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Senate shoots down repeal attempt

By Bruce Alpert

WASHINGTON — The oil and gas industry, which beat back new regulatory bills even during the worst days of last year’s massive BP oil spill, scored another victory this week.

The Senate voted late Wednesday against a proposal to end some oil industry tax breaks to pay for easing paperwork requirements for small business under President Barack Obama’s health overhaul law.

Instead, the Senate passed an alternative, using unappropriated federal funds, to pay for the $22 billion estimated cost over 10 years of the small-business provision. It would drop a requirement that, starting next year, small businesses file IRS forms every time they make purchases of services or goods worth $600 or more.

The repeal measure passed 81-17. Opponents of ending tax breaks for oil companies, including Louisiana lawmakers, argued that now is not the time to impose taxes on an industry that is struggling to regain domestic offshore production after an embargo and what some industry officials call a continuing de facto embargo on offshore drilling.

The American Petroleum Institute said further taxes would hurt an industry that already produces $100 million in daily revenue for the U.S. Treasury.

Still, Sen. Carl Levin, D-Mich., a proponent of ending oil industry tax breaks, said it makes little sense to continue tax breaks for an industry that is doing so well, despite the BP oil spill and a slowly recovering economy.

“We would reform unjustified tax expenditures related to oil and gas production by large oil companies, companies that are enormously profitable with or without these tax expenditures,” Levin said.

His amendment failed by a vote of 44-54. Ultimately, the Senate passed the repeal of the IRS reporting provision, letting the Office of Budget and Management choose unappropriated funds to cover the $22 billion cost.

On Thursday, Rep. Ed Markey, D-Mass, continued to press the issue of ending oil company tax breaks, which Obama endorsed during last week’s State of the Union address.

“American consumers and small businesses are all told that they will have to tighten their belts, and do their share to bring down our deficit and grow our economy,” Markey said. “Yet even when their top five companies make nearly $1 trillion in profits over the last 10 years, they still defend with a straight face the billions in tax breaks and regulatory subsidies they stand to rake in over the next decade.”

Sen. David Vitter, R-La., said that Markey clearly doesn’t understand the role domestic production provides in terms of jobs and alternatives to unstable foreign oil.

“I wish Ed Markey would travel from Massachusetts to Louisiana and meet face-to-face with workers who’ve lost their jobs because of the Obama shutdown of the Gulf,” Vitter said. “Ed Markey supports that shutdown. And the reason we have and need these tax provisions is because the U.S. has the highest business tax rate in the world, which Ed Markey also supports.”

On Thursday, Vitter also demanded the Interior Department calculate how much of a hit the federal treasury may take if breach of contract suits against the Department of Interior, like that filed last week by Century Exploration New Orleans Inc., are successful. Century filed suit in Washington, claiming that new regulations imposed by Interior after the BP oil disaster had rendered its $23 million Gulf of Mexico lease “commercially impractical.”

In a letter to Deputy Interior Secretary David Hayes, Vitter asks if Interior is held liable for breach of contract, how many contracts that might include, and what the impact on the federal treasury would be of a fall-off in production because of the new regulatory regime.

Also Thursday, Rep. Steve Scalise, R-Jefferson, said that with oil prices rising because of instability in Egypt, now is not the time to restrict domestic production through higher taxes or regulations.

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Egypt’s turmoil looms large over the world’s energy markets, but not for the reasons you might think.  Egypt currently produces about 750 thousand barrels per day (BPD) of crude oil, which barely covers the country’s growing internal consumption.  Regardless of whether a shutdown is short- or long-term, Egyptian exports will not be missed on the world market.

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They want him to hear drilling pleas

By Allen Powell

Seeking to redirect national attention on the lack of deepwater drilling and its impact on Louisiana coastal communities still struggling to recover from the worst oil spill in U.S. history, local officials have called on President Barack Obama to meet with them on the anniversary of the Deepwater Horizon crisis.

In a letter penned Tuesday by Plaquemines Parish President Billy Nungesser and signed by eight other officials from around the region, the leaders seek a meeting with Obama in Washington, D.C., or Louisiana to discuss expediting new drilling permits to prevent further hardship on the coastal areas.

“It is imperative to our collective economies that we move forward with the process of providing the energy that moves our nation,” the letter said. “We are greatly concerned however about the effects of the recent drilling moratorium and direction of the permitting process as well as the slow pace in which permit applications are moving forward.”

The leaders also complain that only with Obama’s intervention have their concerns and the needs of their communities been addressed.

“In retrospect the only true time we have been able to get things done were during your visits to our area and through your willingness to listen and make the necessary decisions to direct the response,” according to the letter.

A White House spokeswoman confirmed that the letter had been received and said, “the administration is committed to working with the people of the Gulf to help the recovery and restoration of the region’s environment and economy.”

