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73–446 PDF 2012

EXPLORING ALL THE ENERGY OPTIONS AND

SOLUTIONS: SOUTH TEXAS AS A LEADER IN

CREATING JOBS AND STRENGTHENING THE

ECONOMY

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

FEBRUARY 13, 2012

Serial No. 112–115

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

(

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

http://www.house.gov/reform
(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director
(III)

C O N T E N T S

Page

Hearing held on February 13, 2012 ....................................................................... 1

Statement of:

Jones, Elizabeth Ames, chairman, Railroad Commission of Texas; Charif

Souki, Chief Executive Officer, Cheniere Energy, Inc.; and Jeff Weis,

executive vice president, Orion Drilling Co. LLC ...................................... 7

Jones, Elizabeth Ames .............................................................................. 7

Souki, Charif .............................................................................................. 10

Weis, Jeff .................................................................................................... 18

Stanford, Scott, operations manager of Royal Offshore, Royal Production

Co., Inc.; Mark Leyland, senior vice president of Offshore Wind

Projects, baryonyx Corp.; Roland C. Mower, president and chief executive officer, Corpus Christi Regional Economic Development Corp.; and

Robert E. Parker, president, Repcon, Inc. .................................................. 32

Leyland, Mark ........................................................................................... 42

Mower, Roland C. ...................................................................................... 50

Parker, Robert E. ...................................................................................... 54

Stanford, Scott .................................................................................................. 32

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

Issa, Chairman Darrell E., a Representative in Congress from the State

of California, prepared statement of ........................................................... 4

Leyland, Mark, senior vice president of Offshore Wind Projects, baryonyx

Corp., prepared statement of ....................................................................... 45

Mower, Roland C., president and chief executive officer, Corpus Christi

Regional Economic Development Corp., prepared statement of ............... 52

Parker, Robert E., president, Repcon, Inc., prepared statement of .............. 56

Souki, Charif, Chief Executive Officer, Cheniere Energy, Inc., prepared

statement of ................................................................................................... 14

Stanford, Scott, operations manager of Royal Offshore, Royal Production

Co., Inc., prepared statement of .................................................................. 36

Weis, Jeff, executive vice president, Orion Drilling Co. LLC, prepared

statement of ................................................................................................... 20

(1)

EXPLORING ALL THE ENERGY OPTIONS AND

SOLUTIONS: SOUTH TEXAS AS A LEADER IN

CREATING JOBS AND STRENGTHENING THE

ECONOMY

MONDAY, FEBRUARY 13, 2012

HOUSE OF REPRESENTATIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Corpus Christi, TX.

The committee met, pursuant to notice, at 9 a.m., at the Performing Arts Center, Texas A&M University Corpus Christi, 6300

Ocean Drive, Corpus Christi, TX, Hon. Darrell E. Issa (chairman

of the committee) presiding.

Present: Representatives Issa and Farenthold.

Staff present: John Cuaderes, deputy staff director; Linda Good,

chief clerk; Frederick Hill, director of communications and senior

policy advisor; and Kristina M. Moore, senior counsel.

Chairman ISSA. The full committee hearing on ‘‘Exploring All the

Energy Options and Solutions: South Texas as a Leader in Creating Jobs and Strengthening the Economy’’ will come to order.

The Oversight Committee mission is that we exist for two fundamental principles. First, Americans have a right to know the

money Washington takes from them is well spent. And second,

Americans deserve an efficient, effective government that works for

them. Our duty on the Oversight and Government Reform Committee is to protect these rights.

Our solemn responsibility is to hold government accountable to

taxpayers, because taxpayers have a right to know what they get

from their government. Our job is to work tirelessly in partnership

with citizen watchdogs to deliver the facts to the American people

and bring genuine reform to the Federal bureaucracy.

Today, we will explore both the good that comes from natural gas

and oil exploration and wind and the problems created by government and the impediments at times to that.

I’d first like to take a moment to thank the university. Texas

A&M, a place I wanted to come to and thought that it wasn’t in

Corpus Christi until I found out there were multiple campuses, was

very generous to provide this lovely hall today.

And I want to thank my colleague, Mr. Farenthold, for arranging

this and for being born in such a beautiful part of Texas. Your parents did think ahead.

Briefly, energy is the life blood of our country’s economy. No matter where you are in the energy debate, we all know that if you
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take back all forms of energy, we are back to being in the stone

age as a caveman.

Ultimately, all of the progress of mankind starts with leveraging

energy. That energy warmed the early homes, but it also created

the opportunity for leisure and thought and research and development.

In fact, today it’s the, a tremendous amount of food is provided

by very few using fossil fuels mostly to reap harvest from our land.

It’s the factories that turn out ever greater products more efficiently, less energy—or more energy in some cases, but certainly

less human labor.

The truth is, without finding affordable energy, we will slip back

as a society. And with 7 billion people on the earth, that problem

is bigger than ever.

Until recently, America was a net importer. We made the assumption that in fact we would be importing ever more oil and ever

more natural gas. And although our imports of oil fortunately have

stemmed their ever increasing flow, the real good news for us, in

addition to domestic oil, is the abundance of natural gas. People on

the left and the right now talk in terms of the United States being

the Saudi Arabia of natural gas.

Additional oil production is yielding even more natural gas, while

improved fracking techniques have made natural gas reserves

throughout the United States, both here in the south and all the

way to our northern border, more abundant.

It has become so obvious that we are going to be a major producer and exporter of fossil fuels that even in the President’s State

of the Union, he took great recognition of the increases on his

watch, and of course, the creation by DOE of hydraulic fracking

during his presidency. Well, maybe that was slightly off.

I come to Texas today for two reasons. First of all, because when

we held the hearing in Bakersfield, California, my good friend,

Blake, was willing to come there and be—well, I think you did brag

a lot about Texas.

Mr. FARENTHOLD. I did.

Chairman ISSA. He did. But in fact, he came with the wealth of

knowledge that growing up here gave him. And it was, it was a

great addition to our field hearing on the potential for oil and natural gas on very old fields in California that made us realize that

there were many reasons to come to Texas, not the least of which

was my colleague and friend on the committee.

Texas still ranks number one in crude oil, but a lot of what we’re

going to hear about today is the areas of growth in Texas in addition to oil, the natural gas reserves, the wind energy, and of course,

the willingness by Texans to do oil refining and gas liquefaction.

So though we come here primarily to hear from our witnesses,

we come with a great deal of research to know we’ve come to a

place, to a State that is energy excited, energy friendly, and in fact

where jobs in energy and the derivatives thereof have made this an

area of low unemployment and a likelihood of even lower unemployment.
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So with that, I’d like to recognize for an opening statement my

good friend, colleague, a man I have only known for 1 year but who

I really believe has changed the Oversight Committee, particularly

because of his knowledge of computers, law, the constitution, and

oh yes, energy, Blake Farenthold.

[The prepared statement of Chairman Darrell E. Issa follows:]
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Mr. FARENTHOLD. Thank you, Chairman Issa, for coming down

here. We have a great story to tell in Texas, how with our regulatory environment being friendly and rational, our tax structure

being friendly and rational, and the natural resources that God has

blessed this State with, that we can be an example for the rest of

the country in how we can safely and economically produce the natural resources that we have, be they oil, be they gas, be they wind,

be they geothermal. We are a leader in the energy industry, number one in oil, in oil and gas, and we will continue to be the leaders.

And really, it’s what this country needs right now, low cost energy, which we are now seeing not just in the shale sands, or the

shale gas that we’re producing here in Texas, but across the entire

country. We’re seeing plentiful and cheap energy. And that really

gives us a competitive advantage in the United States, and especially here in Texas, with our proximity to this oil and gas and the

infrastructure that we have in place.

You know, to build things requires energy. And our low energy

costs can sometimes trump the lower labor costs in other parts of

the world.

Now, you add to that some of the regulatory burdens that we

face, well, maybe we can do something about those regulatory burdens. And I think we’re going to hear a little bit about that today.

So I’m really happy we’re able to take the Texas message to the

rest of the country. I’m happy that we’ve got a great panel to educate the committee, create a record, that can be referred to as we

look for what is right to do in America as far as energy goes.

So y’all didn’t come to hear me talk. We came to hear from our

panel of experts. So I’ll yield back the remainder of my time.

Chairman ISSA. I thank the gentleman.

All Members will have 7 days to submit opening statements and

extraneous material for the record.

We now will recognize our first panel. Ms. Elizabeth Ames Jones

is the chairwoman of the Railroad Commission of Texas. And I

guess without rail that coal wouldn’t be exported and an awful lot

of other things wouldn’t.

Mr. FARENTHOLD. And the Railroad Commission in Texas regulates the oil and gas industry. It’s not—it’s counterintuitive.

Chairman ISSA. No, no, it’s not counterintuitive, it’s government.

Mr. Charif Souki is chief executive officer of Cheniere Energy,

Inc., and a long-time participant in the energy industry, first—and

I will say this if he doesn’t get to it—first in the idea that we would

import, and now in the idea that we will successfully export natural gas.

And Mr. Jeff Weis is executive vice president of Orion Drilling

Company, LLC.

Pursuant to our committe rules, you know the drill. Would you

please rise to take the oath before your testimony and raise your

right hands?

[Witnesses sworn.]

Chairman ISSA. Let the record indicate all three witnesses answered in the affirmative.

And please have a seat. Thank you.
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This hearing is still an official congressional hearing with all the

same rules, but we came here to hear you. So the two things I

would say is, although lights will come on and there’s a guideline

that implies 5 minutes, we’re not going to cut you off exactly at the

end of 5.

Additionally, your entire written record, written statement is in

the record, so use the 5 minutes for summarizing and anything else

you want to say, and then hopefully we’ll have a healthy debate in

which our questions match your answers. That is critical, you

know, that we have questions for their answers.

With that, well, ladies first. Ms. Jones.

STATEMENTS OF ELIZABETH AMES JONES, CHAIRMAN, RAILROAD COMMISSION OF TEXAS; CHARIF SOUKI, CHIEF EXECUTIVE OFFICER, CHENIERE ENERGY, INC.; AND JEFF WEIS,

EXECUTIVE VICE PRESIDENT, ORION DRILLING CO. LLC

STATEMENT OF ELIZABETH AMES JONES

Ms. JONES. Thank you, Chairman Issa and Congressman

Farenthold. It’s wonderful to be here today, and I appreciate the

opportunity to testify here. And I am delighted to represent the interests of Texas and our sister oil- and gas-producing States who

are effectively regulating oil and natural gas exploration and production activities, including hydraulic fracturing and horizontal

drilling within our State borders, in our State waters, and on our

lands, privately owned and State-owned as well.

And I might say, Congressman Farenthold, thank you for bragging on us, but it ain’t bragging if it’s true, as we say in Texas.

In fact, we are the country’s number-one oil- and natural-gas-producing State. We produce—over 30 percent of all the natural gas

that comes up out of the ground in America comes up out of the

ground in Texas, not too far away from where we sit today. And

over 20 percent of all the crude oil that comes up out of the ground

in the great country of America comes from the State of Texas.

And in fact, that crude oil production has turned around, thanks

to the renaissance, if you will, of drilling due to hydraulic fracturing and horizontal drilling techniques. Very, very exciting what

the future bodes, not just for our State but for our country in energy security.

