mr. Davis. Thank you, Mr. Chairman. Mr. Jindal. It is a 
pleasure to be here. Committee members, staff.
    The Coalition to Restore Coastal Louisiana, like so much of 
the things you have encountered here in Louisiana, that is, an 
unlikely harmony of interests that have come together in ways 
that sometimes surprise those who don't know our communities or 
don't know our issues so well.
    The Coalition was actually put together in the mid 1990s 
around the issue of the coastal collapse, the land loss. It was 
at a time when land loss rates were approaching 40 square miles 
a year. At that time, outside of parish government, there was 
not a state program, and there was not a Federal agency that 
even had the jurisdiction, much less the mandate, to act.
    So, we essentially were living with a bucket that the 
bottom had fallen from. The Coalition was put together by an 
unlikely assemblage of local landowners, government, academe, 
environmentalists, faith-based communities, civic 
organizations, just about anyone with a stake in there still 
being a south Louisiana and the resources that we produce to be 
around 50 years hence to be argued over, which is one of our 
principal sports here, which is arguing with one another in a 
very, very spirited but congenial way.
    I think in the period of time that we have been in 
operation, we have seen an issue move from denial to the point 
where, with the energy bill, the water bill, and the history of 
the Breaux Act, where we have begun to make a commitment. And I 
think that that is a commitment that we need to understand is 
not just about Louisiana, and it is not just about wetlands. It 
is really about a national heritage, national security, from a 
transportation, energy, cultural and broader economic 
standpoint, as well as the homes and lives of literally 
hundreds of thousands of people.
    Louisiana is a place of great beauty, contrast and 
unexpected harmonies. I think in order to understand the 
opportunities, the benefits and the constraints that this 
nation faces in dealing with OCS policy, it is essential to 
learn well and apply the lessons learned from here in 
Louisiana. Because the benefits, which I think you have already 
heard quite a bit about this morning, from OCS development are 
largely national. And of course, Louisiana is part of that 
nationally. We share in that.
    But a number of the burdens--and, undoubtedly, if you have 
read any of the Mineral Management Statements, Environmental 
Impact Statements, if you have read any of the materials 
developed in the Coastal Restoration Program, it is very clear 
that there are burdensome impacts.
    Secretary Angelle mentioned many of these began in an era 
when we had different values, different technologies and a 
different knowledge base. We still live with those impacts 
because some of them are not limited to the footprint of the 
original project, they become part of the landscape, and they 
change with us.
    Too frequently, the burdens have not been shared 
nationally, but have been left to either the state of 
Louisiana, local communities or future generations to deal 
with; or, all too frequently, those burdens have been 
unrecognized or under-recognized by our nation, and 
accordingly, under-addressed.
    Again, I think as you look out on the landscape and you 
consider the changes that have been experienced in the 
lifetimes of the people here, not talking about geologic time, 
you're watching essentially a million acres that has 
disappeared since 1930. That is a million acres that was 
someone's tax base, someone's property, it was someone's storm 
buffer and it was the nursery grounds for the shrimp that you 
see our trawlers and our crab boats and our oyster fisherman, 
it is their--it is the underpinning of their economy and our 
way of life.
    As I noted, the existence of these impacts is well 
documented; but until very recently, and particularly in the 
energy bill that just passed, there are some provisions in the 
highway bill that just passed and in the Water Resources 
Development Act, which is pending, which began to deal with 
these, I think, on an honest basis. It has already been stated 
by all the other speakers that these are beginning steps, but 
they are being recognized, again, in the context not only of a 
transportation issue, a wetlands issue, or whatever issue, but 
as part of a broader issue of how we survive here and how we 
continue to be a vibrant part of this nation's energy supply 
regarding part of its transportation, and, in my judgment, one 
of its greatest cultural treasures.
    I think this nation truly needs to understand the 
relationship between oil and gas activity and our coast, and 
both from the perspective of dealing with the impacts and to 
ensure the security of future supply. I cannot agree more with 
Mr. Falgout that, unattended, the crisis in our coast poses an 
unimaginable threat to our nation's energy supply.
    The fact of the matter is, while there are natural 
components to this, this is largely an engineered collapse. 
From water resource policy, a number of other decisions that 
were made frequently at the national level, for good reasons at 
the time, but they have left us with a legacy of 
unsustainability.
    I think we need to recognize those things and learn from 
them, both so we can have states like Louisiana continue to 
play an active part in the energy role, because there are 
limits to what this state and its communities can continue to 
provide to this nation without greater assistance. But, also, 
from the standpoint of encouraging other areas of the country 
to consider what role they want to play in this.
    Unfortunately, too frequently, when the question of 
expanding OCS activity comes up, neighboring states and the 
people who influence decisions there go no further than saying, 
if Louisiana is what we would become, if the legacy of 
unattended-to burdens is what we will inherit, we are not ready 
to take that bargain.
    And I believe that, again, it is not only a matter of 
fairness, it is not only a matter of stewardship, it is a 
matter of survival for this country's independence from an 
energy standpoint and a matter of what is smart for our 
futures.
    So, we really do commend the Committee for coming here to 
learn. This is not about blame, it is a matter of learning and 
taking responsibility and it's about sharing that adequately at 
all levels. We are delighted to be a resource to you in any way 
we can.
    And again, I think as much as you have learned in this 
trip, it probably will take several more, and I'm sure that you 
have any number of people who would be delighted to host you 
and anyone else you could bring, because it is a place that is 
almost unimaginable, as to what America would be or what it can 
be, without the things--energy, culture, food, security--that 
Louisiana and this topography of Louisiana has supplied. It is 
truly America's wetlands.
    Thank you.
    [The prepared statement of Mr. Davis follows:]

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

    My name is Mark Davis and I am the executive director of the 
Coalition to Restore Coastal Louisiana. The Coalition is a non-profit, 
non-partisan environmental education and advocacy organization formed 
in the mid 1980s by conservationists, local governments, business, 
environmentalists, civic and religious organizations who shared a 
concern about the fate of the greatest coastal wetland and estuarine 
complex in the 48 contiguous United States and a commitment to the 
responsible stewardship of those natural treasures.
    On behalf of the Coalition to Restore Coastal Louisiana I would 
like to thank the subcommittee for inviting us to be a part of this 
field hearing on Outer Continental Shelf oil and gas issues. Clearly, 
energy issues are getting heightened attention at this time. Decisions 
about how we define and meet our energy needs will affect the people, 
environment and economy of this country for years to come. And if past 
is prelude, they will affect the Gulf of Mexico region--particularly 
coastal Louisiana and coastal Texas--more than anyplace else. To the 
extent our experience can help inform those decisions we are pleased to 
offer it to you.
    Let me begin by stating that we appreciate the attention the 
committee and the Congress have given to the needs of coastal Louisiana 
in the recently enacted Energy Bill. The four year provision that 
shares $1 billion with states that host OCS activity is an important 
recognition that those state, Louisiana in particular, incur special 
burdens as a result of those off shore activities that must be 
acknowledged and addressed. We also recognize that we have a solemn 
responsibility to make the best use of those funds to address the 
problems facing our coast. This is particularly true because we believe 
that the energy policies of this nation need to be rooted in both 
meeting the nation's energy production and in recognizing and dealing 
with the full range of costs and impacts that energy production 
entails.
    Simply put, it is our experience that the development of offshore 
mineral resources has dramatic impacts--environmental, societal, and 
economic--that need to be considered before our nation decides if and 
how to expand OCS activity. Clearly, those impacts will be a mixed 
bag--some good, some not. It is also clear that in many parts of this 
country concerns about the negative impacts are a significant 
constraint on the willingness of states and communities to support the 
expansion of OCS activity. A look at coastal Louisiana will tell anyone 
that those concerns are not unfounded. Indeed, when one considers the 
landside impacts associated with supporting the exploration, production 
and transport of OCS resources (impacts that are in the main under 
mitigated) the inescapable conclusion one reaches is that if this is 
how our nation treats the friends of OCS activity, is it any wonder 
that it doesn't have more? I will go farther and say that the issue is 
not just what the limits on OCS expansion are, but what are the limits 
of those states that currently support OCS work to accept and support 
more activity?
    That said, it is clear that our nation needs to develop new energy 
resources. Our ability to keep pace with our energy demands will be 
driven by the desire to benefit from continued growth. It will also be 
challenged by a combination of scarcity, technology, costs and societal 
constraints. This is really nothing new but that doesn't make matters 
any easier.
    In thinking about what useful role we could play for the 
subcommittee I recalled that several years ago we were asked to provide 
advice to the subcommittee on some of the things that constrain OCS 
development. In reviewing our earlier testimony it seemed that most of 
what we offered then is still valid today and that it might be useful 
to revisit that discussion.

Environmental Constraints
    We know that there has been much discussion recently about whether 
oil and gas activity puts a significant stress on the environment and 
about whether the current state of the art is such that new activity--
particularly OCS activity can be done without significant impacts. From 
the perspective of coastal Louisiana, we believe the record is clear 
that the environmental and safety record of the industry has improved 
greatly since the early days of offshore development. It is also clear 
that oil and gas activity has had significant negative environmental 
impacts and that future activity will likely have adverse effects. We 
make this statement not to cast blame but make the simple--we believe 
indisputable--point that environmental damage is not a question of 
``if'' but of ``where, when, and how much''.
    Coastal Louisiana bears witness to those facts. Our coast is laced 
with evidence of oil and gas activity. Wells, production facilities, 
supply bases, access canals, pipeline canals, fabrication yards, waste 
pits, refineries, and other footprints are regular features of the 
landscape. While there is debate about how much of Louisiana's crisis-
level land loss has been due to oil and gas activity, there is no 
debate over whether it has been a material contributor. Most recently, 
a study done here at the University of New Orleans with the assistance 
of the U.S. Army Corps of Engineers and the U.S. Geological Survey 
concluded that oil and gas activity was responsible for 36% of the land 
loss in Mississippi River deltaic plain between 1932 and 1990. That is 
249,152 acres of land that is now gone.
    I do not mean to suggest that all of that land loss is due to OCS 
activity or that such dramatic impacts are necessarily indicative of 
what other coastal areas should expect. But it is clear that OCS does 
contribute, directly and indirectly, to the environmental degradation 
of this area and that no one should assume that it will not continue in 
the future or that others would be spared their own version of our 
experience if they do not plan for those impacts up front.
    To confirm this, one need look no further than the Environmental 
Impact Statements prepared by the Minerals Management Service for lease 
sales in the Gulf of Mexico. For example, according to the EIS for 
Lease Sale 181 in the Eastern Planning Area, up to seven new pipelines 
were projected to transport oil and gas to shore. Even with today's 
best practices, more than 6,000 acres of wetlands in Southeast 
Louisiana were expected to be impacted. That is not insignificant. That 
lease sale was also projected to create the need for three new 
municipal landfills in coastal areas to accommodate the waste and 
debris generated by the offshore industry and at least one new waste 
facility for ``nonhazardous oil-field waste. I would like to point out 
that in the latter case such waste is deemed ``nonhazardous'' by 
Congressional fiat rather than by its actual nature, a fact that has 
not made such facilities popular additions to local landscapes nor has 
it boosted confidence in the Federal Government's ability to fairly 
balance benefits and burdens when it comes to energy policy.
    The list of other environmental concerns goes on to include brine 
and produced water discharges, contamination and the introduction of 
exotic species from ballast water, flaring and airborne releases, and 
the destruction of coastal environments by the building or expansion of 
the transportation and support facilities needed to conduct offshore 
work. And, of course there is the issue of oil spills. It is important 
to up front and honest about spills. They will happen. Whether due to 
natural catastrophe, mechanical failure, human error, or other causes 
spills will occur and our ability to clean them up and remediate their 
harm is limited at best.

Societal Constraints
    In coastal areas, there is a close relationship between the 
environment and our local cultures and quality of life. Coastal areas 
have traditionally supported and been defined by local activities such 
as commercial and sport fishing, hunting and trapping, and beach 
oriented tourism. In recent years, however, there has been an explosive 
growth in coastal areas as retirees, ``second-home vacationers'', 
casinos and mass-market tourism have taken hold. A desire for a better 
quality of life and a desire for a ``sun and sea'' lifestyle often spur 
these developments. These trends have redefined the economies and 
cultures of many coastal areas and have taxed the ability of local 
governments, sanitary and transportation infrastructure, and the 
natural environment to support this growth. All of this presents a 
problem for OCS development.
    First, as I just mentioned, many coastal areas are expanding so 
fast that their ability to accommodate the offshore industry may be 
problematic. Waste handling facilities are already being stretched, 
transportation arteries are beyond their capacity and areas that were 
once industrial are now being shifted to other uses. The Gulf coasts of 
Alabama and Mississippi are prime examples of these trends. There are 
limits to what these areas can support and offshore development may be 
constrained by those limits.
    Second, and perhaps more importantly, community values and economic 
development plans for many coastal areas are just not compatible with 
oil and gas activity. Whether these positions are based on hard 
science, perceptions, or just rooted in self-serving NIMBYism (not in 
my backyard) is frankly beside the point. When people feel that their 
property values, their quality of life, and the environment are about 
to be diminished it matters, as I am sure all of the Subcommittee 
members are well aware. There are reasons most of our OCS areas are 
presently off limits to energy development and those reasons are as 
much a part of the marketplace of values and costs as are pump prices 
and our monthly utility bills. I won't pretend to substitute my 
judgment or values for anyone else's but I will tell you that the 
belief that OCS development is incompatible with environmental 
stewardship and the best interests of communities is widespread and it 
runs deep. That is, and will remain, a constraint. And I would caution 
that though those objections often find their voice through such 
Federal laws as the National Environmental Policy Act, Coastal Zone 
Management Act, the Clean Water Act and the Endangered Species Act it 
would be a mistake to believe that those laws are the source of 
societal constraint.