Nungesser said local leaders believe that if Obama hears firsthand about how the slow permitting process jeopardizes the region’s economy, he will be willing to take decisive action. Nungesser said the president was very supportive when he heard local plans about dealing with the oil spill and was able to eliminate red tape that threatened several projects. Without direct contact with the president, it can be difficult to get federal officials to understand local problems, he said.

“Whether we go to Washington or he comes down here prior to the (oil spill) anniversary, I think it would be a good thing.” Nungesser said.

The Deepwater Horizon explosion spewed millions of barrels of oil into the Gulf of Mexico for 86 days.

Jefferson Parish President John Young said much work remains.

“We’re trying to refocus the president’s attention on the ongoing issues we are dealing with from the oil disaster,” he said. “It’s discouraging that he didn’t mention it at all during his State of the Union speech. The rest of the country seems to be moving on, and we want them to know this still affects us every day.”

Last month, Greater New Orleans Inc., a regional economic development group, said that only two drilling permits have been issued since federal officials lifted the deepwater drilling ban in October, compared with about six permits issued monthly before the moratorium. The group estimated that a single drilling rig can employ about 230 people directly and 920 indirectly and generate $2.3 million to $3.2 million in direct tax revenue and $6.9 million to $12.8 million in indirect revenue to state and local governments each month.

Lafourche Parish President Charlotte Randolph said coastal communities have been fortunate that oil spill cleanup efforts have helped keep their bottom lines stable, but without the long-term strength of the oil and gas industry, the economy could sour quickly. Without a streamlined and effective permitting process, coastal parishes could easily lose the business of the oil companies, which would have a ripple effect throughout the region, she said.

“We don’t know day to day what’s going to happen and we need some degree of certainty,” she said. “We have appealed to authorities on every level. … We are going to the top now.”

Other officials who signed the letter were Terrebonne Parish President Michel Claudet, St. Tammany Parish President Kevin Davis, St. Bernard Parish President Craig Taffaro, Jean Lafitte Mayor Tim Kerner, Grand Isle Mayor David Camardelle and Jefferson Parish Councilman Chris Roberts.

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Political unrest in Egypt is expected to peak Tuesday, with a protest organizers hope will shut down transportation to Cairo. The protest is another effort to oust President Hosni Mubarak after nearly 30 years in power.

Although the conflict is halfway around the world, there’s a key element that impacts us here in Louisiana. Egypt is not an oil producing country but, the Suez Canal is a major route for oil transport. If that shuts down, it could affect one of our biggest industries.

The U.S. Energy Department reports almost 2 million barrels of oil moving through the canal each day, so any disruption or even threat of disruption could cause oil prices to skyrocket. If international prices go up, it could increase demand for oil from other parts of the world, including Louisiana. All 64 of our parishes produce oil or gas, while oil and gas operations in the Gulf of Mexico have a $70 billion annual impact. We spoke with Loyola University Professor Behrooz Moazami, who said the people of Egypt know the political power of oil and the impact it has on the world economy.

So, just how big has the impact been? Oil has jumped about 8 percent in the last two trading sessions, but so far, the Suez Canal remains open and shipping has not been interrupted.

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By: Susan Buchanan

The Gulf Coast remains banged up and broken from BP’s oil spill but worries that Louisiana workers would be hit hard by the federal drilling ban – which ended in October – haven’t materialized. In an early January report on the moratorium, public-private partnership GNO, Inc. said big job losses that it and others expected haven’t oc­curred so far. Employment in the coastal oil patch grew in 2010, according to the Louisiana Work­force Commission last week.

If you tank up with gasoline, you probably figured out awhile ago that oil prices are rising. Petroleum companies have no intention of missing that boat, and want staff on hand at production facilities in Louisiana and elsewhere to help them meet demand and capitalize on higher prices.

Robin Barnes, executive vice president at GNO, Inc., said “job losses on the Louisiana coast are, at least initially, not as high as we expected last June. Large and small companies have tried to retain employees rather than lay them off, and in some cases have shortened their hours.” GNO, Inc.’s January report was the second in its three-part Economic Impact Series, including an already-released segment on fisheries and a soon-to-be issued, final part on Louisiana’s brand.

Barnes said smaller firms on the coast have dipped into their savings to cover payrolls. “Some companies have managed to hold on with money received from BP claims and the Vessels of Opportunity program,” she noted. “Unemployment could rise in the coastal economy this year, however, as businesses deplete their savings.”

In September, the U.S. Dept. of Interior revised projected Gulf job losses from the deepwater moratorium to a range of 8,000 to 12,000, from an earlier view of 23,000. Those figures compare with Louisiana Governor Bobby Jin­dal’s forecast last spring that 20,000 jobs would be forfeited to the drilling ban.

Last June, GNO, Inc. saw a potential drop of 12,500 to 21,900 full-time-equivalent positions from the deepwater moratorium. The group’s report this month said “to date, we have not seen evidence of these projections,” but added that since June, Louisiana has lost over 25,000 jobs statewide. “While this cannot be assumed a direct correlation – unemployment was rising around the country – we are confident that the decrease in drilling permits and the significant slowdown of the oil and gas industry had an impact on this number.”