The regulation of oil and gas activities in Texas—Chairman, I’m

sorry to say, only in Texas would you have an agency that is

named that has absolutely nothing to do with its mission statement. And the Railroad Commission has nothing to do with trains

anymore. We last—we lost the little bit of oversight we had of the

rail industry in 2005. So we are purely and simply the State’s energy agency, from——

Chairman ISSA. You know, in any other State, what they would

do is make a new agency and not close the old one——

Ms. JONES. Exactly.

Chairman ISSA [continuing]. That no longer had a job.

Ms. JONES. Exactly. We don’t want to do what they do in Washington, DC, and add on layers and layers.

But in fact, everything related to energy production, from the

ground below, is under the purview of the Railroad Commission of
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Texas. We’ve regulated these activities over 100 years, since that

day in 1901 when Spindletop came in so big down the coast in the

salt dome. The Railroad Commission not long after that was involved in creating, to the extent that at the time there was one,

the energy economy that is Texas.

We have oversight of over 1 million wells that have been drilled,

and the Railroad Commission of Texas is responsible for more oil

and natural gas wells than any other entity in the nation.

Currently, over 45 percent of all the rigs running in America are

running right here in Texas. So yes, we have a lot of natural resources, not just oil and natural gas, but we, we preserve and protect our other natural resources, like water, and we have the regulatory processes in place to manage them properly.

My goal, as a chairman of the Railroad Commission of Texas, is

very clear, or my goals, and those of my fellow two commissioners:

The protection of our environment; the prevention of the waste of

energy, which is unique to Washington, and I’ll explain that in a

minute; and the protection of the correlative rights of mineral owners, and the safety of our citizens, of course.

And the intended consequences of all of these State-centered

goals are win-win, not just for our citizens, not just for the industry

and the companies, like those here today, but also for the environment as well.

So I’m giving you these, laying this foundation for future questions so that you have a good perspective of what the Railroad

Commission of Texas really does and the contributions we are making to our sister States and their regulatory agencies as well.

Our most important protection regime in place is that of water,

and our strong regulatory regime has helped us avoid a single

proven case of groundwater contamination occurring as a result of

hydraulic fracturing.

In fact, I was testifying to Congressman Ralph Hall’s committee

earlier in the spring in Washington, DC, and I said then and I say

now, it’s virtually, or to the extent that—you would be more likely

to hit the moon with a Roman candle than you would to contaminate groundwater from hydraulic fracturing so many miles below

the earth.

Unfortunately, there is at least one Federal agency, the Environmental Protection Agency, that takes another position. And what

it’s seeming to me, my opinion and the opinion of very many people, that they prefer to stir fear by making preliminary assertions

and then retreating from those assertions once the science rules

them inaccurate.

And hopefully, as we move forward in this meeting, and you,

when you get back to Washington, I hope that you can do something about that.

But as a steward of Texas energy resources, the prevention of

waste is also important. And what that means is that we statutorily are required to prevent the waste of the mineral resources,

and that means we cannot allow the hydrocarbon to be left in the

ground, or wasted, if it can be responsibly produced, according to

our rules, once a lease is signed.

And this means that operators cannot be prevented from accessing their private property they have leased, and that royalty own-
9

ers have a right to enjoy the use of their private property, which

is oil and natural gas, in the case of the Railroad Commission of

Texas.

And billions of dollars change hands between parties, including

the taxes, severance tax paid on production that goes to State coffers, the goods and services at various levels.

And this is something unique to the Railroad Commission of

Texas, unique by Washington’s standards anyway, and it’s contrary

to what Federal agencies and the laws like the Endangered Species

Act, which is used by U.S. Fish and Wildlife Service in a manner

that kills jobs, halts growth, and stifles the economic development

in the State.

In fact, our mission is to protect the private property rights of

the owner by allowing them to reap the benefits of the use of private property that maybe their grandfather or great-grandfather

purchased so very long ago.

So the reliable regulatory climate we have at the Railroad Commission is of highest importance to investors who produce the jobs

for this State by investing in deals and drilling for oil and natural

gas. And one of those is our commitment of issuing drilling permits

in a timely manner, 1 to 3 days.

Now, in doing that, we also take very seriously our inspection of

sites. We take enforcement actions against bad actors, and we’re

well equipped to oversee all of the drilling activity, because we

have strong rules and we have field offices and inspectors on the

front lines across the State.

And this is in, of course, direct conflict or contrary to the notion

that one size regulatory climate from whatever Washington Federal agency can do for the States. We certainly live here. We work

here. We play here. We raise our family here. And we are best

equipped to oversee the responsible production of our own energy

resources.

The Railroad Commission had some dealings with the EPA recently, and we wrote a letter in response to what we were seeing

coming out of an EPA’s draft report on groundwater contamination

in Pavillion, WY.

In this, we saw a template, a beginning of a template anyway,

of method of operation, an MO of the EPA, as I said, to create some

kind of fear and hysteria, and then have to back off because they

didn’t have the science to back it up.

And we recently sent a letter to the EPA in this Pavillion—

weighing in from the Railroad Commissioners’ perspective on how

they approached this Pavillion, WY, Draft Report that in fact alleged contamination and very well may have been contamination

by the EPA itself in the wells they drilled to try and assess contamination.

We also had a recent case with a company in Texas called Range

Resources, and the EPA chose to question our ability to regulate

matters within our jurisdiction in that case, too, in central Texas.

And it was a contested issue of alleged groundwater contamination

by a water well owner in central Texas, and they called in the

EPA, who came in and issued an emergency action to shut down

the operator from drilling.
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And in fact, we brought the parties in to the Railroad Commission to assess scientifically what the real facts were. The EPA

chose not to show to defend their position. The other party appeared and presented their case. And with our ruling, my fellow

commissioners and I asserted our jurisdiction and authority to ensure regulatory certainty, due process for the parties, and decisions

found based on sound science and fact in the Texas oil or natural

gas patch.

Sound science, fact and deliberative due process are the principles we stand by to do business. And those are the kinds of principles that the Texan voter expects and demands of this regulatory

body.

I was recently again at the Department of Energy’s Science Advisory Board Subcommittee on Shale Gas. I’m sure you are aware of

that. And I went to testify to that panel. And the take-away that

I got as I left Washington, what I noticed and had been keeping

somewhat track of, it’s hard to do, because there are a lot of them,

the numerous amount of proposed studies coming out of Washington, DC, on hydraulic fracturing.

I believe that it is a misuse of taxpayer dollars. I can talk to you

about the Federal entities——

Chairman ISSA. We’ll get to that during questions and answers.

Ms. JONES. Yeah. Well anyway, it’s a list that’s so long, between

the Center for Disease Control and Prevention and the Agency for

Toxic Substances. This has been studied and studied, and I look

forward to discussing how we can alleviate those kinds of misuse

of dollars. Thank you.

Chairman ISSA. Thank you.

Mr. Souki.

STATEMENT OF CHARIF SOUKI

Mr. SOUKI. Chairman Issa, Congressman Farenthold, thank you

very much for having me here today. Corpus Christi, happy to be

back. It’s been a few years. We’ve been here with very large

projects in the past, but somehow the testimony to what long term

modeling does can be awfully long. But we’re back with another

idea now, and we’re going, as the chairman said, the other direction.

Mr. Chairman, you’ve mentioned that the shale revolution is

starting to be accepted even by President Obama now, who, to his

credit, is embracing the fact that we have a, really an abundance

of energy in this country. I think the full extent of how abundant

and what kind of new situation is still not very well understood.

The assumption, in fact, is that the United States has now become

the low cost energy producer on a global basis.

It is not limited to natural gas. It actually goes to oil as well.

And we find ourself in a very strange set of circumstances where

we are, as you mentioned, the Saudi Arabia of the natural gas

business. But I would also venture to say that we are energy abundant in a lot of different ways.

But we do this without an energy policy. And we do this with a

set of regulatory frameworks that are still based on the fact that

we need to import a tremendous amount of energy for this country.
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So the regulatory framework and the reality on the ground, as new

as it is, are totally disconnected.

What has happened in the last 2 years is that the effect of being

energy abundant is starting to get noticed. We are now an NGL exporter for the first time. We are exporting propane and butane,

when 2 years ago we were importing propane and butane.

Last summer we also became a net oil product exporter for the

first time in many decades. We are exporting 50 percent more coal

in 2011 than we did in 2010, simply because natural gas has become so abundant and cheap here, it’s creating an opportunity to

export coal.

So on a natural—on a fundamental basis, we’re becoming an energy exporter increasingly. And in another few years, we will be a

net exporter of natural gas as well, as long as the regulatory

framework follows.

The full impact of what this means is not completely understood

or grasped yet. I hear much about how the fact that we’re a low

cost energy producer is bringing industries back to the country of

the United States, mostly petrochemicals initially, also car manufacturers.

This is a derivative product. The first and primary product is

much more direct than this. We are drilling with 15 percent more

rigs than we were last year. And this is a phenomenon that goes

on.

What it means is that we’re using 15 percent more people to drill

wells. There is no other industry in the country that is growing and

employing people in that kind of growth mode, nothing else that I

know in this country.

Furthermore, we are manufacturing more rigs because we need

horizontal rigs. So the manufacturing industry benefits directly

from the fact that we need those rigs.

In every community where we are actually drilling more wells,

we are supporting the housing industry, the lodging industry, the

food industry, the service industry, the trucking industry, and on

and on.

So the impact of the fact that we’ve increased the number of rigs

in this country for 3 or 4 years in a row now is a direct driver of

the unemployment reduction in this country. The 8.3 percent unemployment is directly related to the number of wells and to the

health of the energy industry.

So I would say that we are very fortunate that we have a leading

indicator. And my recommendation to policymakers will always be

why should they count? If the rig count is increasing, the country

is doing pretty well. If the rig count starts decreasing, we have a

problem, see what you can do about it.

Here in Texas, it’s even more true. In south Texas, in the Eagle

Ford, we are using 60 percent more rigs than we did last year. So

our economy here is at full employment. We’re having a hard time

finding people, getting hamburgers in restaurants, finding hotel

rooms for visitors, and developing the infrastructure, the infrastructure contained here, in order to continue to perpetuate the

growth.

To the north, in the Permian Basin, the number of rigs has increased last year by 20 percent. This is a phenomenal opportunity,
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and it’s true in other areas of the country as well, such as North

Dakota, most of Oklahoma, northern Pennsylvania, soon to be

Ohio, eastern Colorado. This is a phenomenon that is on a national

basis today.

There are 30 to 32 States now that can be energy producers. And

the critical thing is to be able to develop a demand response for the

abundance of riches that we have.

The regulatory framework is hopelessly behind. We have directly

to involve a number of agencies, the most prominent of which are

the Federal Energy Regulatory Commission, the Department of Energy, the EPA, and the Department of Transportation.

They all have their own goals. They don’t cooperate with each

other very well. It takes 60 days to drill a well. It takes 18 months

to obtain a permit before you start construction to move the product to market.

If our upstream industry is growing at 15 percent per year, the

infrastructure that this country needs is going to fall hopelessly behind. And I would argue it has already done so.

In addition to coordinating these agencies, we also have to be

consistent with other agencies. For example, State, Commerce, the

U.S. Trade Representative, because we cannot have policies in this

country that are inconsistent on a global basis.