Economic Constraints
    The final constraint I will touch on is economic. When OCS energy 
development is discussed in this country, the proponents usually point 
to our economy's need for dependable, affordable oil and gas. The 
economic issue that often goes undiscussed, however, is the cost that 
states and local governments incur in supporting that industry. Costs 
that often far exceed any economic benefits produced locally by that 
activity. I know I don't need to belabor that point for the members of 
Louisiana's delegation who have recognized that inequity and worked 
tirelessly to address it as evidenced by the coastal impact assistance 
provision in the Energy Bill. For the benefit of the other members of 
the Subcommittee, however, let me put it bluntly--though OCS 
development may be good economically for the country, it can be a bad 
deal for the states and communities that serve as its logistical 
support base. Again, the MMS Environmental Impact Statements can be 
instructive.
    According to the most recent EIS, virtually all waste generated off 
shore must be disposed of in municipal landfills on shore. Managing 
those sites and creating new waste sites is left to the locals to deal 
with. When crew boats erode waterways the problems are left to the 
locals to live with or fix. When truck traffic from oil-field service 
ports cause roadways to clog and crumble, it is the state and local 
governments' problem to deal with. When transient oil-field workers 
occasionally run afoul of the law it is local jails that pick up the 
tab. And when a pipeline or spill damages or destroys a wetland it is 
the local fishery and tax-base that take the hit. In return for this, 
the state and local communities, until the recent Energy Bill, did not 
get a dime from the lease or royalty revenues that flow into the 
Federal treasury.
    Until those economic costs and inequities are understood and 
addressed in a meaningful and ongoing basis they will to continue to 
constrain the further development of OCS areas.

Conclusion
    We are pleased to have had this opportunity to meet with the 
subcommittee. We hope your visit here will deepen your appreciation of 
the extent to which Louisiana and places like Port Fourchon are vital 
to our nation's well being. We hope you will also understand and 
appreciate the vital role that wetlands, waters and barrier shorelines 
play in protecting our nation's energy supply and its natural heritage. 
In many ways the revenue sharing provisions of the Energy Bill and the 
proposed multi-billion dollar coastal restoration effort that is 
currently pending in Congress are efforts to deal with the cost of 
waiting too long to see the connections between the activities we 
engage in as nation (and the manner in which we do them) and their 
consequences. Louisiana has many lessons to teach about how to find, 
extract and transport energy resources in ways that can only be called 
inspiring. Louisiana also teaches many lessons about the direct and 
indirect costs and impacts that all too often have seen us subsidizing 
our nation's prosperity at the expense of the viability of our natural 
resources and communities. Learning and applying these lessons should 
be at the heart of OCS policy.
                                 ______
                                 
    Mr. Gibbons. Mr. Davis, thank you very much for your--not 
only your passion and commitment, but your dedication to this 
project of restoring Louisiana's coastline. Certainly, I have 
learned a great deal from not only your remarks, but from the 
visual tour we had over the last couple of days of what is 
happening here. And we will be much better prepared to deal 
with this issue, and because of your work, the Coalition's 
work, that you have done as well as the testimony.
    Let me state that we have just a little over, or just about 
an hour of time left for this hearing. And we do have a second 
panel that we want to get to. We have allowed for some 
testimonies to run a little over the five-minute mark, and that 
does cut into our questions.
    But as I listened from each and every one of your 
testimonies, you answered many of the questions I would have 
asked. But you also painted a picture. You painted a picture 
that is so vivid and so clear that not many questions are 
needed to be asked to understand the problems and understand 
the benefits and the values that are going on right here to our 
country.
    So I'm not going to ask any questions, but I do want to 
say, and this will hold for the other panel as well when we 
bring them up, that the Committee may have some questions that 
we would like to submit, and we will ask that you respond to 
those and return them to the Committee as we go forward, 
probably within ten days.
    And as for the rest of the audience, if there are 
statements that the rest of the audience wants to add for the 
congressional record, comments that you think are important 
that were not made in this hearing, we certainly will accept 
those comments for the record, and they should be submitted to 
the Committee within ten days. We will have an address here if 
you want to check at the end of the hearing on where to send 
those comments to, as well.
    I'm going to ask Mr. Jindal if he has any questions of this 
panel briefly before we thank them.
    Mr. Jindal. Thank you, Mr. Chairman. I will be very brief, 
given the time considerations. I do want to ask three very 
targeted questions to elaborate on some of the points that were 
made.
    I will start with Ted. I had the privilege of coming here a 
few weeks ago, and one of the things I would like you to 
elaborate on is, our frustration that, despite all the evidence 
we have heard today about the critical role that Fourchon plays 
in our nation's energy needs, that we have not made the top 
list of 66 ports that the Department of Homeland Security has 
listed as the nation's most critical ports.
    I have told you since then, I have talked to the Secretary 
in an open hearing, and he is committed to reevaluating that 
decision. If you could briefly tell us, why is it so important 
for that Port to make that list and how you might be able to 
use some of those additional resources if they were made 
available to you in terms of homeland security.
    Mr. Falgout. Thank you, Congressman. Most certainly, we 
feel that there is some gap somewhere that would--the ability 
to measure ports and the significance to this nation's 
security, would let a significant entry port, such as Port 
Fourchon, not fall on the radar screen. When we saw that, we, 
again, appreciate your help in bringing that to light of the 
persons in charge in D.C. But, certainly, it was the way they 
chose to measure ports that did not fit.
    And again, it is all part of this country not fully 
understanding what it takes to turn your lights on and the role 
that an energy port like this plays. And they just had no way 
of measuring the significance. They use tonnage from the Corps 
of Engineer's Waterborne Commerce Statistics, which does not 
capture this type of port's activity as one of the major 
parameters for choosing ports. And then population. Certainly, 
we do not have a large population here. Very few people live in 
Port Fourchon. But when you measure 18 percent of the nation's 
energy supply and what that might cause to this country if, in 
fact, we lose some portion of our capability to keep this 
economic engine running, it is mind-boggling. And certainly, 
we, through your help, we hope to correct this.
    In earlier port security grants, we did qualify, we were 
successful, we have gotten over $1.3 million to do security 
camera systems and things that will start to make this port 
more secure. But, certainly, to be left out of this last round 
was somewhat disappointing, and through your help, we will not 
let that happen again.
    Mr. Jindal. Thank you. My second question that I direct, 
again, both to Ted and Scott, I was struck by the fact that, 
Ted, you talked about the Deepwater Royalty Relief Act in 1995; 
Scott, you talked about Federal tax incentives as well to 
encourage drilling.
    The reason I was struck by this is Chairman Pombo asked me 
to actually go to the Floor and help to explain and defend the 
provisions in that energy bill that's been passed that allows 
tax relief from deepwater production. I was struck by some of 
the comments in opposition about it because, to me, it seems 
just commonsensical that it will give companies a reasonable 
incentive that will actually generate not only more production, 
but more revenue for the Federal government. It's a win/win. It 
generates more energy for our country, more revenue to the 
Federal government.
    And I would just like to go through, briefly, a comment you 
had that struck me, that both of you talked about: The need for 
additional incentives.
    Can you both briefly comment on that need?
    Mr. Falgout. While I have the microphone in front of me, 
I'll just be brief, in that, again, I think it is just part of 
this misunderstanding of what it takes to bring energy to the 
gas pump.
    And another thing is, as we explained in the tour 
yesterday, even with $66 oil prices, we have companies sending 
drilling rigs from the U.S. Gulf to Saudi Arabia for long-term 
contracts. If we don't make the Gulf as attractive as we can be 
on American waters, then those rigs, there is only a finite 
amount of rigs, and they will be drilling in other places in 
this world, and it will increase our dependency on foreign oil.
    So those are some of the things we need to keep in mind 
when we start to weigh these kinds of incentives. Yeah, nobody 
says, ``I don't want to give it to big oil, they're making gobs 
of money, why do we want to give them an incentive?'' Well, 
they can make gobs of money in Saudi Arabia as well.
    Mr. Angelle. Thank you. I certainly would agree with that. 
I think we now, certainly, in Louisiana operate in my 
department under a fundamental principal that companies have a 
choice where they wish to spend their exploration dollars. This 
is not my grandfather's country where Exxon and Texaco were 
drilling and developing resources just in America. Companies 
cannot only be here, but they can be anywhere, and unless we 
are as productive as a competitor, then we see some of those 
resources, obviously, going to other areas.
    There are a couple of examples. Section 29 of the IRS code 
that I mentioned, which gave me tax credit for production of 
unconventional natural gas from unconventional resources, had a 
dramatic impact steering investment dollars into those parts of 
the country where those resources were found--and a dramatic 
increase in the natural gas reserves from those particular 
types of nonconventional resources.
    So I think everything has to be on the table when you try 
to develop a broad-based energy policy, and we need to 
fundamentally understand that companies have choices. And I 
have always said that we're not competing in my little world, 
we are competing with Texas and Oklahoma where people say, how 
can we--because in this particular state, working with Senator 
Dupre and Representative Petrie and a host of other folks, we 
were able to do an incentive program this past session for deep 
stuff.
    And while oil may be trading at $66 or $65 today in 
Louisiana, it is also trading at $65 in Texas and Oklahoma and 
Wyoming. So, we, I think, in Louisiana, understand that 
companies have choices, and I think that America needs to 
understand that companies have choices.
    Mr. Jindal. This energy bill that we just passed has some 
incentives also not only for deepwater, but for shallow water. 
Some of these wells have not been active in recent years. So, 
thank you both for your testimony.
    My last question I will ask to Mark: I was struck in your 
comments about how other states that currently are not allowing 
drilling may be looking at Louisiana's example and saying, 
Let's see how they're being treated. I know that when I offered 
the amendment in the House to allow Louisiana to participate in 
some of the Federal offshore revenues to help us restore our 
coast, some of the most cynical opposition came from people 
that said, ``Well, we're worried if we start treating Louisiana 
better, that might induce the other states to allow drilling.''
    My response was, why would we want--first of all, it's a 
question of fairness and equity to Louisiana's coast; but, 
second, why would we want to prevent other states from making 
their only reasonable decisions?
    I would like to expand that I was very struck by your 
comments that as we have this debate about drilling off the 
coast of other states, how they may be looking at Louisiana's 
coast and learning examples of how we are being treated 
currently by the Federal government.
    Mr. Davis. Well, I think it's been a very enlightening 
experience, since I don't live in those other states, so it's 
very difficult for me to understand everything that drives 
them. But it is very clear that when one considers the legacy 
sites that we have, in particular, and when one reads the 
environmental impact statements that talk about how many new 
landfills you are going to need, what the impact on 
transportation infrastructure is going to be, all of these 
things, and there is frequently not a clear vehicle being 
presented to the state and local governments of, ``Well, who is 
going to pay for this,'' or, ``Is this going to be out-of-state 
people coming through your state.'' And whenever the statements 
been made that, ``We have figured out how to do this without 
impacts,'' I have actually had calls from congressional staff 
members from other states saying, ``Is that true?'' And the 
answer is, ``Of course it is not true that you can do these 
things without impacts.''
    So, the real question is how you manage it and what 
benefits you are seeking to get. Needless to say, if you are 
worried only about your state being induced to open itself up 
to irresponsible activity, you have a more fundamental problem 
than an incentive. You have essentially an accountability and 
governance issue. I can't speak to what is happening in those 
states.
    But, on the other side, I would point out that I have been 
invited to at least three forums in other states where coastal 
restoration activities of one sort or other--and, again, 
restoration is normally dealing with the impacts of decisions 
that were made over generations.
    Again, often, this was noted by the secretary, before you 
had environmental laws, before you had a number of the things 
that, you know, affect how we do business today. And sometimes, 
it is a mitigation program for, you know, previous activities 
and previous generation's decisions.
    But Louisiana is now being looked to as a model as to how 
do you come to terms with these things and how do you put 
environment and how do you put culture and how do you put 
economics on the table and try to come up with an approach 
which doesn't begin from the supposition that it is either/
other. That you must tradeoff your environmental heritage for 
economic prosperity, or you must sacrifice in a viable economy 
if you want to have a clean environment. Those are false 
choices, in our judgment. But I think, unless you create the 
vehicles for a better outcome, unfortunately, those are the 
directions that people go.
    Mr. Jindal. Thank you, Mark. And I thank each of the 
panelists here for your testimony. I think you are making a 
very important point for those of us who are interested in 
seeing reasonable production throughout our country. I think 
how we respect and treat Louisiana's coast can serve as a 
useful map moving forward. I want to thank the panelists for 
sharing so much valuable information with us.
    Mr. Gibbons. Before the panel leaves, I also want to thank 
you. I didn't get a chance to ask a question, but I do want to 
ask one question that I don't want an answer from each of you 
today, but I will submit a follow-up question. And that is: 
What should be the dollar amount; how should the percentage be 
allocated; what Federal requirements, Federal process should be 
established in order to achieve an equal and fair revenue 
sharing amount?
    Think about that question over the next few days, few 
hours; and if you will, submit it back to us, what your 
estimate should be, then that would be greatly appreciated.
    We have held you here now for the requisite literally hour 
and a half, and we have had to cut into the other panel's time; 
but I did want to thank you all for coming out today. It is a 
Saturday, I know you are busy, you are making the world go 
around, but we wanted to thank you.
    The first panel is excused, and we will call up our second 
panel today.
    Mr. Gibbons. We want to welcome our second panel to our 
hearing today. We apologize for taking a little longer than we 
should have on the first panel, but everybody's testimony is 
important, and we are here to listen.
    Our second panel consists of Mr. Greg Guidry, Exploration 
Manager for Shell Exploration and Production Company; Mr. Hank 
Danos, Chief Executive Officer for Danos & Curole Marine 
Contractors; Mr. Clifford Smith, President and CEO of T. Baker 
Smith, Inc.; Mr. Dan Borne, Louisiana Chemical Association; and 
Mr. Allen Walker, Gulf Productions.
    We will begin with Mr. Guidry. Welcome. The floor is yours. 
We look forward to your testimony.