For example, we have just maintained that other countries do

not have the right to restrict the export of their commodities. And

this is following an action that was generated by the United States,

in conjunction with the European Union and Mexico, and filed with

the World Trade Organization, where we were successful.

It is very difficult in that context to have a different agency

maintain that we’re going to restrict the export of our own commodities. And therefore, not only do we have to coordinate some of

the agencies, we also have to make sure that the policies that are

declared by these agencies are consistent with the statute of what

the policies of this country and this administration are.

We have been in a position at Cheniere Energy to try to promote

the ability to export natural gas from the United States to the rest

of the world because it is our position that the demand for natural

gas cannot keep up in the United States with the abundance of

production that we have, and in fact, with the gas that is already

standing in the country that cannot go anywhere.

We have been successful with the first project at Sabine Pass to

send gas to companies in the United Kingdom, in Spain, in Korea

and in India.

The implication of the fact that we can become an energy exporter on a global basis has profound implication for the dual position of the United States in the global scene. It will have impact

on gas producers around the world, including Russia, and gas consumers around the world, including China. And these benefits can

only be derived if we have a clear energy policy that lets the market do what the market will do.

We are trying to do the same thing here in Corpus Christi. We

have a site that we have owned for 6 years, Mr. Chairman has

mentioned. Initially, we viewed it as a potential energy importing

facility, but it really does work in both directions. And we would
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like to develop it as an export facility to take advantage of the

riches that the Eagle Ford is generating for this area in general.

I will say that when we produce natural gas, we produce condensates. We produce ethane, propane, butane, along with it, and the

market for those products is saturated.

Condensates will always be attractive. All the other C’s are not.

The propane, butane, ethane and methane have no outlet. So we

need to find something to do with that gas in order to continue

with the prosperity that could be generated with this. Thank you

very much.

Chairman ISSA. Thank you.

[The prepared statement of Mr. Souki follows:]
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Chairman ISSA. Mr. Weis.

STATEMENT OF JEFF WEIS

Mr. WEIS. Mr. Chairman and members of the committee, good

morning. My name is Jeff Weis. I’m executive vice president of

Orion Drilling Company, a Corpus Christi-based land rig drilling

contractor, currently operating thirteen drilling rigs in south Texas.

Thanks to you, Chairman Issa and committee, for traveling to

Corpus Christi to explore our recent job growth, a direct result of

growth in the Energy Sector.

Understanding the positive impact the Energy Sector has on

south Texas employment should serve to strengthen the resolve of

Federal and State policymakers to focus on a consistent and comprehensive policy to promote energy development across the United

States.

I would also like to thank Corpus Christi Regional Economic Development Corp. for including Orion Drilling in this process, and

Texas A&M Corpus Christi for hosting this important hearing.

I began my work, oil and gas career in 1978 with Halliburton’s

IMCO Services. At IMCO, I was trained in fluids management. I

continued in fluids management in various capacities, including division technical advisor and district manager until 1995, when I

joined Pioneer Drilling, a four rig drilling company based in Corpus

Christi.

At the time, Pioneer was truly that, a pioneer in adopting new

technologies to improve the efficiency and quality of drilling.

After leaving Pioneer in 2003, I joined Wayne Squires to create

Orion Drilling. Initially, we were a single rig drilling company,

with 23 employees. As our reputation as best-in-class contractor

with state-of-the-art equipment continued to spread, we were able

to parlay a single rig into a company that operates thirteen rigs in

south Texas and is opening a new division with three new-build

rigs in DuBois, Pennsylvania, in 2012.

Our focus on providing quality equipment with the latest technology makes Orion unique. A hallmark of Orion’s unique approach

to the drilling business is our focus on the softening impact of economic cycles and their impact on oil and gas drilling activity.

From those 23 employees in 2003, Orion has grown to a staff of

over 550, with further growth planned in 2012, as we continue to

build new drilling rigs and begin our operation in Pennsylvania.

Our employees span from skilled rig crews to a host of petroleum,

mechanical and process engineers.

Our commitment to growing a quality team is also apparent in

the fact that Orion Drilling is one of only two drilling contractors

that hold the full array of American Petroleum Institute certifications.

We are proud of both the symbolic and practical meaning of

these qualifications, as they provide us with the opportunity to

guarantee quality and safety to our customers and attract the best

and brightest rig employees, engineers and construction professionals to our team.

Not only do we recognize the positive impact of good energy fundamentals on our business, we also recognize the importance of

positive public policy to maintain Energy Sector growth.
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With oil and gas as one of the primary drivers of the Texas economy, our State and local governments have provided a positive policy framework in which to operate. However, the need for a consistent, clear and comprehensive energy policy on the Federal level

is paramount if our industry is to continue its quest to make the

United States more energy independent, responsibly develop our

natural resources, and continue to provide the fuel that drives the

American economy.

Conversely, the lack of a consistent energy policy and the confusion surrounding current Federal policies, mandates and regulations will result in growing uncertainty that very well could put

our recent growth in natural resource development and employment at risk.

The energy industry is comprised of thousands of companies just

like Orion, businesses that are looking to provide fuel for our economy, jobs for our communities, and be responsible corporate citizens and stewards of our lands and environment.

The best way to assure that continues is for the Federal Government to articulate a clear and consistent energy policy that provides assurances our industry can meet the energy needs of our

country for decades to come.

Mr. Chairman, thank you for the invitation to appear today, and

I’ll be glad to answer questions at the appropriate time.

Chairman ISSA. Thank you.

[The prepared statement of Mr. Weis follows:]
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Chairman ISSA. And I’ll begin with just a quick, quick question,

and I’ll go in reverse order since you’ve got the most current thing

in my brain here.

You’re drilling a lot of wells. Oil? With natural——

Mr. WEIS. Mainly oil——

Chairman ISSA. With natural gas?

Mr. WEIS. Mainly oil. Natural gas is a byproduct of most of

the——

Chairman ISSA. What do you do with the natural gas out of most

of those wells? Being flared?

Mr. WEIS. Some of it’s being flared, because the pipelines are not

in place.

Chairman ISSA. Is that a permit process, or is that infrastructure? Or is it a combination? How long will we burn one of the

most precious forms of energy, typically, from the time that you are

able to begin harvesting to the time that you’re able to actually

harvest the natural gas?

That’s one of the areas that concerns me in both State and Federal regulation is how efficient are we in at least being part of the

solution on that?

Mr. WEIS. Well, I think that a lot of the wells that you see flaring in south Texas have a low amount of natural gas with the liquids. The liquids are being stripped out. And so we have to look

at the economics——

Chairman ISSA. The efficiency of how much there really is?

Mr. WEIS. Yes. And you know, there are some areas where pipelines aren’t in place.

Chairman ISSA. But in a perfect world, we’d harvest every bit of

that natural gas, wouldn’t we?

Mr. WEIS. I agree with that.

Chairman ISSA. The—by the way, what caused you to pick the

home of DuBois Brewing Company for your new headquarters? I’ve

been to DuBois, and except for DuBois Brewing Company, it’s pretty much just a place on Interstate 80, isn’t it?

Mr. WEIS. That’s one of the main reasons, it’s on 80, which we

feel is going to give us access to Ohio.

Chairman ISSA. So it’s right in the center of a region in which

both to the west and east there’s huge resources of primarily natural gas?

Mr. WEIS. And we feel a huge opportunity for not only us but for

the country.

Chairman ISSA. So as a Texan, you’re willing to invest in Ohio

and Pennsylvania?

Mr. WEIS. Yes, and the reason is——

Chairman ISSA. I want to thank you as a native Ohioan.

Mr. WEIS. Well, what we feel is that that is the largest gas field

in the world. And, you know, the country’s going to need natural

gas. And the Utica looks like it’s going to have liquids. If you look

at years past, the northern part of Pennsylvania and Ohio have

produced a lot of oil, and there are some refineries up there. So—

and there are pipelines up there, too. So——

Chairman ISSA. They used to bring natural gas north.
24

Mr. WEIS. Right. And you know, we’re looking to expand in what

we consider the best basins, in West Texas, of course, south Texas,

and we like the Marcellus.

Chairman ISSA. Have Ohio and Pennsylvania begun to embrace

what you’re trying to accomplish for them, as much as Texas?

Mr. WEIS. Well——

Chairman ISSA. Or is that too high a hurdle?

Mr. WEIS. No, I think what’s happening is that 30 or 40 or 50

years ago when we produced coal—I’m from Pennsylvania. We produced coal in Pennsylvania, and we didn’t do a good job of——

Chairman ISSA. Strip mining with——

Mr. WEIS. Yeah.

Chairman ISSA. You know, puddles of water.

Mr. WEIS. We do a nice job now, but back then we didn’t. And

I think people remember that. And they’re afraid of what oil and

gas will do.

And as Ms. Jones said, there are a lot of inaccuracies, especially

in that part of the country. You know, New York has banned

fracking. I think New Jersey is getting ready to ban fracking. But

it’s interesting. Where will they get their energy?

Chairman ISSA. We’ll get to whether or not you sell them what

they won’t produce domestically.

I will note that I did a little research for this project, and Penn- sylvania land was selling for $7,000 an acre, agricultural land,

some of it with coal underneath. The typical rate for a license right

now is $6,000 an acre just for the mineral rights, basically, because

of the potential for natural gas.

So it is interesting that you could basically buy land 5 years ago

and sell just the mineral rights for pretty much what you paid for

it. That’s that big a difference.

Mr. Souki, you mentioned something that, as a free trader, you

mentioned that the WTO had found, the World Trade Organization,

found that in fact it was a violation of the law when I guess China

wanted to withhold bauxite. Is that right?

Mr. SOUKI. That is correct.

Chairman ISSA. And I just want to make sort of a record clear,

America has been the largest exporter of food for a long time. We

didn’t question, as we fed the world, whether or not we should

hoard food, did we?

Mr. SOUKI. That is also correct.

Chairman ISSA. And isn’t it true that no member of the oil cartels, basically OPEC, can even be a WTO member, because running

a cartel is inconsistent with the WTO?

Mr. SOUKI. That is my understanding.

Chairman ISSA. So essentially, if we want to be a free trade civilized nation, we, by definition, have to not act the way OPEC has

acted toward us in the world market.

Mr. SOUKI. Well, you’ve mentioned the case of our intervention

with the World Trade Organization against China for bauxite, and

I think China, we just have to change two words, ‘‘China’’ to the

‘‘USA,’’ and ‘‘bauxite’’ to ‘‘natural gas,’’ if we tried to restrict the

trade. And the losses would be in both directions.

Chairman ISSA. It is sort of amazing to me that we were all prepared to import huge amounts of natural gas from Qatar, and con-
25

tinue importing oil from around the world, and now that we have

a chance to have an abundance, we’re not willing to exchange that.

So I’ve just got a couple more quick questions. One last one, because it hit me, you mentioned the excess in propane, and I’d like

to make the record clear. Isn’t propane pretty much the easiest fuel

to put into an automobile? Isn’t it the easiest conversion? Do you

pretty much just put a tank in the trunk and plumb it?

Mr. SOUKI. I wouldn’t know about that.

Chairman ISSA. But you, so you haven’t looked at the potential

for diverting the propane? Well, perhaps our first witness can do

that.

Mr. SOUKI. No. I’ll make a note that maybe that’s another business model that we’d like to look at. But thank you, Mr. Chairman.

Chairman ISSA. Well, I happened to grow up in Cleveland, Ohio,

which is halfway between DuBois and nowhere, I guess, but—and

it was interesting because delivery trucks ran on propane, liquefied.

Mr. SOUKI. Yes.

Chairman ISSA. The liquefied gases have a tendency to be the

easiest ones to convert. That’s why we all have—that’s why we all

have those gas ranges. It’s just easy to do.

Well, Ms. Jones, you had, you have some very interesting testimony. I think the area that I’m most concerned about, and I’ll ask

you the tough questions—you can answer the propane one if you’d

like—but you also have responsibility for licensing and safety in

your State waters, your territorial waters.

Post—and our committee did extensive hearings and research

into the post-BP spill. Would you like to tell us how you take that,

how you approach drilling safety in the water? And any comment

you want to make in the intervening period between BP and today

and how you’ve adjusted to it would be appreciated.

Ms. JONES. Thank you, Chairman Issa, because that——

Chairman ISSA. You covered everything else in your opening testimony.

Ms. JONES. Yeah, I did. Well, I squeezed it, and there’s so much

more.

Quickly, I just would like to say that as far as flaring natural

gas, they have to get a permit from the Railroad Commission, because it is a precious commodity, and they can roll it over if they

need to. But any flare, flaring that’s going on has been approved

by the Commission. And we do have a lot of permits to flare, because of the shortage of the infrastructure to get the natural gas

to market.

A little bit on the, the economics of the Eagle Ford is that the

drillers and the operators, they, the companies will go and find the

oil rich regions, the oily parts of it, of course, because of the economics and the price right now, and they’re trending away from

the natural gas areas of the Eagle Ford.

But there were still contracts they had with, for their leases, and

some of them have to go ahead and drill. And so this is where government can come in and at least avoid hurting the equilibrium

that is going on by putting more and more regulations in front of

a company that is trying to make the market work with the property owner, the natural gas lease owner, mineral owner.
26

So flaring, approved by the Railroad Commission, we watch that

very closely. We’re very concerned about the infrastructure, the

lack of, and we also permit the pipelines that are laid in the Eagle

Ford shale.

And propane is a great fuel, and Texas is very rich in propane.

And in fact, the Railroad Commission lets grants to change over

school buses to propane-powered school buses and vehicles.

And so you were right on when you mentioned propane. But natural gas also has a tremendous role to play in the fueling of fleet

vehicles. So to the extent that the market will go ahead and is

ready for a transformation to natural gas fueled vehicles, it’s—

we’re just on the cusp of doing that.

We had a, the first president of the Republic of Texas, Sam

Houston, who was so smart and had many other traits that were

very colorful——

Chairman ISSA. He understood where to pick a battle, too.

Ms. JONES. The what? Yes. But he was a colorful character. And

when we went into the United—into the Union, we joined America

through treaty. And so we, the Republic of Texas, soon to be the

State of Texas, got to keep the jurisdiction of our waters out to

three leagues offshore.

We’re the only State in the United States to maintain that jurisdiction, but for the western boundary of Florida. And so we are

unique in that all of the natural resources below the ground out

to three leagues, which is about 10 miles, belong to Texans, the

people here in this room, and across the State who couldn’t be here

today, but I know they would like to have if they could. It would

have taken them 12 hours to drive from the top——

Chairman ISSA. It is tough that you can get to Chicago faster

than you can get to Corpus Christi in some cases.

Ms. JONES. But nevertheless, we all benefit from the natural resources. And we have had—I thought it was interesting when I was

testifying after the Macondo BP blowout, a lot of legislation came

down before the Congress had its own transformation, if you will,

to leadership who understood how important oil and natural gas

operations were to this country.

Chairman ISSA. Thank you for sending us the percent against

Blake.

Ms. JONES. That’s right, exactly. But we were concerned because

there was an attempt to take over our jurisdiction out to three

leagues and put it under Federal purview.

And I spoke out against it and wrote against it, but it was lurking there that in fact the Federal Government, who—under whose

watch the BP blowout occurred, would know better than the Railroad Commission, under whose watch no BP blowout has ever occurred, in our State waters.

And so thank you for, you and your colleagues, for putting the

brakes on that, some of that legislation that was designed to take

over our jurisdiction offshore.

But since then, I have, in the last year and a half, I made sure

that we worked collaboratively with another State agency, Texas

Parks and Wildlife, and we have done a very in-depth inspection

of every well off the coast of the State of Texas, in our State waters, to make sure that, yes, we were on the right track in our per-
27

mitting and our regulatory, and there are no liabilities or risks out

there to this great bay that you see out the window.

We are on top of oversight of our drilling in our State waters, to

the extent that the Federal Government should be and ought to be

taking our template, the Texas plan, and applying it to Federal waters, where the royalties are owned by all Americans as well.

So I hope that we can provide a standard that the Federal Government can aspire to be like.

Chairman ISSA. And now for a man who shares your view on

that, Ms. Jones.

Mr. FARENTHOLD. Thank you very much. Ms. Jones, I’d like to

visit with you a little bit. You’re hearing and we are all hearing

a lot from the EPA about the alleged dangers of hydraulic fracking.

How long has fracking been going on in Texas?

Ms. JONES. We have been fracking 60 years, at least.

Mr. FARENTHOLD. That’s 6–0?

Ms. JONES. Yes.

Mr. FARENTHOLD. Sixty years.

Ms. JONES. Sixty. The myth is that this is some new technology.

And in fact, it’s not new at all. It’s improved, and the footprint is

smaller. And that’s what happens when Americans put their minds

to technology and applying it in the workplace. We’ve built a better

mouse trap every day, and it’s gotten better.

But in spite of the early days 60 years ago, we have zero, zero

instances of groundwater contamination.

Mr. FARENTHOLD. And so what is done to protect the groundwater? I understand that generally the fracking takes place between one and two miles——

Ms. JONES. That’s right.

Mr. FARENTHOLD [continuing]. Below any of the groundwater.

But obviously, to get down there——

Ms. JONES. That’s right.

Mr. FARENTHOLD [continuing]. You may have to pass through

groundwater.

Ms. JONES. Sure.

Mr. FARENTHOLD. So what’s done to protect the groundwater and

the surface water?

Ms. JONES. That’s right. And the Railroad Commission has very

strict rules and regulations regarding cementing and the engineering of the wellbore in and of itself, and double casing through

aquifers, until such time as the aquifer level is, it’s identified and

casing is—it’s double cased and cemented through any kind of potential aquifer to ensure that there is no break out or migration or

contamination of aquifers, groundwater aquifers.

So, you know, we set a very high standard. And industry adheres

to that standard because nobody deliberately—of course, I am assuming that they are going to make me proud all the time, but

nevertheless we have rules in place and enforcement actions that

we use to ensure that our rules and regulations are followed.

Mr. FARENTHOLD. Do you think there’s a need for national regulation by the EPA, or is this something you think the States can

do on their own? And why do you think the EPA is so interested

in regulating it?
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Ms. JONES. Fortunately, I can’t even begin to imagine the

mindset of the EPA. I can imagine that the need for more jobs, bureaucratic jobs, maybe something like that is driving their initiative. But I will say, I absolutely am opposed to any kind of national

regulatory scheme.

And there is a practical reason for that, along with my philosophical leanings. The practical reason is that the geology underground is not the same in any of the States. In fact, you know,

just—a State boundary is above ground, as you know, as you know,

but the geology is ever changing underneath the ground.

And we have different tax laws. We have severance taxes other

States don’t have. We have different sales tax plans. So the economics of each individual well are different in every State as well.

So when you’re combining that with the geology, the topography

of the roads in the Marcellus shale in Pennsylvania and Ohio, they

will have different issues related to the disposal of water, produced

water, than we have in Texas.

So they’ll have smaller roads and maybe more hills and winding

roads that we might not have in Texas. But we’ll have different

issues.

It’s impossible, even if they wanted to have a national plan, it

would be practically impossible to try and attempt to have a onesize-fits-all parameter of regulatory oversight for all of these varieties and variations in topography and geology and tax, tax plans

in the various States.

So I am opposed, practically speaking, and philosophically as

well, that the States need to have their, maintain their sovereignty

and maintain their control over their own natural resources.

Mr. FARENTHOLD. Thank you.

In addition to the EPA attempting to regulate fracking, which

would have a, I believe, a negative effect on oil and gas production

in Texas and the country, is the Federal, are there other Federal

agencies that are making it difficult or pose a threat to the oil and

gas industry, or the energy production industry in Texas? I know,

I hear a lot from my friends in West Texas about Fish and

Wildlife——

Ms. JONES. Yes, yes.

Mr. FARENTHOLD [continuing]. Being involved.

Ms. JONES. The Endangered Species Act has morphed into Endangering the Human Species Act. We are seeing now, what you’ve

been hearing are the stories about the listing of the lizards.

Endangered Species Act [ESA], is an example of a process that

is lacking sound science and peer review. Possible listing of two lizards in Texas that are going to put road blocks in front of, and

drive costs up of the drilling and production of oil and natural gas

in the Permian basin, historically the largest oil-producing basin in

the United States of America, is faced with, you know, the doomed

sagebrush lizard.

And then down here in the Eagle Ford, a potential listing in the

future is a spotted tail earless lizard. And that’s in the Eagle Ford

shale.

Now, interestingly, the ESA itself has maintained that fire ants

are one of the causes of the diminishing population of these lizards,
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although no studies have really been done to establish what that

population is. But if it has been diminished, it could be by fire ants.

And so we have fire ants that attack lizards, potentially diminished population, which gives the ESA, the Endangered Species

Act, the justification to put the brakes on oil and gas and ranching

operations, which are very important in Texas.

These operations have been going on for decades in the Permian

Basin. It’s a very mature and experienced oil field, if you will. And

trucks and traffic and drilling rigs and ranching have been going

on for years. And all of a sudden, this new diminishing of potential

population of lizards that have been listed is something that they

have a concern about. I—so you’re right on in our concerns.

Mr. FARENTHOLD. And let me just get to a couple of other witnesses just for a couple of seconds.

Mr. Weis, you’ve been, your company is growing, and you’ve been

hiring quite a few employees. Are you having trouble finding

skilled employees? Are you having trouble finding them, or are

there plenty of people there to take the jobs?

Mr. WEIS. Well, you know, we’re a smaller company, and we offer

newer rigs. And we’re, they—we are the highest paying drilling

contractor, or one of the highest paying. But yes, we still struggle

with that.

Three years ago, we used to require 2 years’ experience. Now we

require 1 year experience. And we’re beginning to start training

programs where we can take somebody that we like and actually

bring them within our fold and make an oil field worker out of

them.

Mr. FARENTHOLD. So what does an oil field worker typically

make? What’s the salary?

Mr. WEIS. The lowest guy on the rig makes approximately

$65,000 a year. The driller, which is a, I want to make this known,

is a highly skilled position, they can make as much as $120,000 a

year.

And in Texas, we normally work a rotation of 7 on, 7 off. And

so you actually live out there 7 days in a row. You work 12 hours

a day for 7 days. It’s hot down here. It is—it’s a tough job. But you

can see it’s very well compensated.

Mr. FARENTHOLD. All right. And Mr. Souki, you originally, I

guess it was about 7 or 8 years ago, y’all were talking about building a plant to import liquefied natural gas. Now you’re talking

about exporting natural gas. Can you talk a little bit about the economics of that, what gas is worth here in Texas, as opposed to

what it’s worth in other parts of the world?