     STATEMENT OF GREG GUIDRY, EXPLORATION MANAGER, SHELL 
               EXPLORATION AND PRODUCTION COMPANY

    Mr. Guidry. Thank you. Thank you, Chairman Gibbons, 
Congressman Jindal and Chief of Staff O'Shea.
    My name is Greg Guidry, and I am currently serving as asset 
manager in the Gulf of Mexico for Shell. I just recently moved 
from exploration manager. So that the noted--I'm covering both 
ends of the life cycle there in terms of the EP life cycle.
    I was born and raised in southern Louisiana. My family has 
been here for several generations. I want to thank you for 
inviting me to testify today; and it is certainly a topic that 
is important to me personally, not so much--you know, part of 
it, I work for Shell, but also, for my family and the 
generations that I have, and the community.
    Shell's presence in Louisiana goes back to 1916. We have 
over 4,000 full-time employees and 2,700 pensioners, actually, 
in the state. Shell operates two huge refineries and numerous 
other facilities in this state.
    The Gulf of Mexico is a very significant petroleum province 
for Shell, and it has been for years. We currently operate 
gross production of 450,000 barrels a day and 1.4 billion cubic 
feet of gas in the Gulf of Mexico. On the order of a pretty 
good size OPEC country, actually.
    Shell pioneered exploration in the deepwaters of the Gulf 
of Mexico. We continue to explore frontiers in the Gulf of 
Mexico. These plays are very difficult to explore for. We have 
been and we continue to use technology in order to crack these 
plays. Just to give you an example of the timeframe, the 
production that we enjoy today in the deepwater of the Gulf of 
Mexico is a result of exploration activity that happened 25 
years ago. Some of the initial discoveries made by Shell in the 
deepwater.
    Shell has also committed itself to enhancing the 
environment of Louisiana and the Gulf Coast. We provided seed 
money for the America's Wetland Campaign. We sponsor the Shell 
Coastal Environmental Modeling Laboratory at LSU. And through 
the Shell Marine Habitat Program, we are partnering with the 
National Fish and Wildlife Foundation to help nearly 100 
organizations conserve and restore marine habitat throughout 
the Gulf Coast region.
    Shell believes that Louisiana and the U.S. benefit greatly 
from offshore oil and gas exploration and production. At $6 
billion annually, oil and gas production from the OCS and 
Federal lands is second only to the IRS in terms of Federal 
revenue. According to the MMS, offshore and gas production 
directly provides jobs for more than 40,000.
    While the OCS is providing sound benefits for the nation's 
economy and for the domestic supply, we face a number of real 
challenges going forward. Decline rates in the Gulf of Mexico; 
access to new OCS resources; and access to human resources and 
technology are all great challenges.
    Our decline rates in the deepwater Gulf are steep. Decline 
rates on a given field can range on the order of 30 percent per 
year. Overall decline rate, just in gas production in the 
deepwater from 2003 to 2004, was on the order of 10 percent. To 
offset these rapid declines, industry must develop technologies 
and efficiencies to maximize recovery and production, but we 
also must have access to additional resources.
    In order to meet our long-term challenges, Shell believes 
that the energy industry must do a better job of helping the 
American public understand our industry and the contribution we 
make to the economy and society. A theme that resonated in 
Panel 1, for sure.
    We believe that in order to change the political will, we 
need to better educate the public about the oil and gas 
industry and energy's impact on our lives. We also need access 
to more resources and hope that there will be new opportunities 
in the OCS emerging from the next MMS five-year plan.
    We encourage Congress to take an active role in advocating 
greater access to offshore resources during the five-year plan 
process, which should begin very shortly. People are our 
greatest resource that we have in the oil and gas industry. 
Many of the professions in our industry require highly 
technical backgrounds in science and engineering, much like the 
space program.
    The number of U.S. students seeking degrees in these 
disciplines have fallen drastically over the last couple of 
decades. Geoscience, for example. And fewer are pursuing 
degrees in engineering and science and are applying them, or 
choosing to apply them, to our industry. That, coupled with an 
aging workforce and impending retirements, are resulting in 
what we now refer to in industry as the ``great crew change.''
    We encourage the Committee to continue to be advocates for 
addressing workforce development, as it did through the 
language in the energy bill. In the meantime, Shell and 
industry as a whole are working to utilize our resources to 
attract new talent to this industry. We want our efforts to 
benefit the community as well.
    As an example, we are making a number of things happen at 
our Robert Training and Conference Center in Robert, Louisiana, 
which is focused on operations training. And we are actually 
building programs in partnership with Louisiana State 
University and with some of the other mechanisms in the 
community to leverage that, not just for training folks that 
Shell needs, but also training folks that the industry needs.
    While states and local communities benefit from OCS oil and 
gas production, there are impacts on oil and gas development 
that communities must address. Shell believes that, 
historically, revenues from OCS oil and gas production have not 
been adequately distributed to states and impacted local 
communities. I think that is clear from the conversation this 
morning. These monies could be used for infrastructure 
projects, such as the Louisiana one here at Port Fourchon. 
Shell has some ideas about revenue sharing that we can discuss 
in detail during the questioning, or we will be happy to 
advance some of those thoughts over the next couple of days.
    Thank you again for allowing me to testify. I look forward 
to addressing any questions.
    [The prepared statement of Mr. Guidry follows:]

                       Statement of Greg Guidry, 
                 Shell Exploration & Production Company

    Good Morning. My name is Greg Guidry. I am an Asset Manager for the 
Gulf of Mexico for Shell Exploration and Production Company. I was born 
and raised in Southern Louisiana--in Abbeville--and my family has been 
here for several generations. My career has been largely focused on oil 
and gas exploration and production in the Gulf of Mexico and along the 
Gulf Coast. I want to thank Chairman Gibbons and Congressman Jindal for 
inviting me to testify today on ``The Benefits of Offshore Oil and Gas 
Development.'' It is a topic that is of great importance to Shell, to 
my family and my community.
    Shell's presence in Louisiana goes back to 1916. We have over 4,000 
full time employees in the state, many of whom work on offshore oil and 
gas development. Additionally, we have over 2,700 pensioners in 
Louisiana. Shell operates two refineries, two chemical plants, 459 
retail stations, a major oil products terminal and numerous other 
facilities in the state.
    The Gulf of Mexico is a significant petroleum province for Shell, 
one that we have operated in for more than five decades. These 
operations provide more than 80 percent of our oil and gas production 
in the U.S. Our net equity daily production in the Gulf of Mexico 
averages about 267,000 barrels of oil and 1.1 billion cubic feet of 
natural gas. We operate gross production of 450,000 barrels of oil and 
1.4 billion cubic feet of natural gas per day. We hold an interest in 
approximately 723 federal offshore leases, more than 80 percent of 
which are in deep water.
    Our strategy is to fully develop existing assets, aggressively 
explore for new material oil and gas opportunities in established 
areas, and continue to develop new emerging areas using sound 
geological work combined with leading edge technology.
    Shell pioneered exploration in the deep waters of the Gulf of 
Mexico and used this deepwater strategy to find major fields in the 
Gulf such as Mars and Auger. Recently Shell has pioneered new plays 
with a hub-class discovery at Great White. We continue to explore in 
frontier areas of the Gulf of Mexico. These plays are very difficult to 
explore and produce. They are inherently high-risk with objectives that 
are either in ultra-deep water or deep formations on the shelf. They 
often involve high temperatures and high pressures. These areas are 
often geologically challenging and are very difficult to interpret 
using seismic data. To explore and produce in these areas we must use 
cutting edge technology. We plan to continue aggressively exploring for 
large volume, high-reward prospects in both the established plays and 
the new emerging plays.
    Outside of the Gulf of Mexico, Shell has recently demonstrated a 
commitment to U.S. Outer-Continental Shelf frontier areas by being 
awarded 84 leases in the Alaska Beaufort Sea. Offshore Alaska presents 
a number of unique challenges, but we believe that, like the frontier 
areas of the Gulf of Mexico, there are major hydrocarbon sources there 
to be explored and produced.
    I would like to thank Chairman Gibbons for his hard work on 
numerous excellent provisions that were included in the Energy Bill 
signed into law this week by President Bush. I want to especially thank 
him for his work on the inclusion of the Oil Shale Leasing provision, 
which may lead the way to the development of another frontier energy 
resource in the Rockies.

Protecting Coastal Environments
    Shell has also committed itself to enhancing the environment of 
Louisiana and the Gulf Coast, both offshore and onshore. We are 
vigorously pursuing this through two primary initiatives. The Louisiana 
Wetlands Initiative and the Shell Marine Habitat Program.
    To address the ongoing coastal erosion and disappearance of 
critical coastal wetlands and wildlife habitat, Shell has taken a 
leadership role in public education and awareness about the issue. We 
are partnering with well-known NGOs, such as Ducks Unlimited, to 
sponsor wetlands restoration projects throughout Louisiana. Shell is 
also working with state and government agencies as world sponsor of the 
America's Wetland Campaign and serves on the Louisiana Governor's 
Coastal Advisory Commission. We are sole sponsor of the Shell Coastal 
Modeling Laboratory in the LSU School of the Coast and Environment. 
This laboratory is dedicated to understanding coastal loss and the 
effectiveness of mitigation measures.
    Through the Shell Marine Habitat Program we are partnering with the 
National Fish and Wildlife Foundation to help nearly 100 organizations 
conserve and restore marine habitat throughout the Gulf Coast Region. 
Through this program Shell has spend $5 million as part of a total of 
$17 million donated for marine habitat conservation activities 
improving more than 160,000 acres of habitat and protecting more than 
31,000 acres of key conservation lands. Projects include Ridley turtle 
habitat enhancement, oyster reef restoration, and sea grass recovery.
    Additionally, Shell is a supporter of the National Marine Sanctuary 
Foundation. Through this program we have helped support and preserve 
important marine habitat. We have been especially supportive of the 
Flower Garden Banks in the Gulf of Mexico. One of the most beautiful 
and healthy coral reefs in the world, the Flower Garden Banks has 
existed for thousands of years and has thrived the last 4 decades with 
oil and gas production on its perimeter.
    Shell is committed to sustainable development wherever we operate 
and we will continue to support habitat enhancement, education and 
research.

Benefits of OCS Activities
    Many of the witnesses here today are speaking about the benefits of 
OCS activities on their businesses and communities. Shell believes that 
Louisiana and the U.S. as a whole benefit greatly from oil and gas 
exploration and production. At $6 billion annually, oil and gas 
production on the OCS and Federal lands is second only to the IRS as a 
source of federal revenue. According to the Louisiana Mid-Continent Oil 
and Gas Association, offshore oil and gas production directly provides 
jobs for more than 21,000 employees, 16,725 of whom are Louisiana 
residents. The estimated payroll is $1.2 billion averaging $74,000 per 
employee, some $10,000 greater than the national average salary. OCS 
producers pay about $6 billion per year to vendors and contractors to 
support those activities. In Louisiana the share is more than $3.7 
billion. Those vendors employ an additional 55,376 people in Louisiana 
alone.
    While the OCS is providing sound benefits for the nation's economy 
and for domestic supply we face a number of real challenges going 
forward. In order for future generations to continue to benefit from 
OCS energy production, we need to face some real challenges: decline in 
Gulf of Mexico production, access to new OCS resources and access to 
human resources and technology.

Decline in Gulf of Mexico Production
    High decline rates in the Gulf of Mexico are not a new phenomenon; 
they have been a feature of the Gulf subsurface characteristics since 
offshore production began. Production decline rates in the deepwater 
Gulf can be steep and they require operators to be aggressive in 
leasing and to have high drilling success rates in order to maintain, 
let alone increase, their production. To offset these rapid declines, 
industry must develop technologies and efficiencies to maximize 
recovery and production. The U.S. government must provide access to new 
areas in the OCS. Policy makers cannot ignore the potential decline of 
the Gulf of Mexico production.

Access to OCS Resources
    Access to oil and gas resources on the OCS remains a significant 
problem for future domestic production. Congressional moratoria place 
virtually all of the Atlantic and Pacific OCS in the lower 48 states 
off-limits for oil and gas production. Since 1982, congressional 
moratoria and administrative withdrawals have grown to cover 266.5 
million acres. Today about 85 percent of the offshore area off the 
lower 48 states is off-limits to natural gas and oil development, areas 
that according to the National Petroleum Council contain trillions of 
cubic feet of recoverable natural gas resources. At the same time, as 
fields mature in traditional producing basins a greater percentage of 
future U.S. oil and gas production will need to come from the Federal 
OCS and Federal lands onshore.
    In order to meet our long-term challenges we need to develop long-
term goals for changing public perception and political will. Shell 
believes that the energy industry can do a much better job of helping 
the American public understand our industry and the contribution we 
make to the economy and society. We believe that to change political 
will we need to better educate the public about the oil and gas 
industry and energy's impact on our lives. We look forward to 
suggestions from Congress on how to implement and sustain a public 
energy education program.
    While an education program can help us meet some long-term access 
challenges, in the short term we hope we may have an opportunity for 
greater access on the OCS. In the coming days Minerals Management 
Service (MMS) is expected to publish its scoping notice for the next 
Five-Year Plan. This important process will determine where oil and gas 
leases may take place on the OCS from 2007 through 2012. Shell is 
hopeful that the next Five-Year Plan will make additional offshore 
acreage available for leasing provided that appropriate environmental 
regulations are implemented to ensure that industry's disturbance is 
minimized and that biological resources and the environment are 
protected.
    The Five-Year Plan process involves public comment. We encourage 
the Subcommittee on Energy and Mineral Resources and Congress as a 
whole to take an active role in advocating greater access to offshore 
resources during the Five-Year Plan process. We also hope that 
consuming industries, our partners in the service and supply sector, 
states, communities and NGO's can work together to find common ground 
for opening selected areas in the OCS. If we continue to not allow 
growth in the OCS for new leasing opportunities, our domestic oil and 
gas supply is at risk.

Meeting the Challenge of the Major Crew Change Ahead
    People are the greatest resource we have in the oil and gas 
industry. It takes a lot of great minds from a number of disciplines to 
meet the challenge of finding oil and gas on the OCS. Many of the 
professions in our industry require a highly technical background in 
science and engineering. The number of U.S. students seeking degrees in 
these disciplines has fallen drastically over the past couple of 
decades. And fewer of those pursuing degrees in engineering and science 
are applying them to the oil and gas industry. Volatility in the 
exploration and production sectors during the past couple of decades 
made our business less attractive for many young people.
    Between 1985 and 1998, enrollment in undergraduate petroleum 
engineering fell 77% and geoscience degree programs fell 60%. Despite 
the availability of well-paying jobs enrollment continues to decline 
and competition for these graduates is fierce. This has a direct impact 
on our industry's ability to expand and meet our nation's future energy 
needs. The average age of employees in the exploration and production 
industry is 47 to 50, with many long-term employees expected to retire 
at 55. As a result, industry is now facing what we refer to as ``The 
Great Crew Change''.
    Shell would like to commend the House Resources Committee for 
holding a hearing last year on this important topic. We also appreciate 
that the Energy Bill mandates a study by the National Academy of 
Sciences and the Interior Secretary on the availability of skilled 
workers to meet America's future energy needs. We encourage the 
Committee to continue to be advocates for addressing workforce 
development.
    In the meantime, Shell and the industry as a whole are working to 
utilize our resources to attract new talent to our industry. 
Specifically, Shell is:
      Deepening our internal talent pool through additional 
training and challenging assignments to ready younger workers to step 
up as senior workers retire;
      Broadening our access to talent through diversity 
initiatives; and
      Feeding the talent pipeline through support of math and 
science programs.
    We want our efforts to benefit the community as well. Through our 
Robert Training and Conference Center, in Robert, LA, we are not only 
training our own employees for challenges in the field, we have opened 
up our facility to train and educate university students and spark 
their interest in careers in the oil and gas industry. We are working 
collaboratively with academia, local and state government in Louisiana, 
and Greater New Orleans, Inc.--a public/private partnership charged 
with spearheading economic development Greater New Orleans region--to 
develop a Center for Petroleum Workforce Development in Louisiana to 
help address the crew change challenge.
    By training, recruiting and employing a skilled workforce, we will 
have the human talent needed to develop and implement the technology 
needed to address the challenges we will face in the offshore 
frontiers.

Revenue Sharing
    While states and local communities benefit from jobs, taxes and 
other sources of revenue that result from OCS oil and gas production, 
there are impacts from oil and gas development that communities must 
address. Infrastructure, such as ports, roads and bridges are needed to 
support industrial development. Environmental mitigation resulting from 
infrastructure development is another impact states and communities 
must face. Shell believes that historically revenues from OCS oil and 
gas production have not been adequately distributed to states and 
impacted communities.
    Currently, states receive oil and gas revenues for oil and gas 
production out three miles off their coasts--production in state 
waters. Additionally, states receive a 27% cut of revenues in the so-
called 8(G) zone, three to six miles off their coasts. Revenues from 
oil and gas production beyond six miles only go to the Federal 
government. Despite the fact that coastal states may be impacted by 
production beyond six miles, under the law, states are not able to 
directly receive financial benefits for offshore oil and gas 
production. Money from oil and gas production offshore and onshore 
should be made available to state and impacted communities. These 
monies could be used to infrastructure projects such as LA 1, a vital 
link between Port Fourchon and the rest of Louisiana and a vital 
corridor for the oil and gas industry.
    The energy bill signed by the President earlier this week contained 
language that allocates federal oil and gas revenues to states like 
Louisiana to support a ``Coastal Impact Assistance Program''. Shell 
appreciates the role that the Louisiana delegation played in making 
this concept the law. We believe that it is an important first step in 
the right direction. Shell supports going a step further by providing 
all states and local communities with a fair percentage of offshore 
production revenue from bonus bid, rents and royalties. Additionally, 
MMS and state agencies are decreasing budgets to meet despite increased 
demand to perform environmental work, monitoring, mitigation, and 
enforcement. We believe that OCS revenues--bonuses, rentals and 
royalties--should be disbursed directly to meet these requirements.
    In total, Shell supports changes to current law that would:
      Provide direct OCS revenues from Federal bonuses, rentals 
and royalties to states and local communities affected by offshore oil 
and gas development;
      Provide direct OCS revenues from Federal bonuses, rentals 
and royalties to MMS for environmental work, for monitoring, 
mitigation, and enforcement; and
      Provide direct OCS revenues from Federal bonuses, rentals 
and royalties to a Marine Mammal and Coastal Wildlife Habitat Studies 
and Enhancement Fund to be utilized by state marine and wildlife 
management agencies and contractors as needed.
    This same sort of initiative should also apply to the onshore oil 
and gas royalty stream. We look forward to working with Congress to 
support these concepts through legislation.
    Thank you again for allowing me to testify. I look forward to 
answering any questions you may have.
                                 ______
                                 
    Mr. Gibbons. Mr. Guidry, thank very much. I think it is 
important for of all us to hear that the industry is quite 
supportive of the efforts of the people of Louisiana to supply 
energy to the nation, and also, to solve some of the impact 
problems that occur with that.
    It is also refreshing to have an industry who works hand in 
hand with the people of Louisiana on some of these issues as 
well. Your commitment is appreciated.
    We turn now to Mr. Danos. Thank you very much for being 
here, Mr. Danos. We look forward to your testimony. The floor 
is yours.

   STATEMENT OF HANK DANOS, CHIEF EXECUTIVE OFFICER, DANOS & 
                   CUROLE MARINE CONTRACTORS

    Mr. Danos. Thank you, Chairman Gibbons. Danos & Curole is a 
Louisiana company, and more than that, we are a Lafourche 
Parish company. As we would say it, we are just a few miles up 
the bayou from here.
    We are a company that services and provides services to the 
energy-related business by providing contract personnel, marine 
liftboat services, offshore construction crews, shop 
fabrication work to the oil and gas industry around the globe.
    I'm very proud to represent Danos & Curole today. But I'm 
also a member of several prominent trade organizations that 
have an interest in what we are doing today. And one is the 
National Ocean Industries Association, NOAA, which is a 
national group representing all facets of our industry. I am 
also part of the executive subcommittee of OOC, which is the 
Offshore Operators Committee. I am a board member of Offshore 
Service--Marine Service Association, OMSA, and recent past 
chairman of Louisiana Association of Business and Industry. So 
I'm proud of the groups I speak for and represent today.
    Chairman Gibbons, Congressman Jindal and staff members, 
again, thank you for the opportunity to speak.
    Clearly, we are in an era of insecure and expensive oil and 
gas imports. Expanding domestic oil and gas supplies is 
critical to our economy and our energy security. It remains a 
high priority for our country. We recognize that there is a 
growing consensus amongst policymakers that we can only enhance 
our energy security if we move forward on regulatory reform, 
gain greater access to public land, and implement commonsense 
environmental standards.
    I can speak with some authority on these issues because 
Danos & Curole has been in operation for over 50 years in the 
oil and gas industry. As an oil field industry leader, we feel 
that we are a flexible, responsible, full-service contractor 
with a high standard of excellence. Ask any of our more than 
900 employees or our many customers, and they will say that we 
are a company committed to safety, environmental protection, 
training and qualify development of our personnel.
    The service and supply companies are the backbone of the 
oil and gas industry. There are hundreds of companies here in 
Louisiana and thousands of employees who earn high-end wages. 
In light of the fact, a single paycheck can turn over seven 
times, exchange hands seven times in any community. And 
literally, every faction of our communities are affected by 
those paychecks. Those paychecks, obviously, are affected by 
the extraction of oil and gas.
    Recent developments in offshore oil and gas exploration and 
development in the Gulf of Mexico, as you have seen and heard, 
brought new opportunities for Port Fourchon and the communities 
around Port Fourchon. As other offshore service companies are 
attracted to the area, additional jobs and additional 
opportunities and additional economic spinoff will occur.
    The oil and gas industry plays an important part in 
Louisiana, and the only way the service sector can effectively 
contribute to a continuous and adequate supply of oil and 
natural gas is through an uninterrupted access to exploration 
and production.
    Many service companies have felt the devastation of the 
past boom-and-bust cycles in our industry. Downturns and 
prolonged interruptions of production cause serious impact to 
the workforce. Thousands of former oil and gas worker employees 
have left the industry to seek more stable employment 
elsewhere. Consequently, we are seeing many out-of-state 
workers. Many come to Louisiana on a rotation basis and take 
their paychecks back to other states.
    Just as rural America has seen the economic devastation and 
social devastation of small communities that were dependent 
upon certain industries, such as the lumber and timber industry 
and others, we too depend on guaranteed, uninterrupted 
production of hydrocarbons to ensure stability and general 
health, safety and welfare for our communities. Without 
assurance that new exploration and production will continue 
through timely and consistent permitting, we lose the 
confidence of investors, whose capital investment should drive 
the economy of that needed infrastructure. A disruption in 
supply and demand causes a domino effect that ripples from 
service companies to grocery stores to gas stations, hospitals, 
to municipalities, and on and on it goes.
    The equation is simple. The citizens of the United States 
demand energy. Louisiana has numerous forms of energy supply. 
Louisiana has people who are willing to risk their capital and 
devote their own working energy to responsibly meet the 
national demand. Leadership and implementation from Federal 
agencies, based upon fairness and facts, are urgently needed to 
respond to this demand.
    We, the service men and women of the industry are willing, 
ready and able to respond. We urge Congress to assist and 
encourage the Federal agencies to do likewise.
    In closing, again, I would like to thank the Subcommittee 
and the Congressmen for being here and allowing us to testify.
    [The prepared statement of Mr. Danos follows:]

           Statement of Hank Danos, Chief Executive Officer, 
                   Danos & Curole Marine Contractors

    I am Hank Danos, Chief Executive Officer of Danos & Curole Marine 
Contractors located in Larose, LA. We are a company that serves energy-
related businesses by providing skilled contract personnel, marine 
liftboat service, offshore construction crews, and shop fabrication 
service to offshore oil and gas customers around the globe.
    I am very proud to represent Danos & Curole today. I am also 
pleased to represent the National Ocean Industries Association, the 
only national trade association representing all facets of the domestic 
offshore petroleum and related industries. I also serve on the Board of 
directors of the Offshore Marine Service Association (OSMA) and am also 
on the executive subcommittee of the Offshore Operators Committee (OOC) 
I want to thank Chairman Gibbons and the entire Subcommittee for 
holding this hearing on the importance of the offshore oil and gas 
industry.
    Clearly, we are now in an era of insecure and expensive oil and gas 
imports. Expanding domestic oil and gas supplies is critical to our 
economy and our energy security--it remains a high priority for the 
country. We also recognize that there is a growing consensus among 
policy makers that we can only enhance our energy security if we move 
forward on regulatory reform, gain greater access to public lands, and 
implement common sense environmental standards.
    We can speak with some authority on these issues because Danos & 
Curole has been in operation for over 50 years in the oil and gas 
industry. As a leader in the oilfield industry, we are a flexible, 
responsive full-service contractor with a high standard of excellence. 
Ask any of our more than 900 employees or any one of our customers and 
they'll say we are a company committed to safety, training and the 
quality development of our personnel.
    The service and supply companies are the backbone of the oil and 
gas industry. There are over 100 such companies in Louisiana, 
representing thousands of employees earning high-end wages. In light of 
the fact that a single paycheck changes hands 7 times throughout a 
community, literally every faction of our society and economy is 
affected by the extraction and production of oil and gas.
    Recent developments in offshore oil and gas exploration and 
development in the Gulf of Mexico have brought new economic growth to 
Port Fourchon and the surrounding community. As other offshore service 
companies are attracted to the area, additional job opportunities and 
economic spin-offs will occur.
    The oil and gas industry plays an important role in the Louisiana 
economy, and the only way that the service sector can effectively 
contribute to a continuous and adequate supply of oil and natural gas 
is through new and uninterrupted access to exploration and production. 
Many service companies have felt the devastation of past boom and bust 
cycles of oil & gas development. Down turns and prolonged interruptions 
of production cause serious impacts to the workforce--thousands of 
former oil and gas employees have left the industry to seek more stable 
employment elsewhere. Consequently, we are seeing many out-of-state 
workers. Many come to Louisiana to work a rotation, and go back home to 
Texas, Oklahoma or other areas, without moving their families to 
Louisiana.
    Just as rural America has seen the socioeconomic devastation of 
small communities that were dependent on timber harvest and sawmills, 
we too depend on guaranteed, uninterrupted production of hydrocarbons 
to ensure the stability and general health, safety and welfare of our 
community. Without assurance that new exploration and production will 
continue through timely and consistent permitting, we lose the 
confidence of investors whose capitol investments drive the development 
of needed infrastructure. A disruption in supply and demand causes a 
domino effect that ripples from the service company to the grocery 
store, to the gas station, to the hospital, to municipalities and local 
governments, etc. etc.
    The equation is simple: the citizens of the U.S. demand energy, 
Louisiana has numerous forms of energy reserves, Louisiana also has 
people who are willing to risk their capital and devote their own 
working energy to responsibly meet the national demand. Leadership and 
implementation from federal agencies, based upon fairness and facts are 
urgently needed to respond to this demand. We, the service men and 
women for this industry are ready, willing and able. We urge the 
Congress to assist and encourage the federal agencies.
    In closing, I would like to again thank the Subcommittee for the 
opportunity to comment on these critical issues.
    Thank you.
                                 ______
                                 
    Mr. Gibbons. Mr. Danos, I can see there is great pride in 
not just your company, but your history here in Louisiana and 
your service to this industry and how it has affected the end 
result, which many people don't understand and don't see 
directly up front, because your name isn't Shell; it isn't 
Chevron; it is Danos & Curole. And a lot of times, you are part 
of that unsung hero group that helps out in ever so small ways 
that makes it all work. Thank you for your contribution. Thank 
you for being here.
    We turn now to Mr. Clifford Smith from T. Baker Smith. Mr. 
Smith, welcome. I can at least pronounce your name.

        STATEMENT OF CLIFFORD SMITH, PRESIDENT AND CEO, 
                      T. BAKER SMITH, INC.