Mr. SOUKI. Well, here——

Chairman ISSA. You don’t actually have to tell us what you’re

selling it for. That’s okay.

Mr. FARENTHOLD. Just ball park figures, yeah. I mean, obviously

it’s got to be, for a project the size you’re proposing, there’s got to

be a big price differential.

Mr. SOUKI. You know, the fundamental premise is that the gas

that we want is worth nothing in Texas because it’s associated gas,

and it’s going to be flared, unless there’s a market found for it. So today gas prices in the United States are $2.50. This is a

handing out price. It’s probably not much different down here. But
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as the Eagle Ford continues to develop and as the Permian continues to develop, we’re looking at, in the last 12 months, one BCF

of gas that didn’t exist last year.

And if you start looking at the rigs that have actually built wells

and cannot find a market for them, cannot find an infrastructure

to move the gas to market and they cannot find a market to which

to sell the gas, who is in a situation now that the incremental gas

that we’re finding is worthless. And it’s only being produced because the condensates are very valuable.

And you can move the condensates by truck. You can get a truck

to get to the well and pick the condensates and move them to market. And on that basis alone, they will pay Mr. Weis in less than

a year. And the rest, they need to find a market for.

In the rest of the world today, in Asia, you’re already substituting for oil products. There is a 100 BCF market on a global

basis. We’re using oil and oil products from our generation for fertilization production and chemical production, where you really

should use natural gas, if it was priced on the basis of what does

it cost to produce this in Texas and deliver it to that market.

And it’s also closer to Puerto Rico, where they’re using diesel and

fuel to generate their electricity, at the cost of $17 to $18, where

we could deliver gas to them—and for this we don’t need a permit,

because it is still in the United States—but we can deliver gas to

them at $8 or $9 and save Puerto Rico a billion to a billion-anda-half dollars a year, and have some very significant environmental

advantages to when you burn natural gas as opposed to burning

fuel.

And this applies everywhere, from Puerto Rico all the way to

China, with a number of countries in between.

Mr. FARENTHOLD. And do you think that our proximity in south

Texas and our, or some of the other shale gas fields are, is going

to be an economic boom to them, because these manufacturing facilities or other facilities that use gas will locate there?

Mr. SOUKI. Here in the, here in Texas? Yes, I think it will. But

we already have an industry and infrastructure here that has already started. But when you’re looking at the timeframe that is

needed to build new infrastructure, it takes many years.

So you can have a big announcement of a petrochemical plant

that Dow Chemical or Shell announces. That’s great. It will take

2 years to permit and 5 or 6 years to build it. So it’s a solution for

2018–19, not for tomorrow.

Mr. FARENTHOLD. Thank you.

Mr. SOUKI. The low hanging fruit has already been picked up.

Mr. FARENTHOLD. Thank you.

Chairman ISSA. Recognizing that we could go on with the first

panel forever, but there is a second panel. If you don’t mind, I’d

like to give a little homework out. And we call it, you know, making statements for the record, supplying additional information.

I’d like a couple of items. First of all, for any member of the

panel, but particularly for Commissioner, every possible way that

you and the Commission look and say groundwater contamination

can occur, you know, our committee held here many years ago on

the fact that we were having huge groundwater contamination
31

from single, single sited holding tanks at gas stations, that basically if they leaked, they leaked, and there was no safeguard.

So we all understand that leaks can happen. And you know, if

you’re not fracking but you still have something coming up through

the ground, a leak can happen.

So anything that is in your checklist that you could fairly easily

pull off and provide the committee would be helpful, sort of how do

you view this.

Because obviously, well, we know that there have been no

fracking-related leaks. We all understand that groundwater does

get contaminated by a number of ways, including, you know, the

person who simply is indiscriminate with their oil when they

change their oil.

The geopolitical stuff—and Charif, this is probably more for you,

but it’s for all of you—our committee is anticipating holding a more

in-depth hearing in Washington on the impact of being a net exporter versus a net importer.

This would include many of your customers. We’re not asking for

you to talk about customers, potential customers, but sort of the

impact of Russia, being able to turn on and off the spigot in other

countries versus the United States, anything that you would be

able to give us on your view of global market suppliers, who they

are, versus the United States as one, because that would be feedstock for an additional hearing.

Last but not least, Luis Fortuno, the Governor of Puerto Rico, is

a dear friend of mine. We served in Congress together. And when

I went down to Puerto Rico, all he talked about was cutting in half

the carbon footprint, making it cleaner and saving money at the

same time.

So there’s nobody that’s more interested in going from oil to gas

than Governor Fortuno. So although I didn’t know all the details

of your role in it, from my former colleague in Puerto Rico, he

hopes that to be one of his legacies as Governor.

And with that, I’d like to thank you for your testimony. We will

keep the record open for other extraneous remarks, but—and you

don’t have to do the homework, but anything you can give us——

Ms. JONES. Absolutely.

Chairman ISSA [continuing]. Along those lines or other lines

would be appreciated for this and future hearings.

And with that, we’ll take a short recess.

Ms. JONES. Thank you.

[Recess.]

Chairman ISSA. If everyone will please take their seats, we will

now recognize our second panel.

Mr. Scott Stanford is operations manager of Royal Offshore,

Royal Production Company, Inc. Mr. Mark Leyland is senior vice

president of offshore wind projects for Baryonyx Corp. Mr. Roland

Mower is president and chief executive officer of Corpus Christi Regional Development Corp. And Mr. Robert Parker is president of

Repcon, Inc.

If you were here, and I think you all were for the first, then you

very much know that the committee rules require that you be

sworn. Would you please rise and take the oath? And raise your

right hands.
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[Witnesses sworn.]

Chairman ISSA. Let the record indicate that all answered in the

affirmative.

Please take your seats.

Now, I’m going to apologize in advance. We took a lot of time on

the first panel, and it was very informative. We’re going to be a little bit quicker on the second panel, so please try to summarize so

by the time the red light comes on, you’ve done with your opening

statements so we have time for questions.

And with that, we’ll set the green panel. We now recognize Mr.

Stanford for his opening statement, or for 5 minutes.

STATEMENTS OF SCOTT STANFORD, OPERATIONS MANAGER

OF ROYAL OFFSHORE, ROYAL PRODUCTION CO., INC.; MARK

LEYLAND, SENIOR VICE PRESIDENT OF OFFSHORE WIND

PROJECTS, BARYONYX CORP.; ROLAND C. MOWER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CORPUS CHRISTI

REGIONAL ECONOMIC DEVELOPMENT CORP.; AND ROBERT

E. PARKER, PRESIDENT, REPCON, INC.

STATEMENT OF SCOTT STANFORD

Mr. STANFORD. Thank you, Mr. Chairman. I’m here today to represent Royal Production Company, more specifically Royal——

Chairman ISSA. Can you pull the mic just a little closer?

Mr. STANFORD. Can you hear me? Yeah, the focus of my discussion today is centered on the Gulf of Mexico and policies that have

been put into effect over the last 18 months by virtue of the events

that happened in the summer of 2010.

Deepwater Horizon has changed the scope of how we operate.

And coming more from a perspective of direct operations, having

done that for the last 20 years, and kind of give you a glimpse of

what the life is like as an operator in the Gulf of Mexico in today’s

times.

I’ll give you some examples of some of the policies that we deal

with every day. But specifically, they’re centered around the Bureau of Ocean Energy Management, Regulatory and Enforcement,

BOEMRE, nowadays usually referred to as the MMS previously.

And the Bureau of Safety and Environmental Enforcement, the

BSEE. Those are the two agencies that we deal with specifically.

Chairman ISSA. And they’re basically MMS renamed?

Mr. STANFORD. They’re basically MMS renamed under the Department of the Interior.

One of the newest changes is a Safety and Environmental Management System. It’s called SEMS. It was put in place and mandated by all operators to be put in place by November 15th of last

year. It was a monumental effort, for the most part, for a lot of

small independents like us.

It’s a very complex and taxing program. It takes a large amount

of resources and commitment to implement. It’s based on a reporting and policing type of system. It’s made up of thirteen elements.

And each element has hundreds of pages of policies to deal with

every day.

Basically, the core of, the attempt is to qualify each and every

individual that’s on your platform or working for you on a rig and
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maintain their certifications, understand their training, and their

whereabouts all the time. And that reporting goes on each and

every day.

So in order for a company like Royal to maintain a policy and

a procedure and a program like that, it takes a lot of input, a lot

of involvement from a lot of people.

Over the last 12 months alone, we’ve probably spent over

$200,000 in 12 months just to try to implement it. We contract two

layers of different regulatory consultants to administer it. And the

net result is a significant increase to our operating costs. It’s—it

goes to the bottom line.

Royal, like the majority of others, operates with a long history

of safe operating practices long before SEMS was implemented. So,

you know, prior to SEMS, there were other policies that were implemented by the Federal Government, including Subpart ‘‘O,’’ Oil

Spill Response Plan, the annual facility inspections, annual performance measures, topside and underwater inspections, and

many, many more that also were a part of the safety and environmental pieces of our day-to-day life in the Gulf of Mexico.

This is new. It takes the place of some of those. It duplicates a

lot of those. But it is a big volume of effort of reporting. And with

that becomes new inspections, new need for inspectors, which

forces the BSEE into hiring. And so with the new hiring comes new

fees to our industry, in the form of direct fees to the wells and platforms individually.

New personnel that are being hired by these agencies are pretty

limited in training. They have a very short training program. And

for the most part, a lot of them have no industry experience at all,

which is a cause of a problem for us on a daily basis.

Another example of new policy is the drilling permits. Everybody

reads about them. The moratorium that was put in place on the

heels of Macondo affected Royal and its partners in a well that we

were drilling in deep water. We were 75 percent complete on that

well, had already drilled to 15,000 feet, and had already sunk $45

million into that well when we were told to suspend it.

And so we had to put temporary abandonment cement plugs in

the well. We had to re-lease the well. We had to re-permit, put new

permits in place. And all of this is at a spread rate of about

$500,000 a day, half a million dollars a day.

So we spent 18 months, with $45 million in sunk costs that we

had no utility for, no well that could produce and have revenues.

So in order to get the well resumed and drilling, the new permitting program had to be put in place, and a new rig contract had

to be put in place.

A new rig contract came with a $10 million risk. In order to get

one of the few rigs to move back on that location, they had only

a small time slot. And that time slot was predicated on risking $10

million to hit a date. If your permit wasn’t in by that date, then

you had to be penalized by virtue of $10 million.

Our permits took in the order of 18 months to receive. We actually got them, got back on the well. But in the midst of doing so,

it came with a new price tag. The price tag went from $45 million

to $70 million.
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So, you know, we added $25 million to the costs of the well by

virtue of having to move off of it, move back on it, and reestablish

production with, or drilling with a new casing design.

So with that is all part of a new policy that requires Worst Case

Discharge calculations, BOP shear ran calculations, updates of

your Spill Response Plans. All the rigs have to be identified. They

could drill a relief well, and it has to meet PE certifications for

every—so at the end of the day, your new permit ends up being

about two to three inches thick. It takes a lot of review time, a lot

of preparation time, and at great cost to everybody.