    Mr. Smith. Thank you, Mr. Chairman. Believe it or not, I am 
a native of South Louisiana, too. I'm the only blonde-headed, 
blue-eyed coonass in the world named Smith.
    Thank you and members of the Committee, and welcome to 
South Louisiana. Thank you for traveling to Port Fourchon, 
literally, ground zero for the offshore oil and gas industry in 
the Gulf of Mexico.
    I personally believe that this is, frankly, the fastest 
growing industrial area in the United States of America 
primarily, of course, because of the offshore activities. I 
appreciate the opportunity to speak to you about the benefits 
of offshore oil and natural gas development.
    My name is William Clifford Smith. I'm a lifelong resident 
of Terrebonne Parish, Houma, Louisiana. I'm a civil engineer 
and land surveyor and have owned and managed a consulting civil 
engineering, land surveying and environmental service firm 
since 1958. The firm was founded by my father in 1913. The firm 
now has approximately 130 associates. I am also a Presidential 
appointee to the Mississippi River Commission.
    Over the years, our consulting/engineering firm has 
provided professional services to major landowners, developers, 
local, state and Federal government agencies, oil-and-gas-
producing companies, pipeline and electrical transmission 
companies.
    Houma is the economic center of Terrebonne Parish, located 
about 65 miles southwest of New Orleans, 30 miles north of the 
Gulf of Mexico and about 50 miles west of Port Fourchon. 
Economically, everything is very positive for our community and 
has been for most of my life.
    Oil and gas was discovered in my parish in the late 1920s 
and early '30s. The exploration and production of oil and gas 
has had an unbelievable positive economic impact in my 
community for the last 75 years. The knowledge and experience 
our citizens have developed in the oil and gas industry has 
been exported all over the world.
    The infrastructure created by the major oil and gas 
companies to originally collect and process our domestic oil 
and gas production has transformed the entire Louisiana coast 
from Texas to Mississippi into the biggest concentration of 
petrochemical facilities in the world. I believe oil and gas 
and its supporting activities represent at least 75 percent of 
our economy. What is so gratifying is that with oil and gas 
activities, which is a depleting natural resource, we also have 
a recurring natural resource industry along our coast. With the 
seafood industry, oil and gas and tourism, I truly believe this 
is the most productive coastal area in the world.
    We in Louisiana really cannot understand why the rest of 
the Nation will not, with proper control and protection, permit 
oil and gas exploration. New techniques for exploration and 
production that were developed in coastal and offshore 
Louisiana can provide other states protection for their 
environment and the citizens of the coastal areas.
    If other states would tap into their offshore natural 
resources, the United States may become significantly less 
dependent upon foreign sources of oil. Not only do we remain 
vulnerable to the unstable politics of the Middle East, South 
America and Africa, but we are stinting our own economic 
development. Offshore drilling is a key component of better 
securing our energy and economic future in America.
    While South America fully embraces the benefits of the oil 
and gas industry, we must make sacrifices and work hard to 
protect all of our natural resources. We must face the reality 
that the industry, as well as our very way of life, is being 
threatened by coastal erosion. As our coastline recedes and our 
communities slowly begin to fade away into the Gulf, billions 
of dollars of oil and gas infrastructures are being exposed to 
constantly impending threats of hurricanes and other national 
security threats.
    Annually contributing more than $5 billion a year to the 
U.S. Treasury through the outer Continental Shelf Royalties, 
Louisiana believes the government has the duty and 
responsibility to help protect this critical infrastructure and 
habitat. We lose a unique culture and way of life, as well as a 
booming economic sector as a substantial portion of our 
national energy supply.
    I would like to extend my thanks and sing the praises of 
this Subcommittee and the Members of Congress for your hard 
work, particularly during the last 30 days. The Highway Bill 
and the Energy Policy Act of 2005 will provide Louisiana and 
the Nation with much needed relief and help support the oil and 
gas industry and infrastructure. The funds dedicated to coastal 
impact assistance from the offshore royalties are an essential 
first step in restoring our eroding coast and barrier islands 
that protect not only billions of dollars in oil and gas 
infrastructures, supplying the Nation with energy, but also our 
culture.
    Beneficially tapping all of our resources, coastal 
Louisiana provides the United States with over 20 percent of 
their energy and 25 percent of the seafood consumed across the 
country each year.
    Again, Mr. Chairman, thank you for traveling to Louisiana 
where the pavement hits the water. We will be glad to answer 
any questions that you may have now and in the future.
    [The prepared statement of Mr. Smith follows:]

      Statement of William Clifford Smith, Chairman of the Board, 
                          T. Baker Smith, Inc.

    Mr. Chairman and Members of the Subcommittee, welcome to South 
Louisiana. Thank you for traveling down LA1 to the Port Fourchon, 
literally ground zero for offshore oil and gas in the Gulf of Mexico. I 
appreciate the opportunity to speak to you about the benefits of 
offshore oil and natural gas development. My name is William Clifford 
Smith, and I am a life long resident of Terrebonne Parish, Houma, 
Louisiana.
    I am a civil engineer and land surveyor and have owned and managed 
a consulting Civil Engineering, Land Surveying, and Environmental 
Services firm since 1958, when I received a Bachelor of Science degree 
in Civil Engineering from Louisiana State University. The firm was 
founded by my father in 1913, who was a Civil Engineering graduate of 
Tulane University. He, too, was a life-long resident of our community. 
The firm now has approximately 130 associates and is owned and managed 
by my children, one of whom is also a Civil Engineering graduate of 
Louisiana Tech University. Due to my expertise in engineering, coastal 
restoration, and the oil and gas industry, I am also a Presidential 
Appointee to the Mississippi River Commission, which was established by 
Congress in 1879 to advise the Chief of Engineering of the U.S. Corps 
of Engineers on the development and improvements on the Mississippi 
River.
    Over the years, our consulting engineering firm has provided 
professional services to major landowners; developers; local, state, 
and federal government agencies; oil and gas producing companies; and 
pipeline and electrical transmission companies. We provide assistance 
in wetlands permitting, feasibility studies, and cost estimates; 
perform field, property, and hydrologic surveys; and prepare plans, 
specifications, and supervise and administer construction contracts. We 
have literally lived on the land and waters of this area for over 90 
years, three generations, and have made a living at it. Practically all 
of the wealth we have accumulated over the years can be attributed to 
Louisiana's unique abundance of natural resources and has been 
reinvested into our community.
    Houma is the economic center of Terrebonne Parish, located 
approximately 65 miles southwest of New Orleans, 30 miles north of the 
Gulf of Mexico, and 50 miles west of the Port Fourchon, where we are 
now. I have lived in the community of Houma for 70 years, all my life. 
My parish consists of approximately 1,300,000 acres of surface area. It 
is the second largest surface area parish in Louisiana. We have 
approximately 1,000,000 acres that I consider to be wetlands, 
including: open water on the Gulf of Mexico, bays, lakes, saltwater 
marshes, fresh water marshes, and swamps. Economically, everything is 
very positive for our community and has been most of my life except in 
the 1980's and early 1990's. We have had a 10% increase in population 
over the last 10 years, 4% unemployment rate, and an 11% average 
increase in sales tax collections per year. The economy of Terrebonne 
Parish, literally the ``good earth'' in French, and South Louisiana is 
dependent upon the plentiful assets of our coastal environment.
    Oil and gas was discovered in my parish in the late 1920's and 
early 1930's. The exploration and production of oil and gas has had an 
unbelievably positive economic impact in my community for the last 75 
years. The knowledge and experience our citizens have developed in the 
oil and gas industry is exported all over the world. The offshore 
activities off Louisiana have been a tremendous resource to the entire 
nation. Not only are we exploring for oil and gas 200 miles south of 
this location at Port Fourchon, but we are also importing, through the 
LOOP project, a considerable amount of our nation's energy needs. We 
are also going to import more L.P.G. from foreign sources into our 
state, providing the country with the ability to receive low-cost 
natural gas.
    The infrastructure created by the major oil and gas companies to 
originally collect and process our domestic oil and gas production has 
transformed the entire Louisiana coast, from Texas to Mississippi south 
of Interstate 10 and the Delta of the Mississippi River from Baton 
Rouge to its mouth, into the biggest concentration of petrochemical 
complexes in the world. All of this activity is to supply the nation 
with the petroleum and chemical products that sustain our economy and 
standard of living. All of this oil and gas activity has been the 
economic blood of our community. I believe oil and gas, and its 
supporting activities, represent at least 75% of our economy.
    The oil and gas produced in the Gulf of Mexico off our coast for 
the last 60 years has kept the East Coast and the Midwest running. In 
Terrebonne Parish alone there are still approximately 2,000 oil and gas 
wells, and we only need about two to supply our energy needs. On the 
other hand, many states consume up to 22 times more energy than they 
produce. Therefore, most of our valuable commodity is being consumed by 
the rest of the nation.
    What is so gratifying is that with the oil and gas activity, which 
is a depleting natural resource, we also have a recurring natural 
resources industry along our coast.
    From my deck overlooking the Gulf of Mexico at my summer home 10 
miles east of here at Grand Isle, Louisiana, I have spent the last 40 
years observing one of the most bountiful regions in the world. Among 
the greatest natural resources in Louisiana are our: oil, gas, sulphur, 
salt, and various other minerals, fish, crabs, oysters, shrimp, and 
crawfish. Nearly one-third of the fisheries catch in the lower 48 
states is produced in Louisiana's prosperous wetlands and millions of 
migratory birds flock to the marsh each year. Our ``Sportsman's 
Paradise'' is home to lucrative commercial fishing, recreational 
fishing and hunting, and an ecotourism industry. I truly believe this 
is the most productive coastal area in the world.
    My wife and I had the opportunity to go around the world some years 
ago to Fiji, New Zealand, Australia, Hong Kong, Italy, Greece, and 
England and we naturally migrated to the coast. Nowhere else do you see 
what we have in coastal Louisiana. We have also seen the west and east 
coast of the United States and Alaska--nothing has the economic value 
that we see in Louisiana, and it all coexists together.
    We in Louisiana really cannot understand why the rest of the nation 
will not, with proper controls and protection, permit oil and gas 
exploration. New techniques for exploration and production that were 
developed in coastal and offshore Louisiana could provide other states 
protection for the environment and citizens of coastal areas. The oil 
and gas industry throughout the world looks to Louisiana for help to 
properly secure their environment while drilling in sensitive offshore 
ecosystems. Earlier this year a delegation of government officials and 
private industry partners from Kazakhstan visited my firm in Louisiana 
to be trained on this very subject. We in Louisiana are industry 
leaders, paving the way for safe offshore drilling and pipeline 
technology.
    If other states would tap into their offshore natural resources, 
the United States may become significantly less dependent on foreign 
sources of oil. The United States loses on many fronts when we opt to 
rely on foreign sources of oil rather than our own natural resources. 
Not only do we remain vulnerable to the unstable politics of the Middle 
East and South America, but we are stinting our own economic 
development. We are paying more money at the gas pump and prohibiting 
the growth of a lucrative industry that could create thousands of jobs 
around the country. The oil and gas industry in South Louisiana is the 
economic livelihood of Louisiana, directly and indirectly employing a 
vast army of workers. The productive Louisiana workforce has the 
expertise and infrastructure to produce safe, reliable sources of 
energy that are in excess of our needs. Offshore drilling is a key 
component of better securing our energy and economic future in America.
    While South Louisiana fully embraces the benefits of the oil and 
gas industry, we must make sacrifices and work hard to protect all our 
natural resources. We must face the reality that the industry--as well 
as our very way of live--is being threatened by coastal erosion. As our 
coastline recedes and our communities slowly begin to fade away into 
the Gulf, billions of dollars of oil and gas infrastructure are being 
exposed to the constant impending threats of hurricanes and other 
national security threats. Annually contributing approximately $5 
billion to the U.S. Treasury through Outer Continental Shelf royalties, 
Louisiana believes the government has the duty and responsibility to 
help protect this critical infrastructure and habitat. If Louisiana 
loses its coast, we all lose. We lose a unique culture and way of life, 
as well as a booming economic sector and a substantial portion of our 
national energy supplies.
    I would like to extend my thanks and sing the praises of this 
Subcommittee and the all Members of Congress for your hard work--
particularly during the last 30 days. The Highway Bill and The Energy 
Policy Act of 2005 will provide Louisiana, and the nation, with much 
needed relief and help support the oil and gas industry and 
infrastructure. Specifically, the highway bill contains millions for 
the elevation of LA 1--the highway we have all traveled down today that 
is an essential corridor for delivering oil and gas to the nation. 
Economists predict a drastic and immediate price hike at the pump 
should LA 1 be closed for even a few days.
    I extend my gratitude to you for your work making the energy bill a 
reality. I was beginning to believe it would not be passed during my 
lifetime. The funds dedicated to coastal impact assistance from the 
offshore royalties are an essential first step in restoring our eroding 
coast and barrier islands that protect not only billions of dollars in 
oil and gas infrastructure supplying the nation with energy, but also 
my culture. Our very way of life is endangered. There is still work to 
be done, but this bill is a critical step to continue the production of 
offshore oil and gas as well as the Cajun heritage and joie de vivre 
that flourish along Louisiana's bayous.
    Beneficially tapping all our natural resources, Coastal Louisiana 
provides the United States with 20% of the energy and 25% of the 
seafood consumed across the country each year. Sectors of the economy 
dependent on oil and gas and the environment exist harmoniously in our 
community.
    Once again Mr. Chairman, thank you for traveling to Louisiana where 
the pavement hits the water. The people of South Louisiana look forward 
to working with you to proliferate our expertise while helping improve 
our national economy and securing our energy needs. I will be glad to 
answer any questions that you may have now and in the future.
                                 ______
                                 

  Response to questions submitted for the record by William Clifford 
                                Smith, 
              Chairman of the Board, T. Baker Smith, Inc.

1.  At this point it would seem that, if the federal government ever 
        worked out a system whereby oil and gas development could occur 
        in a least a portion of the Eastern Gulf of Mexico, that 
        portion would be nowhere near the Florida coast. Is Louisiana 
        prepared to continue to support--through Port Fourchon, for 
        example--any offshore activity that might occur there?
    Absolutely. The people of Louisiana are very supportive of 
expanding offshore activity in the Gulf of Mexico. We recognize that we 
have significant infrastructure already in place to support such 
activity; however, assistance from the federal government would allow 
us to improve our vital infrastructure, such as highways, bridges, and 
navigation channels, which would permit us to provide support activity 
more efficiently.

2.  If the federal government could move legislation that provided some 
        sort of revenue sharing to states that support offshore 
        development, what sort of ``sharing'' would you like to see?
        a.  An annual hard dollar amount?
        b.  A percentage of OCS revenues?
    Louisiana currently produces over $5 billion in offshore oil and 
gas royalties to the United States Treasury each year and the state 
receives less than a 1% return on royalties. On the other end of the 
spectrum, western states receive approximately 50% of oil and gas 
royalties within their boundaries based up on the Mineral Leasing Act. 
This seems unjust and unfair. Why shouldn't the hardworking people of 
Louisiana get their fair share?
    My position is that fairness and precedent should be continued, 
greatly increasing the percentage of offshore revenue sharing based 
upon the 50% onshore sharing.

3.  Does this revenue sharing need to be dollars that are directly 
        funded? Or can they be appropriated? Why?
    Again, we seek rights that are fair and similar to revenue sharing 
plans that are currently in place in the other states. This precedent 
sets forth a plan for directly funded oil and gas royalty sharing, as 
well as mineral and surface rights. These funds should not be 
appropriated, but rather directly based on the benefits the U.S. 
Treasury receives from Louisiana's assets.

4.  Would you prefer to see that the federal government set up a system 
        prescribing how states would be eligible for this money?
    Yes.