So it goes beyond just the drilling of a well. It affects all activity

in the Gulf of Mexico, whether it’s an oil tubing unit or hydraulic

workover unit. Anything that has a BOP with it has to be recertified.

And every time that you have a procedural change in your permits, you have to resubmit, you know, recertify all these elements

by a certified engineer. Each one of those resubmittals along the

way, even if it’s an ordinary change, takes time. And the review

process may be 24, 48 hours.

All of our operations in the Gulf of Mexico run 24 hours a day,

7 days a week. They don’t shut down for nights or weekends. You

know, so we spend somewhere between 100,000 to half a million

dollars a day.

And so every time you make an ordinary change in your procedure and you have to get it repermitted, it’s inefficient and it’s costly.

And we just got through last year doing a decommissioning program that ended up costing twice as much money, twice as long,

because of that.

We have one well in particular that we had to resubmit five

times after it was initially approved. And one of those five times,

there was an iteration that happens three times. There’s no longer

an interface between the district level for permitting to talk about

options.

And at the end of the day, it leads to a great inefficiency, because

you just have to offer your options, get them rejected, offer them

again. And the whole time it has to be recertified. So that inefficiency has percolated its way through everybody’s activities.

Another example is ‘‘idle iron.’’ It’s a new policy. If it meets the

definition of no further use or operations, you have to take platforms and wells out of the Gulf of Mexico.

In essence, it sounds like a good thing. But in reality, real estate

in the Gulf of Mexico is very important. You know, what might not

be used 1 day by one operator is very valuable to another operator

that might be right next to it and needs a structure to operate off

of.

So in essence, you’re taking the chance of taking out new, relatively new facilities that possibly could be used, especially new facilities that meet modern standards. So to me, that’s a, that’s an

issue.

So in summation, you know, I gave a few examples of what daily

life’s like working with the regulatory arms of the Federal Government, but you know, I’d like to see the government provide companies with a way to compete on an equal basis.
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You know, if you’re a small operator, it’s really hard to take all

these extra costs, distribute them over a finite revenue of cashflow, as opposed to a very large company that can do that a little

bit better. So the playing field, to me, has been shifted because of

the new policies. They’re so excessive that, you know, there needs

to be a large staff in order to deal with them.

And so I encourage the BOEMRE to add staff, add good staff,

and you know, raise their salaries. Hire highly qualified people

that we can deal with, and train them correctly. And I think that

would help our industry considerably.

But, you know, instead of taxing us on new fees, I think that

ought to come out of the existing royalty structures that are already there.

So, in essence, I think the entire operating group in the Gulf of

Mexico was penalized by one event. Everybody was characterized

as possibly being negligent, and now the repercussions are very big

government putting in a lot of policies and a lot of policing that is

a giant burden on our industry.

And I think that it needs to be changed in a way that helps promote our basin for discovery, not one that prevents people from

being able to afford to be there.

Chairman ISSA. Thank you.

[The prepared statement of Mr. Stanford follows:]
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Chairman ISSA. Mr. Leyland.

STATEMENT OF MARK LEYLAND

Mr. LEYLAND. Yes, good morning. First I would like to thank you,

Mr. Chairman, for inviting me to testify today. And as you can

probably tell, I’ve come from a long way east of Texas, but it really

is an honor to be invited here today.

Chairman ISSA. Texas is a very big State.

Mr. LEYLAND. It is a very big State, but I’ve come a long way,

from a long way east of Texas, although I do have family relations

in Texas.

Baryonyx, it’s pronounced, which is an old dinosaur by the way,

is actually a Texas registered company and was established in

2008, and is actually based in Austin. Most of its senior management come from long backgrounds in the offshore oil and gas industry.

And our CEO, Ian Hatton, and I were involved in the development of the most innovative offshore wind farm in the world, the

Ormonde Wind Farm, which we took through permitting, design

and engineering, all the way through to financial close.

And interestingly, in the context of the oil and gas discussions

that we’ve had this morning, it was actually originally conceived

and planned as a hybrid project, which sought to balance the variability of wind by using offshore gas turbines, which need gas to

generate power, and use the spare capacity in the transmission

asset to export that power ashore. So it was an interesting development.

Ormonde was also the first offshore wind commercial development using five megawatt turbines, which are about twice as big

as anything you see onshore, and it was the first to use classic oil

and gas type jacket foundations.

Interestingly enough, it was the first to be delivered on budget

and on time.

And whereas I’m sure Ian and I would love to be able to claim

credit for that significant achievement, I think we’ll be the first to

admit that was probably due to the project management team we

had alongside us which, not surprisingly, came from, you’ve got it,

the oil and gas industry.

And with that success behind us, we are asked when we go back

to the UK, ‘‘Why did you go to Texas? Why offshore Texas?’’ And

I guess it’s a legitimate question. We’ve heard an awful lot about

gas incentives that’s existed in Texas, and people ask us that question.

And it was a positive choice, and it was based on our understanding of what it takes to actually make offshore wind viable.

And I guess it can be summed up under a few very brief headings:

First, we have the leasing process. And we’ve heard today about

the submerged lands of Texas extending to three marine leagues,

which is kind of a quaint British European type measurement,

measuring stick, or 9 nautical miles, 10.4 statute miles, or about

16.3 kilometers. Pick whichever measuring stick you want.

And this enables developers within the State to apply for leases

from the General Land Office, the Texas General Land Office.

There’s no Federal involvement at all here.
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And basically the responsibility, as you’ve heard from the other,

the previous panel, rests with the State, and the process is we

lease from the General Land Office, which, under the stewardship

of Jerry Patterson, has been very supportive throughout the whole

process. And we currently hold about 67,000 acres of the submerged lands to develop offshore wind.

Within State waters, the permitting authority is very clearly defined. It doesn’t fall under any Federal authority at all. It falls

under the jurisdiction—well, it does. The U.S. Army Corps of Engineers are a Federal agency, under the MMS, or whatever it’s become or morphed into.

So basically, they run a process which has been proven through

the oil and gas industry, and we’re able to take advantage of that.

It’s a very straightforward process, and it’s clear.

But basically, why again with offshore wind do we come to offshore Texas? An awful lot has been made about—everybody hears

all the time about the offshore wind industry off the east coast and

things like that.

If you actually look at a map of offshore wind, there’s a very nice

resource which exists between Corpus Christi and Brownsville that

blows very reliable and very, every day, in a very, you know, a very

useful forward. I call it ‘‘Windy Crescent.’’

It’s about the only bit of the Gulf that is actually like this, but

it does have tremendous potential. The wind resource is excellent.

Profile is reliable. And basically, simply, the wind blows when the

power is needed. It blows in the afternoon, when the demand on

the system exists. Onshore wind isn’t quite like that.

But most importantly, the oil and gas legacy of Texas is something where I believe you have major, a major contribution, where

major contributions to the success of offshore wind will come from.

Basically, offshore wind is an offshore construction project. An

offshore construction rig belongs in the Gulf of Mexico. When I set

foot on a barge, a Brown & Root barge in 1974 in the North Sea,

and that barge was built in, I think it was Livingston Shipyard in

Houston, I think.

And basically, if you look at what Texas has, it has the engineering and design houses, the project management teams, like what

I said was the result, basically resulted in the successful delivery

of Ormonde. The fabrication yards are out there, the ports and harbors, the marine construction legacy, all those things are there.

And the message to me, from my perspective, is clear. If Texas

can demonstrate it can build assets off the coast of Texas in the

Gulf of Mexico, then it can also provide those services to any and

all the developments off the Atlantic coast.

We’re talking about developing a maximum of about 3 gigawatts

of power, from our leases, but the Federal Government wants to install 10 gigawatts by 2020, 54 gigawatts by 2030. And the scale of

the potential market is absolutely staggering for offshore construction.

The development of offshore wind has very little to do with green

energy in Europe. This has everything to do with energy security

as we move into the 21st century.
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Oil and gas, quite rightly, should remain at the heart of the energy solution, but by offering a basket of generating methodologies,

it is absolutely imperative.

In Europe, we did the gas, the ‘‘dash for gas’’ in the 1990’s. We’re

now importing gas from Russia, Qatar, places like this. And they

do quite rightly, as you said, Mr. Chairman, stick there hand on

the spigot and turn it off if you tend to vote the wrong way in the

United Nations.

So natural gas and wind are complementary. They are not in opposition. They are absolutely complementary. I come from the oil

and gas industry offshore, and I seriously believe that. And they

form the cornerstone of what is a very reliable government policy

moving forward.

I’m convinced, from my experience with other projects in Europe,

that Texas can produce power from offshore energy more cheaply

than anybody else in the United States. That’s beyond doubt. The

opportunity for Texas to lead the offshore wind industry and the

new offshore construction boom is just waiting to be grasped.

Texas is an energy State and an offshore construction State. It

is not simply an oil and gas State. The existing infrastructure that

has been built up over decades to support the oil and gas industry

merely needs realigning to address this new market and the new

opportunities.

It remains our view that offshore wind should be viable without

subsidies. And in the longer term, all forms of new generation, you

know, have always started to require some form of support. In the

long term it should exist without subsidies.

There are more platforms being taken out of the Gulf of Mexico

than there are going in at the present moment. From our projects

alone, we would require 50 or 60 structures to be built every year

for 7 to 8 years. And this represents tremendous opportunity for

Corpus Christi, for all the construction sites around the Gulf of

Mexico.

So anyway, eventually the fabrication yards can be full, the ports

can be full, and we can actually bring the turbine manufacturers,

the cable manufacturers and all those support industries back into

the United States, into Texas.

I believe the opportunity is tremendous, and I think it just needs

to be grasped. Thank you very much.

Chairman ISSA. Thank you.

[The prepared statement of Mr. Leyland follows:]
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Chairman ISSA. Mr. Mower.

STATEMENT OF ROLAND C. MOWER

Mr. MOWER. Mr. Chairman——

Chairman ISSA. If you take a drink of water, we’ll immediately

call on you.

Mr. MOWER. Mr. Chairman, Congressman Farenthold, good

morning. My name is Roland Mower. I’m the CEO of the Corpus

Christi Regional Economic Development Corp. Our mission is to

strengthen the regional economy. We focus on encouraging corporate capital investment. We focus on job creation.

Our funding comes from a variety of sources, including local governments, like cities and counties, the Port of Corpus Christi, and

discretionary funding from the private sector.

We truly appreciate the committee’s interest in our region and

the topic of the hearing today. Today you’ve heard or will hear from

a wide range of business leaders from our region regarding their

issues and concerns related to their specific businesses or industries.

I’d like to speak from the perspective of an organization that visits over 150 existing companies in the region each year and is the

primary point of contact for companies interested in doing business

in the Coastal Bend.

The major concerns voiced in our discussions across all industries

are the increasing costs of Federal regulations on industry, and

maybe more importantly the increased, the need for increased predictability in the regulatory process.

Each year I have the opportunity to speak around the region and

talk about economic development. I describe how I believe a market

economy works, in very simple terms: Investments create jobs, jobs

pay wages, wages buy goods and services. In truth, it’s far more

complicated than that.

Before an investment is made, a rigorous analysis is performed,

the business planning process. Potential investments must offer appropriate returns. If they don’t, the investment won’t occur, the

jobs won’t be created, and the goods and services won’t be purchased.

Again, this is a simple explanation of a complex topic, but it

helps illustrate a significant challenge faced by industry—by industry.