5.  Would you prefer to see that the federal government set up a system 
        prescribing how states could spend this money?
    I do not believe this is necessary. However, fairness and precedent 
are the points I would like to stress again. Should the federal 
government opt to set up a system prescribing how states spend revenue 
sharing funds, it should be similar to any guidelines in the western 
states. To the best of my knowledge, the federal government does not 
have much oversight in this area.

6.  Mr. Falgout, noted in his testimony that the oil and gas industry 
        co-exists with many other coastal users, and that it doesn't 
        have to be one or the other. The committee agrees with him that 
        it is a false choice to believe America must choose one or the 
        other. Mr. Davis also noted a similar theme in his testimony 
        that the ``belief that OCS development is incompatible with 
        environmental stewardship and the best interests of communities 
        is widespread and it runs deep''. I open this question to the 
        entire panel. How then, can a Florida, or a California, be 
        convinced that the industry can--and does--coexist with other 
        uses, and the environment? Please provide specific examples if 
        you can.
    The oil and gas industry and environmental stewardship can co-
exist. In fact, they do. At this hearing, Congress observed the 
harmonious co-existence of offshore oil and gas exploration and 
drilling, tourism, and environmental consciousness in south Louisiana. 
In addition to our tremendous tourist industry, an excess of 20% of our 
domestically produced energy and 25% of the nation's seafood harvest 
come across Louisiana's wetlands. To be convinced, skeptics should come 
to Louisiana and witness our recreational fishing, commercial fishing, 
bird watching, and scores of other thriving ecotourism activities. 
Furthermore, assistance from the federal government to improve our 
infrastructure may lead to a more productive co-existence of all our 
industries.

7.  Based on your experience, what restrictions and requirements would 
        you insist upon if you were setting up a system for drilling 
        off another coastal state?
    First, I recommend an extensive 3-d seismic evaluation and 
inventory using the latest modern technology of what and where specific 
exploration and production could be most effective. From the inventory, 
develop a specific plan to physically explore and act on these 
production areas to minimize the possibility of duplicate facilities. 
From this, some type of corridor for the production and transportation 
of such resources should be established. In Louisiana we have roughly 
10 million pipelines crisscrossing the state. I view this as our 
``mistake'' in the industry; however, it happened because of the 
evolution of the oil and gas industry over time. Other states can learn 
from our experience here and draft detailed plans to minimize the 
footprint for the development of these resources.

8.  Is the tourism industry in Louisiana affected adversely by the oil 
        and gas industry?
    The oil and gas industry has had a positive impact on Louisiana's 
tourism industry, especially sport fishing. My father lived on the 
coast his entire life and never went south of the coast into the Gulf 
of Mexico. However, when my children grew up on the coast they were 
fishing 30 miles offshore when they were merely 2 years old, primarily 
because of the oil and gas facilities in the Gulf of Mexico. During the 
hearing a video demonstrates the offshore platforms can have positive 
benefits to the maritime environment. Programs such as Rigs to Reefs 
create artificial reefs where aquatic life can flourish. There is no 
doubt in my mind that the offshore oil and gas industry has bolstered 
Louisiana's tourism industry.

9.  What economic benefits has drilling had on your community?
    The exploration and production of oil and gas has had an 
unbelievably positive economic impact in my community for the last 75 
years. I believe oil and gas, and its supporting activities, represent 
at least 75% of our economy. It is the economic livelihood of 
Louisiana, directly and indirectly employing a vast army of workers. In 
addition to the economic development directly related to the offshore 
drilling industry, the economy as a whole has benefited from increased 
tourism and greater spending on various types of infrastructure, 
everything from roads to hotels to schools.

10.  What has been the most sever impact of drilling?
    The most severe impact of offshore drilling in our community has 
been the footprint left by the multiple pipeline corridors that 
crisscross coastal Louisiana to bring the product onshore. This allows 
for additional salt water intrusion into our freshwater marshes, 
enhancing the rate of coastal erosion and threatening various 
infrastructure, such as roads, bridges, navigation canals, airports, 
heliports, and even schools and government facilities.

11.  Do you recommend that other coastal states drill for offshore oil 
        and gas?
    Yes, I recommend offshore drilling to other coastal states because 
the process can be done in a manner in which the environment and human 
occupants of the coastal areas are protected. Sectors of the economy 
dependent on oil and gas and the environment exist harmoniously in our 
community. New techniques for exploration and production that were 
developed in coastal and offshore Louisiana could provide other states 
protection for the environment and citizens of coastal areas. If other 
states would tap into their offshore natural resources, the United 
States may become significantly less dependent on foreign sources of 
oil, enhancing both our national security and our personal pocketbooks.

12.  Are industry experts in Louisiana willing to help other coastal 
        states institute safe drilling practices?
    Experts in Louisiana have exported their expertise in the oil and 
gas industry as others throughout the world look to Louisiana for help 
to properly secure their environment while drilling in sensitive 
offshore ecosystems. Earlier this year a delegation of government 
officials and private industry partners from Kazakhstan visited my firm 
in Louisiana to be trained on this very subject. We in Louisiana are 
industry leaders, paving the way for safe offshore drilling and 
pipeline technology. Of course, we are willing to assist other coastal 
states as we have other nations and corporation across the world.

13.  Has offshore drilling caused coastal erosion?
    It is possible that 10 to 15 percent of Louisiana's coastal erosion 
has been caused by offshore and onshore oil and gas activities; 
however, this is minimal when compared to the erosion that has been 
caused by other manmade and natural activities, such as leveeing the 
Mississippi River.

14.  Do you believe offshore drilling may cause erosion in other 
        coastal states?
    The best way to prevent a problem is to learn from the mistakes of 
others. Other states that decide to drill offshore should take a 
careful look at some of the lessons and techniques that have been 
developed in coastal Louisiana to provide for environmentally safe 
offshore oil and gas drilling. As I have stated earlier, one important 
factor for states that intend to develop new drilling regimes to 
consider is the development of pipeline corridors to transport oil and 
gas onshore. Minimizing the footprint of the industry is crucial to 
diminish the overall environmental impact, including the possibility of 
coastal erosion.
                                 ______
                                 
    Mr. Gibbons. I still say you haven't lost your sense of 
humor, even though you are--whatever you called yourself. Thank 
you.
    I want you to know that Nevada would be more than willing 
to access its offshore resources, but we would first have to 
push California out of the way.
    Thank you very much for your testimony, Mr. Smith. We will 
turn now to Mr. Dan Borne, Louisiana Chemical Association.

                  STATEMENT OF DAN S. BORNE, 
                 LOUISIANA CHEMICAL ASSOCIATION

    Mr. Borne. Thank you. Mr. Chairman, thank you very much. 
Mr. Jindal and staff, thank you for inviting the Louisiana 
Chemical Association to be here with you. I have asked the 
staff to distribute some remarks that I have tweaked a little 
bit from those that were originally in the packets.
    I also have some paper slides here that are referenced in 
the text of the testimony, Mr. Chairman, if you would like to 
look at those as I proceed.
    My name is Dan Borne, and I'm president of Louisiana 
Chemical Association. The LCA consists of 69 chemical 
manufacturers that operate at nearly 100 locations in 
Louisiana. Our plants directly employ over 27,000 Louisiana 
citizens, and indirectly account for tens of thousands more 
jobs.
    I'm appearing today on behalf of the LCA. My comments, 
however, also reflect the views of the American Chemistry 
Council and the Consumers Alliance for Affordable Natural Gas. 
I am here to represent the views of major natural gas 
consumers.
    Most of the folks here have been on the putting-up end, or 
on the taking-up end. I would like to explain why the 
availability and price of natural gas are so important to my 
industry, and to the entire American manufacturing economy. We 
consume a large amount of energy, especially natural gas, to 
power our plants and processes. But we also use natural gas 
like a baker uses flour. The bakery shops of New Orleans use 
flour to produce bread, especially French bread, sweet rolls, 
muffins, bagels, croissants and, of course, King Cakes. We use 
natural gas as feed stocks to make things, plastics, paints, 
pharmaceuticals, adhesives, detergents, fertilizers, medicines 
and a thousand other products that every one of us uses every 
day.
    And finally, we purchase a lot of power, much of which is 
generated by natural gas. In fact, Louisiana is the third 
largest consumer of natural gas in the United States; 
Louisiana's industrial consumption ranks second in the United 
States; Louisiana's industrial and power natural gas 
consumption is nearly as large as China and is larger than 
Australia, Spain, Brazil, New Zealand, Ireland, Portugal and 
South Africa.
    The U.S. chemical industry consumes more energy than 
Mexico, more electricity than the state of New York, more 
natural gas than California to produce a wide range of critical 
products. Put another way, the chemical industry consumes more 
natural gas than it would take to heat 30 million homes in a 
year, about half of the nation's home heating requirements.
    The availability and price of natural gas are our most 
important economic issues. On Thursday, natural gas closed at 
$9.30 per MMBTU. Yesterday, it closed at $9.50. $9.50. The 
industry's natural gas costs have increased by $10 billion in 
two years. That is 10 billion that we did not return to 
shareholders or reinvest in new facilities.
    The effect of these additional costs, think of it as a huge 
energy tax, has been severe. We have seen a 20 percent decline 
in natural gas consumption in the chemical industry. Economists 
call it ``demand destruction,'' we call it ``job loss.'' 
American jobs are being out-forced by the rising cost of 
natural gas.
    Dozens of plants around the country have closed. Those jobs 
have gone away and will be very hard to get back. Here in 
Louisiana, chemical manufacturing has lost over 3,000 jobs due 
to high gas costs. These jobs average nearly $60,000 a year in 
wages alone.
    U.S. chemical industry operations lost $50 billion in 
business to overseas operations since 2000, as high natural gas 
costs eroded competitiveness. We went from posting trade 
surpluses in excess of $20 billion, the most successful export 
industry in the history of this nation, to the U.S. being a net 
importer of chemicals. More than 100,000 American jobs have 
been out-forced in the chemical industry. A similar story is 
being played out in the forest and paper industry, steel, glass 
and other energy intensive-industries. Overall, U.S. 
manufacturing has lost 3 million jobs. Even as employment 
rebounds, manufacturing jobs continue to decline driven by 
spiraling energy costs.
    We are hemorrhaging because U.S. natural gas prices are the 
highest in the world, many times higher than in certain parts 
of the Middle East and Russia, and much higher than in the Far 
East. That cripples the competitiveness of U.S. operations. It 
is a case of too much demand chasing too little supply. At the 
same time, existing supply basins are beginning to decline. 
Promising new basins in the eastern Gulf of Mexico and on the 
Atlantic and Pacific seaboards remain, by Federal fiat, off 
limits.
    The President signed the Energy Policy Act on Monday, and 
we supported the bill because it helps somewhat to reduce the 
natural gas demand-supply imbalance. But let's be clear about 
one thing: It does nothing to change 25,000 years--25 years, 
rather, of Federal policy on offshore oil development--it seems 
like 25,000 years--and therefore, leaves the Nation short of 
desperately needed new supplies of natural gas.
    There's one very quick slide, Mr. Chairman, I would like to 
point out to you. We call it the ``Jaws of Death,'' and it is 
this one right here, which shows the worsening gap between 
domestic natural gas supply and demand. So, while the energy 
bill makes significant progress, more is needed if we are to 
restore competitive natural gas prices and stop the erosion of 
jobs.
    U.S. policy continues to keep the most promising areas for 
gas production off limits and that happens to be in offshore 
waters. That policy was implemented at a time when gas prices 
were low and supplies were thought to be high. Today, the 
reverse is true and current policies must change to keep pace 
with reality.
    Louisiana is a leader in the production of natural gas. The 
state is second overall in gas production, and first in Federal 
offshore production bill a wide margin. So, we recognize the 
concerns of some coastal communities, because our communities 
have those same concerns, and we think the way to do it is what 
has been expressed here earlier today. And that is, to have 
states opt in to offshore development and give them a piece of 
the action.
    In closing, I would like to thank you for holding this 
hearing again, and thank you for your continued interest in the 
issue. How OCS access is resolved will have long-term 
consequences for manufacturing and for the economy of America. 
And I think we need to be responsible in how we evaluate 
offshore energy production and make it a part of a balanced 
domestic energy policy.
    I will attempt to answer any questions that you and the 
Committee might have.
    [The prepared statement of Mr. Borne follows:]

                 Statement of Dan S. Borne, President, 
                     Louisiana Chemical Association

    My name is Dan Borne and I am the President of the Louisiana 
Chemical Association. The LCA consists of 69 chemical manufacturers 
that operate at nearly 100 locations in Louisiana. Our plants directly 
employ over 27,000 Louisiana citizens and indirectly account for tens 
of thousands more jobs.
    I am appearing today on behalf of LCA. My comments, however, also 
reflect the views of the American Chemistry Council and the Consumers 
Alliance for Affordable Natural Gas. I'm here to represent the views of 
major natural gas consumers.
    I'd like to start by explaining why the availability and the price 
of natural gas are so important to my industry--- and to the entire 
American manufacturing economy. We consume a large amount of energy--
and especially natural gas--to power our plants and processes. But we 
also use natural gas like a baker uses flour. The bakery shops in New 
Orleans use flour to produce bread, especially French bread, sweet 
roles, muffins, bagels, croissants and, of course, King Cakes. We use 
natural gas as feed stocks to make items--plastics, paints, 
pharmaceuticals, adhesives, detergents, fertilizers and a thousand 
other products that everyone of us uses every day. Even aspirin can be 
traced back to natural gas molecules. And, finally, we purchase a lot 
of power, much of which is generated by natural gas.
    In fact:
      Louisiana is the third largest consumer of natural gas in 
the United States.
      Louisiana's industrial consumption ranks second in the 
United States.
      Louisiana's industrial and power natural gas consumption 
is nearly as large as China's and is larger than Australia, Spain, 
Brazil, New Zealand, Ireland, Portugal and South Africa.
    The U.S. chemical industry consumes more energy than Mexico, more 
electricity than the state of New York and more natural gas than 
California to produce a wide range of critical products. Put another 
way, the chemical industry consumes enough natural gas to heat 30 
million homes a year--almost half of the nation's home heating needs. 
The availability and price of natural gas are our most important 
economic issues.
    Today, the price of natural gas is hovering at close to $9.00 per 
million BTU. That's equivalent to saying the price of gasoline is 
hovering at close to $5.00 per gallon. The industry's natural gas costs 
have increased by $10 billion in two years. That is $10 billion we did 
not return to our shareholders, or invest in new facilities.
    The effect of those additional costs--think of it as a huge energy 
tax--has been severe. We've seen a 20 percent decline in natural gas 
consumption in the chemical industry. Economists call it ``demand 
destruction.'' We call it job loss.
American jobs are being out-forced by the rising cost of natural gas!
    Dozens of plants around the country have closed their doors. Those 
jobs have gone away and will be hard to get back. Here in Louisiana, 
chemical manufacturing has lost over 3000 jobs due to high gas costs. 
These jobs average nearly $60,000 a year in wages alone.
    U.S. chemical industry operations lost $50 billion in business to 
overseas operations since 2000 as high natural gas costs eroded 
competitiveness. We went from posting trade surpluses in excess of $20 
billion--the most successful export industry in the history of this 
nation--to the U.S. being a net importer of chemicals. More than 
100,000 American jobs have been displaced in the chemical industry. A 
similar story is being played out in the forest and paper industry, 
steel, glass and other energy intensive industries. Overall U.S. 
manufacturing has lost 3 million jobs. Even as employment rebounds, 
manufacturing jobs continue to decline driven by spiraling energy 
costs.
    We are hemorrhaging production and jobs because U.S. natural gas 
prices are the highest in the world--ten times higher than in certain 
parts of the Middle East and Russia. This cripples the competitiveness 
of U.S. operations. It's a case of too much demand chasing too little 
supply. Utility consumption of natural gas grew by 31 percent in a few 
short years. At the same time, existing supply basins are beginning to 
decline. Promising new basins in the Eastern Gulf of Mexico and on the 
Atlantic and Pacific seaboards remain--by federal fiat--off-limits.
    The President signed The Energy Policy Act on Monday and it is now 
the law of the land. We supported the bill because it helps to reduce 
the natural gas demand-supply imbalance:
      It breaks new ground in the area of energy efficiency to 
reduce natural gas demand.
      It makes a serious effort to diversify the energy 
supply--it is an incubator for new technologies, further reducing 
natural gas demand.
      It gives the nation's energy infrastructure a much-needed 
facelift in the form of new LNG terminals and pipelines.
      And, it adds to the natural gas supply by streamlining on 
shore permitting, but not as much as the market needs. It will reduce 
the red tape that slows up natural gas production in western states.
    But let's be clear about one thing: it does nothing to change 25 
years of federal policy on off shore energy development--and therefore 
leaves the nation short of desperately needed new supplies of natural 
gas. So while the bill makes significant progress, more is needed if we 
are to restore competitive natural gas prices and staunch the erosion 
of U.S. jobs.
    U.S. policy continues to keep the most promising areas for gas 
production off limits and that happens to be in certain off shore 
waters. That policy was implemented at a time when natural gas prices 
were low and supplies were thought to be high. Today, the reverse is 
true and current policies must change to keep pace with reality.
    Louisiana is a leader in the production of natural gas. The state 
is second over all in gas production and first in federal offshore 
production by a wide margin. So we recognize the concerns of some 
coastal communities, because our communities have those same concerns. 
We think the way to do it is to give coastal states the right to decide 
if natural gas production off their coasts is in their best interest on 
a state-by-state basis. If a state opts to produce it should also 
qualify for coastal impact assistance, and because of the recent energy 
bill Louisiana will indeed share in some of the revenue collected off 
its shores. A state should, of course, also have the right not to 
produce. That makes sense. What doesn't make sense is to continue a 
blanket ban on 80 percent of the OCS while the unnaturally high U.S. 
price of natural gas drives businesses and jobs overseas.
    In closing, I'd like to thank you for holding this hearing and 
thank you for your continued interest in the issue. How OCS access is 
resolved will have long-term consequences for manufacturing and the 
economy in America. We think we need responsible off shore energy 
production as part of a balanced domestic energy policy.
                                 ______
                                 
    Mr. Gibbons. Mr. Borne, I don't think that any association 
could have a more dedicated and outspoken individual than you 
are, for what you have just said. I think you put it very 
clearly, very succinctly, and very helpfully to us to 
understand the impact of high energy costs. And supply versus 
demand issues are part of that here. So, thanks for your 
testimony.
    We turn now to Mr. Allen Walker from Gulf Productions, Inc. 
Mr. Walker, welcome. The floor is yours.

          STATEMENT OF ALLEN WALKER, GULF PRODUCTIONS

    Mr. Walker. Thank you, Mr. Chairman. I appreciate Mr. 
Jindal, Mr. Cranford and Mr. Coleman and Mr. Melancon's staff 
being here. Mr. Jindal made a very good and very important 
statement I feel strongly about. That is why I'm going to read 
this thing here, as the panel before me and these guys have 
covered the logistics of domestic drilling quite well. That it 
is important, and we need to do it with Godspeed because our 
nation is definitely suffering. But there are other uses of oil 
platforms that do create jobs and have other pretenses for 
creating thousands of jobs. I will get to some things that I'm 
doing with the industry and children and high school students 
that are taken very well, but I will read this first.
    The Gulf of Mexico is home to 4,000 oil and gas platforms. 
They produce one of the most prolific ecosystems by area on the 
planet. Stanley and Wilson 2000 reported that 10,000 of 30,000 
fish reside around the platforms in an area about half the size 
of a football field. Live rock organisms, coral, endangered 
species and protected fish and invertebrate colonize the 
platform's submerged structure. Many blue water platforms 
create complex coral reef ecosystems, comprised Caribbean flora 
and fauna that would otherwise not exist in 1,000 square miles 
of generally creatureless and silty Continental Shelf.
    On behalf of the oil industry, thank you for making the 
largest manmade reef system ever.
    The platforms clearly produce fish rather than merely 
attract fish. An abundance of evidence suggests that they are 
Essential Fish Habitat, Coral Habitat and Endangered Species 
Habitat. Over 50 species of federally managed fish, crustaceans 
and live rock organisms settle and forage around the offshore 
structures. The ecosystems they create are not designated as 
protected habitat under any of the current Gulf of Mexico 
Fisheries Management Plans. Over 120 of them will be removed 
every year for the next 40 years. As Mr. Jindal said, that can 
be drilled again and into different resources.
    Post-larval and juvenile reef fish can be found in 
remarkable numbers foraging in the thick mats of live rock and 
coral that attach to platform legs. Thousands of herbivores, 
such as Angel fish, Blue Tang, chubs and Parrotfish feed on the 
algae that grow on platforms. Plankton pickers, such as Brown 
Chromas, as you are looking at in the picture there, right 
after the red snapper, Creol Wrasse and Creolfish are 
continuously feeding on and off the platforms. The invertebrate 
community living on the platform support several species of 
Filefish, large schools of Spadefish and a multitude of 
Sergeant Majors and Hogfish. Ultimately, the sharks, tuna, 
groupers, snapper and jacks end up preying on the fish that 
live and feed on the platforms. In turn, we get job sources 
such as charter fishing.
    Photographic evidence demonstrates that 12 species of egg-
laying fish are utilizing platforms to raise their offspring. 
More remarkably, platforms are being utilized as surrogate 
nesting grounds for several species of drifting and larvae. 
Broadcast spawners or pelagic spawners cast fertilized eggs to 
the current after mating. The offspring can drift for days, 
weeks, or even months in a larvae state. Coral reefs, and in 
some cases, sandy habitats trigger a sensory mechanism in the 
infant fish that tells the fish to transform into a coral-
stimulate metamorphosis. After transformation, the post-larval 
fish must begin feeding or perish. The surface area of the 
sponges and other attached invertebrates is teaming with the 
essential food items for juvenile and post-larval fish, 
plankton, copepods, amphipods, and not to mention us.
    Oil and gas platforms represent the only reef habitat over 
much of the Louisiana Continental Shelf. During the summer 
months, much of the ocean floor in the region is covered with 
an anoxic layer of decomposing algae resulting from excess 
nitrogen draining from agricultural fields along the 
Mississippi watershed. Petroleum structures are incredibly 
important to fish in the area, in that they are the only hard 
substrate that rises through the anoxic layer to provide reef 
habitat, food, spawning areas, nesting areas and mating 
grounds.
    I charter fish, amongst a few things. A lot of people don't 
affiliate oil rigs with tourism. What I have learned over the 
past few years is that a lot of people come here based on us 
having oilfields. That goes to say with, for example, the 
charter industry. I have fished out here for 37 great years 
with my father. I have a great strand of memories that head up 
La. 1. I'm based now out of Venice, Louisiana, as a charter 
captain. We have an enormous amount of people and an enormous 
amount of industry growing down there right now, due to the 
fact that these oil platforms are in place. And with that, 
comes renting cabins and motels, and feeding in our 
restaurants, and ultimately, fishing some of the best grounds 
in the world. My statement would be they are the best grounds 
in the world.
    It also has traveled out to the movie industry. I'm right 
now in my second pilot with the Discovery Channel, and MTV for 
the third time. Through Rife International, we are doing a 
movie about a monster that lives underneath an oil rig with 
Matthew McConaughey. It is bringing money. It's the oil 
platforms that are bringing in money that people don't 
recognize.
    Not to mention the educational aspect of these platforms 
goes way beyond just the field out there, it goes into the 
classrooms now. I have been lucky enough to go to Central 
Lafourche on behalf of the sponsorship of Chouest with Mr. Ben 
St. Pierre, and having the first identification class in the 
nation. You ought to see these kids, young men and women. They 
are so excited about this, which in turn, creates jobs for 
themselves. They might want to be a scuba instructor, they 
might want to keep the charter industry going, they might want 
be a biologist, scientist. It is endless. You ought to see how 
happy they are.
    But, also, we have another industry that revolves around 
the platforms, and of course, all you guys know, that is 
commercial fishing. And the more platforms you put out there, I 
think the better off the Gulf will be; mainly because it is--
that's all you need to see right there. That is one of the 
largest migrations of tarpon ever filmed. Before that, I had a 
scientist tell me that it did not exist. I have been very lucky 
to work with scientists and doctors such as Dr. Jose Castro; 
Dr. Love out of California; Dr. San Marco; environmental 
scientist, Steve Kolian. I have been educated to believe that--
by other folks in other states--to think that these are just 
some big giant monsters sitting out there destroying the 
ecosystem. It is quite different. Without them, we would not 
have an ecosystem.
    I was watching a program last night with Dr. William 
Hogarth. I'm sure all you guys are aware of him. He was at a 
fundraising situation where he wanted to have people eat more 
American seafood. The main reason he was there speaking on 
behalf of this was because 75 percent of our seafood is 
imported, when we have the means right here off this coast to 
completely knock that number way, way down. In return, we would 
create jobs.
    As President Bush is pursuing mariculture and aquaculture 
programs, we are taking a great step forward because this is 
big, big money. This is jobs for everybody that wants to be in 
this industry. And it was quite a shame to hear him say that we 
actually import 75 percent of our seafood.
    It is pretty much the same thing with the oil industry. Why 
should we be importing this much oil when they have all this 
technology right here sitting here in this room that can pursue 
natural gas and use the other rigs that are out there, expired, 
to go for the crude that is still sitting down there?
    So, my response, cutting down those oil rigs is not a good 
thing because they are creating many, many jobs that people are 
really not seeing.
    I would like to just say thank you for having me here, and 
we need to really look into this drilling further and further 
because we have a gold mine underneath every single one of 
these platforms, whether it is environmental or for our 
economy. Thank you.
    [The prepared statement of Mr. Walker follows:]

           Statement of Allen Walker, Gulf Productions, Inc.

    The Gulf of Mexico is home to 4,000 oil and gas platforms. They 
produce one of the most prolific ecosystems, by area, on the planet. 
Stanley and Wilson (2000) reported that 10,000-30,000 fish reside 
around the platform in an area about half the size of a football field. 
Live rock organisms, coral, endangered species, and protected fish and 
invertebrates colonize the platforms submerged structure. Many blue-
water platforms create complex coral reef ecosystems, comprised of 
Caribbean flora and fauna that would otherwise not exist on thousands 
of square miles of generally featureless and silty continental shelf.
    The platforms clearly produce fish rather than merely attract fish. 
An abundance of evidence suggests that they are Essential Fish Habitat 
(EFH), Coral Habitat, and Endanger Species Habitat (ESH). Over 50 
species of federally managed fish, crustaceans, and Live rock organisms 
settle and forage around the offshore structures. The ecosystems they 
create are not designated as protected habitat? Under any of our 
current Gulf of Mexico Fisheries Management Plans. Over 120 of them 
will be removed every year for the next 40 years.
    Post-larval and juvenile reef fish can be found in remarkable 
numbers foraging in the thick mats of live rock and coral that attach 
to the platform legs. Thousands of herbivores such as Angle fish, Blue 
Tang, Chubs, and Parrotfish feed on the algae that grow on the 
platforms. Plankton pickers such as Brown Chromas, Creol Wrasse, and 
Creolfish are continuously feeding on and off the platforms. The 
invertebrate community living on the platforms supports several species 
of Filefish, large schools of Spadefish, and a multitude of Sergeant 
Majors and Hogfish. Ultimately, the sharks, tuna, grouper, snapper, and 
jacks end up preying on the fish that live and feed on the platforms.
    Photographic evidence demonstrates that >12 species of egg laying 
fish are utilizing platforms to raise their offspring. More remarkably, 
platforms are being utilized as surrogate nesting grounds for several 
species (>13) of drifting larvae. Broadcast spawners or pelagic 
spawners cast fertilize eggs to the current after mating. The offspring 
can drift for days, weeks, or even months in the larvae state. Coral 
reefs, and in some cases, sandy habitat trigger a sensory mechanism in 
the infant fish, that tells the fish to transform into a post-larvae 
state. Once currents guide the larvae to the platform, the presence 
sponges, hydroids, mollusks, and coral stimulate metamorphosis. After 
transformation, the post-larval fish must begin feeding or parish. The 
surface area of the sponges and other attached invertebrates is teaming 
with the essential food items for juvenal and post-larval fish, i.e. 
plankton, copepods, and amphipods.
    Oil and gas platforms represent the only reef habitat over much of 
the Louisiana continental shelf. During the summer months, much of the 
ocean floor in the region is covered with an anoxic layer of 
decomposing algae resulting from excess nitrogen draining from 
agricultural fields along the Mississippi watershed. Petroleum 
structures are incredibly important to fish in the area in that they 
are only hard substrate that rises through the anoxic layer to provide 
reef habitat, food, spawning areas, nesting areas, and mating grounds. 
Obligatory reef fish spend their entire lives on the platforms in 
search of food, reproducing and competing for territory.
                                 ______
                                 