Increasing regulatory costs for U.S. industries who compete in a

global marketplace are placed at a disadvantage when competing

with producers from other countries which do not have the same

regulatory burdens or costs.

The second piece of this challenge is injecting some level of regulatory predictability into the equation. Companies need to know if

their project complies with current regulations, there’s some level

of certainty they will be able to move forward in a timely fashion,

and the rules of the game will not change.

Please allow me to tie these thoughts together with the topic of

the day. Our region, the Coastal Bend, is very blessed. We’re tracking significant potential capital investments and job creation opportunities. Our ability to realize the benefits of these potential
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projects is limited in some ways by an increasing regulatory burden

and the lack of predictability in the regulatory process.

In closing, let me share a couple of data points. In the past year,

our Metropolitan Statistical Area, which is Nueces, San Patricio

and Aransas County, added over 7,800 jobs. Our 12-county region

added over 11,000 jobs.

Most of the job growth in this, in the region this year can be attributed to the activity surrounding the Eagle Ford shale. If we can

stabilize the cost of the regulatory burden and increase the regulatory predictability, our job creation numbers will increase significantly. With your help——

[NOTE.—Lights flash due to power surge.]

Chairman ISSA. I told you we had to hurry.

Mr. MOWER. Yes, I need your help.

With your help, our offshore industry can get back to work, and

our local refining and chemical companies will continue to invest

and hire in our region.

I thank you for the opportunity to share my thoughts, and I’ll be

happy to answer any questions.

Chairman ISSA. Thank you, Mr. Mower. And I’m convinced the

lights are just because we don’t have enough wind power.

[The prepared statement of Mr. Mower follows:]
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Chairman ISSA. Mr. Parker.

STATEMENT OF ROBERT E. PARKER

Mr. PARKER. Chairman Issa, Congressman Farenthold, I’m Bob

Parker. I’m the president of Repcon, Inc. We’re a local industrial

contractor headquartered here, and we work in 34 States. We work

primarily for the refining, petrochemical and midstream oil and gas

sectors of the economy.

We’re a little bit different than most of the other people that

have talked today, because we’re a service provider, as opposed to

an actual owner or operator, but our whole livelihood is tied directly to the energy industry.

Clearly, from earlier discussions and from your own research,

Texas and south Texas is a leader in oil and gas production and

is a critical part of our economy. And I think everyone recognizes

that.

There are thousands and thousands of Texas jobs that are provided by the owners and operators and their supporting contractors, suppliers, vendors in south Texas. So the multiplier on what

the refining and petrochemical plants and the energy industry in

general do in Texas is multiplied by a factor of 20 or 30 in most

cases.

The energy industry cares, which is something that you don’t

hear often out of Washington, and you don’t hear often from the

environmental side of the house.

The energy industry cares about the environment. We care about

safety. I can sit here and testify, without a doubt, that the owners

that we work for put safety and environmental protection above everything else in their facilities. It’s above production. It’s above

profits. We have to do it. They know we have to do it. And they

expect their contractors and service providers to be the same way.

Over the last 5 years, sulfur levels have been reduced by, by approximately 90 percent. And this brings up something. Just because something is technologically feasible does not mean it’s economically viable or it’s something we should do. They have spent tremendous money, to the tune of probably $40 billion to $50 billion as an industry, to reduce sulfur, to reduce

greenhouse gases. To get that last 10 percent may take an equal

amount of money.

So we believe that every single regulation, every single law

should have a cost benefit analysis done on it to determine whether

it is worth the cost. Again, just because it’s feasible or technically

able to be done doesn’t mean it’s something we should be doing.

The energy industry has been under attack. And the policies of

this administration, at least from our perspective, are the most onerous on business, on free enterprise, and on the energy industry

of any administration in my lifetime.

I have actually been in the refining and petrochemical business

since 1971, so about 40 years. We have seen numerous administrations and EPA regulations come and go. But this is the most concentrated attack on the energy business that I can recall in my lifetime.

During the last 20 years, there’s been approximately 60 refineries that have shut down. A large number of them shut down be-
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cause margins were not sufficient to support the requirements and

upgrades that were being required by the regulations.

Unfortunately, when the oil and gas industry are weakened because of shutdowns, it not only impacts their employees, it impacts

the entire south Texas area, Texas area, and the United States. It

also impacts our national security.

At a time when we have more and more of our oil that comes

from countries and states that are not necessarily friendly to the

United States, that is a prime reason we should be drilling and

producing our own and being less dependent on sources that could

be cut off at some future time.

There’s also regulation outside of the energy industry that applies to the business. And I realize this particular focus is on the

energy industry, but as a contractor, I wanted to speak briefly

about some of the overreaching that is going on.

The National Labor Relations Board has basically recently been

reconstituted during a 1-day recess appointment. It is the most

anti-Merit Shop, anti-free enterprise NLRB that we have had. They

have quit being a neutral arbiter and a neutral forum for solving

labor disputes, and they come down clearly on the side of the organized labor section.

Whether it’s ambush elections, card check, in every case the

items that the NLRB is pushing will be detrimental to our business

and to most of the non-union business. Texas is a right-to-work

State. There were four States that recently passed laws guaranteeing a right to a secret ballot during a union election. The NLRB

is challenging them and filed preemptive lawsuits against them.

This is something that is just an indication of the amount of red

tape and the amount of regulation that this administration has for

business.

In short, I think the regulation is stifling jobs. It’s reducing output, dragging the economy, and I believe it’s threatening the, not

only the economy of the United States, but the security of the

United States long term. Thank you.

Chairman ISSA. Thank you.

[The prepared statement of Mr. Parker follows:]
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Chairman ISSA. And this committee has held a number of hearings, both before and after the non-recess recess appointment, so

we’re very concerned that the actions of the NLRB will not in fact

be lawful, that just as happened in previous times, they’ve had to

undo decision after decision. Now, it sounds like in your case

undoing those decisions may not be all bad.

But I think—I’m going to be brief, and then I’m going to concentrate on Mr. Stanford. Then Blake, I think, will concentrate

more broadly.

It sounds like times are good in the oil patch, but they could be

better. Is that a fair statement? That in fact business is up, you’re

drilling more, but you’re drilling with greater costs across the

board?

So in a sense, this administration—which includes, quite frankly,

credit or blame you give to the House or the Senate—is sort of living off of the fruit of very expensive oil, and in fact—$100 a barrel—and in fact new developments that are making yields here in

the United States go through the roof.

Is that a fair statement from all of your knowledge?

Mr. STANFORD. I think the Gulf of Mexico specifically has a lot

of natural gas that still comes out of it, and that natural gas isn’t

very valuable right now. And the economic burden on top of that,

that low cash-flow for natural gas is not always profitable to everybody.

Chairman ISSA. And, Mr. Stanford, I wanted to follow up on your

testimony, because I had some specific questions. Have you sought

any kind of reimbursement from the BP fund?

Mr. STANFORD. No.

Chairman ISSA. Have you—do you see any reason that you’re not

as much a victim of that spill, and then if not BP responsible, then

the government? Because one or the other apparently broke a

promise to you in your deep water drilling, where you had a license, you had a contract, they changed the rules.

And if I understand correctly, and correct me if I’m wrong, they

didn’t just change the rules, they entered into a, we call it a

permitorium, but a moratorium, when they, so they can go think

about rules they were going to write. Is that roughly what you experienced?

Mr. STANFORD. Exactly what we experienced. And I think it is

unfair. I think that the Federal Government, without request,

ought to review those situations. And there ought to be some compensation for that.

I think it was the intent of Royal and its partners to resume

drilling as, as fast as they possibly could. In doing so, they focused

on trying to get a new permit, as opposed to reconciling what

seemed to be unfair, thus far.

Chairman ISSA. Were any of your rig workers paid at all out of

that fund, BP fund? Did any of those individuals apply?

Mr. STANFORD. Not that I’m aware of.

Chairman ISSA. When you have a slow down through, mostly due

to the inexperienced of these new Federal employees, where you

lose a day, 2, 3, anything your employees can do other than continue drawing salaries, or any way, use them in any other way as

a small operator?
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Mr. STANFORD. It’s purely a cost of lease operation that affects

us, and when you have somebody in a group service——

Chairman ISSA. I realize you sub some of that, but those workers, if you were a very large organization, you might be able to tell

your contractor to move crews.

Mr. STANFORD. That’s true.

Chairman ISSA. My understanding is that might work for BP.

Mr. STANFORD. True.

Chairman ISSA. It can’t possibly work for you. You’re just not big

enough to have the kind of ability to fly crews around.

Mr. STANFORD. That’s correct.

Chairman ISSA. So many of the inefficiencies right now coming

out of the Federal expansion hit you harder than they’re going to

hit a conglomerate. Is that true?

Mr. STANFORD. That’s true.

Chairman ISSA. Now, I’m going to look at the sunny side for a

moment with my remaining time. If you survive, if you’re able to

continue borrowing and leveraging and doing everything you need

to bring in your wealth, your expectation is you’ll still, you’ll still

break even or make money. Right?

Mr. STANFORD. Our hope is, but the plan cost on a lot of offshore

projects are planned and scheduled months to years before they’re

executed. So when new policy comes down, we have to spend twice

as much money.

You know, we’re already engaged in the economics of that. And

for the most part, it makes what would be a two to three return

a break-even return.

Chairman ISSA. So I just want to go final on that. You had this $50 million sunk costs. And I realize you’re just talking about some

of the costs.

Mr. STANFORD. Sure.

Chairman ISSA. But let’s just assume for a moment you have a

$50 million project, becomes a $100 million project. It was going to

make $90 million to you. So instead of making a huge profit you

often hear about, you know, the 40 percent, 80 percent return on

investment, you go to a negative return, $10 million.

And these numbers are unfortunately not the numbers. They’re

going to be larger than that in profit or loss. Right?

Mr. STANFORD. That’s correct.

Chairman ISSA. Now, you drill in deep waters. You bought your

lease from the Federal Government. Right?

Mr. STANFORD. That’s correct.

Chairman ISSA. And if I’m roughly right, you’re paying 17.5 percent of anything that comes out of that, that well. Right?

Mr. STANFORD. That’s exactly right.

Chairman ISSA. So on a $100 million, the Federal Government

makes $17.5 million, whether or not you make a penny.

Mr. STANFORD. Whether we make a penny. That’s right.

Chairman ISSA. Plus, of course, your lease purchase.

Mr. STANFORD. That’s right.

Chairman ISSA. I just wanted to make sure. That’s why I said

I was going to concentrate on you, because somehow as a native

Clevelander, now living in California, it is sort of poetic justice that

the Federal Government has no incentive to make you profitable.
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They have no incentive to do anything except collect their 17.5 percent.

Because ultimately, as long as it comes online with you or if you

don’t make it, the next guy that takes it over, they’re basically

making the same amount, even if they make your project cost double what it should.

Mr. STANFORD. That’s exactly right. They’re not sharing any of

the risk of the loss. And so long as the well comes onstream, they

will make their royalty. And that’s——

Chairman ISSA. Now, I’ve got a potpourri of people here, EDC,

independent driller, somebody who—Leyland, you’re lovely in the

sense that you’re out there, even if you’re not drilling. Do you believe that this committee should try to find a way to link the ultimate revenues received to the original estimate of burden placed

by the government?

In other words, if the Federal Government again changes its bargain between the start of a project and the end of a project, do you

think that we should have some sort of a shared cost so that it’s

not all on you, while the Federal Government makes, in that hypothetical example, $17.5 million and you lose $10?

Mr. STANFORD. I would love it. And the reason——

Chairman ISSA. I was actually asking the others, too, because I

think that you were a given. But Leyland, you wouldn’t be part of

that directly; but indirectly, you would. If they make putting green

energy up in the Gulf much more difficult, your project might go

from a profit to a loss. But in the meantime, you’re still renting.

Right?

Mr. LEYLAND. I think that’s true. You know, we are safer inside

State waters. So you know, we—thanks be to Texas, we’re kind of

immune from that. But I think——

Chairman ISSA. Well, I wasn’t going to suggest on behalf of

Texas, because the Railroad Commissioner already left. But, you

know, if they were the problem, I’d suggest that they share the solution, too.

Mr. LEYLAND. Well, yes, I think that’s true. We do get a lot of

support from the State, you know, a lot of encouragement.

Chairman ISSA. My time has expired. Just briefly, would you say

that that should be a scheme we try to do on behalf of the American people?

Mr. PARKER. We try to get that in with our clients. If they

change the rules after a contract is let, we expect to be able to go

to them and——

Chairman ISSA. You get paid for change orders?

Mr. PARKER. We believe in change orders.

Chairman ISSA. Geez, I always try to avoid that.

Mr. PARKER. I’m a contractor. I have to believe in change orders.

Chairman ISSA. I know. You lose a little money until the first

change order.

Mr. PARKER. Yeah.

Chairman ISSA. Well, thank you.

Mr. Farenthold.

Mr. FARENTHOLD. Thank you, Mr. Chairman.

Mr. Stanford, as a result of what you’ve gone through and seen,

do you think we’re creating an environment where only the majors
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can play in deep water? Are y’all going to continue in deep water

or——

Mr. STANFORD. I think that the playing field is not level anymore. I think the major companies have an advantage just by virtue of the amount of resources they have and the amount of revenue that comes from that. The distribution of those costs are more

proportional than they are to us. So yeah, I think there is a shift

of advantage there.

Mr. FARENTHOLD. And you’re talking about all of the money that

it’s costing you, and in fact, it’s costing the Federal Government

some money to implement all of these new rules and regulations.

I’m concerned that we’re taking the wrong approach to this. Obviously, we’ve got to ensure safety, but the Gulf of Mexico isn’t just

U.S. water. It also includes waters controlled by Cuba and Mexico,

in which all of, no matter how many regulations we pile on folks

operating in U.S. waters, or on U.S. companies, it’s not going to

have a lick of effect on the Cubans or the Mexicans.

Do you think it might be a better use of the resources to develop

spill responses and technologies and training for people to respond

for whenever this, when this happens again, in non-U.S. waters, be

it in the Gulf of Mexico, the Arctic, or anywhere else in the world?

Mr. STANFORD. I tell you where it would be a benefit. The Bay

of Campeche is not very far from here. And they polluted Texas

beaches, you know, in the 1970’s that lingered for many, many,

many years. So I can only see that would be a benefit.

Mr. FARENTHOLD. And I think you were also talking about pulling, when you’re done, having to remove the rigs, and the value of

the real estate in the Gulf of Mexico. Do you find—y’all do some

shallow water, too, or you just——

Mr. STANFORD. Sure, we do.

Mr. FARENTHOLD. Do you find, especially in the shallow water,

that you tend to have fishing boats around your rigs?

Mr. STANFORD. Always.

Mr. FARENTHOLD. And they kind of create artificial reefs and

wildlife habitats?

Mr. STANFORD. Right.

Mr. FARENTHOLD. Does it make sense that we’re requiring, when

we’re spending money to sink Navy ships to make artificial reefs,

we’re requiring oil companies to spend money to remove reefs that

they’d rather abandon in place?

Mr. STANFORD. I do. I think that the number of platforms that

are turned to reefs is much less than it used to be. It used to be

a component you could negotiate, especially off the State of Louisiana. But there’s a big benefit to that.

My issue is with the relatively young modern platforms that

meet the current qualifications, that have to be taken out because

they lapsed a few months of being useful, when it could be useful

to somebody else. And it’s important in development.

Mr. FARENTHOLD. Mr. Parker, you do turnarounds for refineries.

But we’re not, you’re not building any new refineries, are you?

Mr. PARKER. There has not been a new refinery built since 1978

in the United States. There have been some large expansions. Primarily, over in Garyville, Louisiana, there was a large expansion
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by Marathon. And in Beaumont, Port Arthur area, Motiva did a big

expansion.

But beyond that, most all of the capital expenditures have been

for diesel, hydrogen sulphurization, to meet the low sulfur diesel

and gasoline requirements, which contributes not a dime to the

bottom line of refining and petrochemical plants. It’s strictly a cost

of doing business.

Mr. FARENTHOLD. And we’re at or near capacity in our refineries

now nationwide. Is that an accurate statement?

Mr. PARKER. Yes. I mean, those type projects, the ones that are

environmental related, are simply so they can keep operating. They

don’t do anything for the bottom line.

Mr. FARENTHOLD. Do you think there’s a chance we’ll ever get

some more refineries in the United States? Would this cheap natural gas overcome the regulatory costs of building one here? Or are

we just done with——

Mr. PARKER. I think there’s a possibility that, assuming the natural gas stabilizes at a low dollar, you could see some possible new

ethylene crackers come in more on the petrochemical side of the

business than on the refining side.

Mr. FARENTHOLD. And for people with environmental concerns

about the refining, would any refinery built in the United States

be cleaner than a refinery built anywhere else in the world?

Mr. PARKER. You know, I can’t speak for 100 percent of the refineries in some of Europe, the European countries, but I can tell you

that compared to a lot of the Third World countries, Vietnam,

India, China, our refineries are substantially more modern, in

terms of environmental controls.

Mr. FARENTHOLD. And Mr. Mower, could you talk a little bit

about what the abundance of relatively low cost natural gas and

wind energy, to keep our electricity affordable, how is this making

your job easier? What—are you seeing more interest in, you know,

what type of industries are we looking at? What kind of jobs and

wages are we looking at in those industries?

Mr. MOWER. Power is very important. Land, water, power, people. That’s what you do in economic development, you sell land,

water, power and people. But we have those assets.

The projects we’re trying to do now, we report monthly to a board

of directors. The numbers are almost staggering in terms of investment and jobs, of projects that are looking in this region. And it’s

across the board. I would say generally, it looks like industry we

have in the region today, but we’re certainly seeing some new industries come into the marketplace.

Natural gas, natural gas is really important. When you look at

the competitive environment, when companies are looking to site a

facility, they may get better power in another State. We offset that

with lower gas prices. They may have better property taxes in another State. We offset that with a 45-foot channel.

So it’s having a balance of, the balance of our assets that gets

us in the competition. Natural gas kind of sways things to our advantage.

Mr. FARENTHOLD. Do I have time for one more question?

Chairman ISSA. Of course.
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Mr. FARENTHOLD. I wanted to ask Mr. Parker, you operate across

the country doing these turnarounds. These refineries want to be

turned around quickly. How many people does your company employ?

Mr. PARKER. Today we have about 3,000 working in some 30

States. They’re all based out of the Gulf Coast, and the majority

of those, probably 2,200, 2,300 of them, are Texans.

Mr. FARENTHOLD. Are you having trouble finding good people, or

are you getting good people?

Mr. PARKER. We absolutely have trouble finding good people.

And this is something, it really probably wasn’t the topic of this

hearing, but the fact that a lot of people—we have employees that

are ex-employees that are drawing unemployment. They won’t

come back to work for us unless we can guarantee them 3 months’

worth of work. So if we have a month job or month-and-a-half job,

they’d rather just stay on unemployment. That, that is hurting us.

The other thing is we have a lot of trouble, and I would venture

to say the drilling companies do, too, finding employees who can

pass the drug test. That is a major problem, not only in Texas, but

when we work in California, Washington, everywhere we go. And

I——

Mr. FARENTHOLD. Typically, what does somebody who works for

you make?

Mr. PARKER. Anywhere, we have boilermakers that make

$70,000, $80,000 a year, on up to $140,000, $150,000.

Mr. FARENTHOLD. All right. Thank you very much.

Mr. PARKER. And we are Merit Shop contractors by the way.

Mr. FARENTHOLD. Thank you.

Chairman ISSA. Well, I appreciate your going into areas besides

just directly energy, because one of the reasons that we do field

hearings is to get more than just what you hear inside Washington.

I would like to follow up just briefly, very briefly, slightly off

track of energy. We are going to be periodically reconsidering the

99-week Federal unemployment. How would that impact an area

like this?

You have low unemployment here, by comparison to the national

average, different parts of the State. You’re in the sixes or sevens,

or sometimes even lower.

How do you view the effects of, as employers, particularly the effects of the Federal policy of this 2-year unemployment? How does

it affect your ability to get workers? You sort of started on that,

Mr. Parker.

Mr. PARKER. I truly believe—this is a personal belief—that if you

don’t give people an incentive for going back to work, they’re not.

Regardless of all of the discussions out of Washington, that all

these people really want a job, if you can make $30,000 a year sitting at home watching television, or you can go out and work, a

lot of people choose the other.

I think the thing that we could do to really improve the employment situation is to reduce the amount of unemployment.

Chairman ISSA. Now, you mentioned the 1-month versus 3. How

do you account for that, you know, people won’t come back unless

you guarantee them 3 months?
65

Mr. PARKER. They, they just feel that unless we can guarantee

them, you know, like a permanent job—in our work, we’re a contractor. When we have a lot of work, we hire a lot of people. When

we don’t, we lay off. So our work is cyclical.

But these guys have been doing this work for 25 years. But the

fact that now they can be, for 99 weeks, they can actually sit at

home—that doesn’t mean they’re not working. It just means they’re

working maybe not, not on the record.

Chairman ISSA. That’s what I was getting to. Isn’t there sort of

a secondary market that builds up when hard-working people, over

a period of time, are taking, as you say, $34,000, plus, do either

abating costs by working around the home and projects, or are actually earning in some other way?

Mr. PARKER. Absolutely. That’s what I was alluding to.

Chairman ISSA. Well, I appreciate all of your comments. What I

said to the first panel, I’ll say to you. We would appreciate your

additional thoughts that come out of this. We are going to hold a

number of other energy-related hearings.

And the one that we know will be in the series, but in Washington, will be a geopolitical one, one about the impact of being

able to be a supplier of energy, rather than a net consumer.

And so any thoughts that any of you have on it, as American citizens, or as people knowledgeable of just how much power potentially is coming online that can be entered, I should say that can

be made part of the world market, we’d appreciate your thoughts.

In addition to that, the record will stay open long enough to get

any other comments, and quite frankly, for everyone to get back

and let the Members know what they missed by not being here.

Well, you can applaud in a second for all of our panelists, but I

do want to thank the audience. You’ve been applauding when you

thought it was right, very nicely, and it’s been a very congenial

hearing.

And particularly, I want to thank the people who brought young

children, or not-so-young children, to learn from today’s civics lesson, if you will.

And with that, you may applaud. We stand adjourned.

[Whereupon, the committee was adjourned.]

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