    Mr. Gibbons. Mr. Walker, I want to thank you. It is clear 
that you are that part of this whole industry that oftentimes 
is not recognized, but your voice out there to tell the 
benefits in terms of indirect benefits of what this industry 
brings to the people of this country and, in fact, the people 
of the world, is critically important.
    What you have brought to our Committee is very, very 
valuable--your testimony--and showing us these slides and 
presentations today of the value as well.
    In fact, I'm going to go back and tell my young kids that I 
was out on the Petronius and looking at the damage to the 
substructure, the missing parts of that oil rig. I'm going to 
tell them now it was not a hurricane, but it was a monster 
living under the rig. I will prove it to them when the movie 
comes out showing the monster. They will see it.
    Ladies and gentlemen, we have just about five minutes left, 
and of course, we have taken, again, a little extra time in 
allowing each and every one of you to present your statement 
and your testimony to the Committee.
    Every one of you, both panels, have been incredibly 
articulate and incredibly forceful in the presentation of your 
testimony about why we should be paying greater attention to 
this industry, to the coast, and to the people of Louisiana.
    I just want to turn over here to Mr. Jindal for his closing 
remarks after mine, but I want to thank all of our witnesses 
today, and I want to thank the Boy Scouts who came today, and I 
want to thank Mr. Jindal and Mr. Melancon and his staff for 
hosting this Committee. I want to thank Ted Falgout for 
providing the facilities and hosting us here at Port Fourchon. 
I want to thank the hard-working men and women, many of whom 
are sitting in this room, many of whom are out on the rigs 
today providing the energy to this country.
    We are a blessed country to have such hard-working people, 
and truly, every day of our lives, we should say thanks to all 
of you for what you do.
    So, with that, I want to, once again, say that we will 
submit written testimony, or written questions--you have 
submitted written testimony--we will submit written questions 
to you, and we would appreciate you responding to those 
questions as well within ten business days, as we have said.
    And most importantly, for this Committee, we have learned a 
great deal, but we also have learned that there is a great deal 
of brain power out here to solve the problems. We will continue 
to turn to you to ask the questions on how to fix the problems, 
how to move forward.
    As one of you said, it is as important to the advancement 
of space, the advancement of deepwater drilling, to get--that 
has made this country great. That is a part of you. And I, most 
importantly, want to say that I'm going to look forward to my 
next trip to the bayou of Louisiana. Thank you.
    Mr. Jindal?
    Mr. Jindal. Thank you, Mr. Chairman. Thank you again for 
taking so much time out of your busy calendar to come down and 
spend some time with us. I will briefly comment on this panel 
and give my closing remarks.
    I want to say that, Dan, thank you for your comments. One 
of the things I hope everybody pays attention to is on page 6 
of the slides, give you a chance to look at that in some 
detail. Dan points out the different prices paid for natural 
gas around the world. And he points out that in many countries 
that we compete with, they are paying less than one dollar; 
whereas our price is well over nine dollars.
    One of the statistics I have often heard, and Dan, you can 
correct me if this is wrong, that there are 120 facilities 
being built worldwide right now, significant chemical 
facilities being built worldwide. Exactly one of those is being 
built in America. That is troubling to me. As we worry about 
our growing trade deficit, as we worry about economic security 
and as we worry about jobs being exported overseas, we have 
paper mills in this state that are in danger of not being able 
to compete because of the cost of natural gas. We have 
petrochemical facilities, we have vinyl manufacturers dependent 
on those raw materials.
    Indeed, I was touring a paper mill that is making some 
critical decisions in the next several weeks up in northeast 
Louisiana, and their information is that their newest equipment 
is older than the oldest equipment on facilities located 
outside of this state.
    In part, I think what we are saying is, companies aren't 
shutting down their facilities overnight, but they won't have 
the incentives to make the investments to improve their 
technology and expand their capacity. So we are laying the 
foundation today for jobs over the next several decades in the 
same way that the '60s Louisiana saw the investment of billions 
of dollars that has now resulted in these tens of thousands of 
good-paying jobs for our children today. I'm worried that if we 
don't build that same foundation today, our children won't have 
those jobs in just a very short period of time.
    So I thank you for your testimony. I hope everybody pays 
attention to this chart. You know, we were talking yesterday, 
80 percent of Wal-Mart's suppliers are now in China. Not 
overseas, but one in one country: China. If we don't do 
something about this cost of natural gas, that number is only 
going to get worse, not only for Wal-Mart, but for all of our 
manufacturing jobs.
    Allen, and I want to thank you for your testimony as well. 
One of the things that we saw yesterday as we traveled these 
platforms, we saw again and again, we saw the porpoises 
ourselves, we saw the fish ourselves, we heard from the people 
out there. It is not just the abandoned rigs, but we saw an 
active production, we saw rigs that are in active production. 
The boats are coming to fish around those rigs that you see 
fishermen that know this area, know that that's where you can 
go to get good fish.
    And you are right, if you're responsible, this can be a 
win/win. We can absolutely help our environment, and at the 
same time we can absolutely help our energy industry.
    Cliff, Hank and Greg, I want to thank you for your 
testimony. One of the things that I think Hank and Cliff, in 
particular, but all three of you have shown, is the changing 
technology of the oil and gas industry. We were on platforms 
yesterday that in just a few decades have become increasingly 
sophisticated. These are the oil production facilities, these 
are the service providers that our fathers may remember.
    Especially Hank and Cliff. I know you have companies that 
your fathers helped to create, you now run them, you have 
children, and in some cases, even other relatives living in 
this state. I think by your lives, your demonstration of the 
multigenerational impact of the energy industry, and not only 
your contributions, but your commitment to improving your 
community, I think that shows the oil and gas industry is a 
very positive economic force. I want to thank you for your 
testimony.
    In conclusion, again, Mr. Chairman, I want to thank you for 
spending your time here. The themes that we think are so 
important for this Committee to take away to enter in our 
record is the critical role Louisiana is willing to play in 
producing our nation's energy. We are proud to play that role. 
With record prices of oil and gas, it is important that we 
become less dependent on foreign sources of energy.
    Second, it is important that our country work with us to 
help us restore our coast. We are not asking for Federal 
dollars, we are simply asking to be allowed to keep a portion 
of the dollars generated for the Federal government to help 
restore our coast. It's $5 billion--this year, it will be $8 
billion a year the Federal government will be making off of our 
coast.
    We have heard before that the MMS is the second largest 
revenue generator next to the IRS for the Federal government. I 
think we would rather generate that revenues by producing 
energy than having the increased tax rates. But the only way to 
produce that energy is if we restore the coast, if we build the 
bridges, if we allow Louisiana to keep a portion of those 
revenues.
    I want to thank this Committee for their support for those 
provisions, not only this past energy bill, but its ongoing 
support for the more robust provisions. I want to thank also 
the various people that helped to demonstrate to our Committee 
that oysters are not endangered here. We have a thriving 
seafood industry. We need to protect it. But just because there 
are things happening in Maryland, it shouldn't devastate or 
negatively impact Louisiana's thriving seafood industry.
    Finally, the fact that we can coexist, we can support our 
environment while we support the energy industry, and how 
important Port Fourchon is when it comes to homeland security. 
This isn't just dollars and cents, it isn't just about economic 
development, it isn't just about recreational fishing. It is 
about all of those things. But it's also about homeland 
security. It's about making sure that we have a growing 
economy, and that we are not held hostage by foreign countries.
    So, I want to thank the members of both of our panels, but 
I especially want to thank the Chairman and the Committee staff 
that have traveled on their own time to come down here and see 
firsthand what so many of us in Louisiana have grown up with 
and what we know instinctively. Thank you, Mr. Chairman.
    Mr. Gibbons. Again, we want to thank all of our witnesses 
today, and if there is no further business to come before the 
Committee, we will excuse the panel and this Hearing is now 
adjourned.
    [Whereupon, the Subcommittee was adjourned.]

    [A statement submitted for the record by Ken Wells, 
President, Offshore Marine Service Association, follows:]

                  Statement of Ken Wells, President, 
        Offshore Marine Service Association, Harahan, Louisiana

    My name is Ken Wells and I am the President of the Offshore Marine 
Service Association, also known as OMSA. OMSA is the national trade 
association representing the owners and operators of vessels that work 
in America as well as the world's offshore oil and gas industry. Our 
members work in support of that industry by providing transportation 
for supplies and personnel, by providing vessels involved in 
construction and repair work, and a range of other oil and gas-related 
services. Our 250 members own or operate most of the 1200 vessels that 
work in the offshore energy sector. These vessels include supply boats, 
crewboats, utility boats, liftboats and conventional tugs and barges.
    First, thank you for taking the time to visit Port Fourchon. It is 
the center of our industry and the jumping off point for much of our 
vessel activity. Unless someone has witnessed the port in action, as 
you have during your stay here, it is hard to adequately convey what a 
vibrant hive of activity and what an economic engine this region has 
become.
    With that as a starting point, I would like to stress a few points 
about the vessels that work here and what they mean to our country.

The workboat fleet is the lifeline to America's offshore oil and gas 
        industry.
    According to the U.S. Minerals Management Service, there are some 
four thousand active platforms in U.S. waters. It is worth pointing out 
that every pipe, every wrench, every computer, all of the fuel, all of 
the drinking water and all of the groceries were carried to those 
facilities by vessels. The facilities were towed into place by our 
vessels and when they have completed their useful life, our vessels 
will help dismantle them. Large numbers of the workers who go to and 
from those facilities ride on our crewboats. A wide range of our 
vessels, from liftboats operating in just a few feet of water to huge 
well stimulation vessels operating deep in the Gulf of Mexico, are 
engaged in maintaining offshore facilities and in maximizing the oil 
and gas production. When a hurricane blows into the Gulf, our vessels 
carry the last workers ashore, sometimes in the very teeth of the 
storm.
    In short, the vessels working in support of the oil and gas 
industry are the lifeline to America's offshore energy supply. A strong 
and thriving domestic industry is critical to the long-term success of 
that sector and to the nation's ability to draw on those resources.

The U.S.-flag vessels servicing the offshore energy sector are 
        important to the local economies of the coastal states.
    The domestic workboat industry is very much a homegrown industry. 
It was developed on the Gulf Coast after World War II in response to 
the newly created offshore oil and gas industry. It grew as the need 
for its services grew. In the process, it has always maintained its 
local flavor and has been a significant part of the local economy.
    Our workforce is a national one. Work schedules give vessel crews 
the option of living anywhere in the country and returning to the coast 
for their three- or four-week hitches on the vessels. But this area has 
and will continue to produce the greatest number of skilled mariners 
who crew our vessels. They live here and pay their taxes here.
    Most of the vessels are built nearby, creating jobs and a large web 
of construction and repair-related companies throughout the coastal 
states. According to one study, roughly half of the sales for 
commercial shipyards take place on the Gulf Coast, with offshore 
support vessel-related work accounting for a large percentage of that 
revenue.
    Significantly, offshore vessels account for a disproportionately 
high percentage of the tax base that local counties and parishes 
receive from the offshore oil and gas industry. U.S.-flag vessels in 
the offshore sector pay property taxes locally. For example, according 
to the tax assessor in Lafourche Parish, where Port Fourchon in 
located, watercraft taxes represent nearly one third of the entire tax 
base. It must be stressed that these taxes are only collected from 
U.S.-flag vessels. On those occasions when a foreign-flag vessel is 
allowed to work in U.S. waters, the local governments do not receive 
anything in property tax payments.
    Our industry affects the region is ways that go beyond simple tax 
dollars. The companies that are members of OMSA and many of the 
crewmembers who work on their vessels have deep local roots that 
stretch back to the founding of the industry. They are not just a 
funding source for the community. They represent the community and they 
have the long-term interests of the community at heart. It is much 
harder to pull up stakes and take your operation somewhere else when 
you shop in the local stores, send your kids to the local schools and 
serve on the boards of the local churches.

The workboat fleet is one of the last truly American pieces of the 
        offshore energy sector.
    By law, vessels transporting merchandise or passengers or towing 
anything between points in America must be U.S. owned, crewed and 
built. These laws are commonly known as the Jones Act, the Passenger 
Vessel Act and the Towing statute. Together, the requirements that they 
place on vessels are important to the health of the industry and also 
to the health of America's energy policy.
    Over the past few years, we have seen the Jones Act increasingly 
under attack by foreign vessel operators who use loopholes in the law 
to establish a corporate presence in the domestic trade. This has taken 
the form of complex lease finance agreements, narrow interpretations of 
the law and, most recently, mortgage arrangements in which foreign 
vessel owners bankroll U.S. companies. We have needed Congress' help in 
closing one loophole after another. I would like to stress that 
Congress' continued support for the Jones Act is critical.
    The energy sector has become one of the most thoroughly 
internationalized industries in the world. It is now possible to go 
from the initial planning to the final production for an offshore 
prospect and have the entire process controlled by foreign companies, 
except for one segment--the vessels which support that project. They 
represent the only part of the U.S. offshore industry that must, by 
law, be under the control of Americans.
    Much has been said of the dependence this country has on foreign 
sources of energy and on foreign companies that control the sources of 
energy. It is now more important than ever that we protect the 
connection that this country has to its own energy resources.

U.S.-flag vessels are critical to the security of the offshore fleet.
    Security has emerged as one of the most important reasons that 
America needs to protect its domestic fleet and to maintain laws, like 
the Jones Act, which ensure that these vessels remain under U.S. 
control. There is little question that the U.S. government wants to 
protect its offshore energy sources from terrorism, but there is also 
little doubt that the government does not have the resources to provide 
that security on its own. The U.S.-flag fleet of vessels working 
offshore fills in the security gap. Much of the fleet is covered under 
Coast Guard-mandated security plans and most of the vessel crewmembers 
from OMSA-member companies have gone through industry security 
training. Our members work in close partnership with authorities to be 
the security eyes and ears for the offshore sector. With hundreds of 
vessels working in the offshore fleet and thousands of crewmembers 
keeping watch everyday, these vessels represent the true line of 
defense in our effort to protect the nation's offshore energy 
resources.
    In closing, the U.S.-flag support vessels are and will remain a 
critical lifeline to America's offshore energy supply. It is more 
important than ever that the country recognize the role that this fleet 
plays in our economy, our self-sufficiency and our security.
    Thank you.

                                 
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