Since the release of  GNO, Inc.’s January report, however, Louis­iana officials said that the state’s jobs grew in 2010 as a whole and that December’s unemployment rate of 7.2 percent, not seasonally adjusted, was unchanged from 2009’s end.

Last October, GNO, Inc. began  releasing a Gulf Permit Index, tracking approved, federal deep and shallow water permits on a biweekly basis. On the shallow end, permits in the last quarter of 2010 averaged 6.3 per month versus 7.1 in the year earlier quarter.

Curry Smith, GNO, Inc. communications and research manager, said, “only two, new deepwater drilling permits have been approved by BOEMRE since the moratorium ended on October 12. And, since then, only 16 new shallow-water permits have been approved, though there was no official ban on shallow drilling.” Deepwater permits were issued for new exploratory wells in November and December respectively, to BHP Billiton Petroleum.

Last week, Senator Mary Lan­drieu’s office said “Five, deepwater platforms operating in the Gulf have left for other parts of the world, costing Louisiana and the Gulf Coast nearly 5,000 jobs.” Most of those rigs moved to the coast of Africa, in some cases temporarily, according to their owners.

As a reference point, GNO, Inc. used 33 as the number of deepwater rigs shut in the Gulf by the drilling moratorium, though the actual figure is lower. The group said that each rig directly or indirectly employs between 415 and 732 Louisiana workers, and 33 rigs would employ between 13,695 and 24,156 workers. “While we have not seen evidence of this high level of unemployment, should the lack of permits continue, the number of jobs at risk is significant,” GNO, Inc’s recent report said,

Separately, Eileen Angelico, New Orleans spokeswoman for the federal Bureau of Ocean Energy Management, Regulation and Enforcement, said last week that 21, rather than 33 deepwater rigs were shut in the Gulf during the drilling ban. “Of the 33 deepwater rigs that were operating at the time that Interior Secretary Salazar called for the moratorium, 21 rigs eventually suspended operations,” she said. “Twelve rigs were completing operations, which were not covered under the moratorium, such as drilling a relief well; workover operations; and drilling waterflood, gas injections or disposal wells.” For example, Taylor Energy’s Diamond Ocean Saratoga was exempt as it continued to plug and abandon a Mississippi Canyon well, following platform damage from Hurricane Ivan.

A notice from the Dept. of Interior late last May explained the types of rig operations that were exempt from the moratorium.

Continuing with its reference number of 33 shut rigs, GNO, Inc. said “over the course of seven months from June to December 2010, 33 working, deepwater rigs would have accounted for state and parish income and rig royalties of between $9,868,799 and $16,864,585. We cannot assume that all these taxes were lost as a result of the moratorium, because – as we have discussed – income-tax paying workers have been kept on payroll, and some companies have found other sources of revenue.”

Layoffs on rigs since last spring are far less than initially expected. The $100 million Rig Worker Assistance Fund, established with BP funds, was created to compensate rig employees unable to work as a direct result of the moratorium. GNO, Inc. said in January “this fund, housed at the Baton Rouge Area Foundation, has received approximately 624 applications, 343 of which were compensated. We estimate that each deepwater drilling rig relies on approximately 230 direct workers.” Rig employees did not lose their jobs in large numbers, and some workers that were laid off chose not to apply to the fund, GNO, Inc. said.

The group said “job losses were mostly suffered by members of the low-income, unskilled labor force. The majority of directly and indirectly impacted businesses chose to retain most of their employees, despite a sharp dropoff in their needs for labor.” GNO, Inc. also said “drilling rigs may be keeping employees on payroll, but are not purchasing the goods and services – known in the industry as ‘rope, soap, and dope’ – that they did previously.”

When asked what he thought about earlier projections that the moratorium could result in losses of 20,000 Gulf jobs, Don Briggs, president of the Louisiana Oil and Gas Association, said last week “I think they are probably high.” But, he said, “it’s been a very difficult number to quantify.” Briggs pointed out, for instance, that “companies like Baker Hughes, Halli­burton and Schlumberger can move their people anywhere, to places such as the Haynesville,” the big natural gas-from-shale play in Northwest Louisiana.

The GNO, Inc. study includes “qualitative” or anecdotal research from discussions with several small business owners providing goods and services to oil and gas companies affected by the drilling ban. In addition, the organization  interviewed employees of non-profit groups assisting small businesses on the Louisiana coast. GNO, Inc. found that “the moratorium forced business owners to drastically change their business plans and utilize savings to compensate for significantly decreased revenue. Most small business owners have attempted to retain their employees in anticipation of drilling permits being granted in the near future.”

GNO, Inc. expects that if drilling permits don’t increase much by second quarter 2011, small businesses will be forced to begin major layoffs. Larger companies may choose to keep employees on longer, but not indefinitely.

On January 3, BOEMRE told 13 oil companies that they can resume previously approved exploration and production activities without submitting revised plans. GNO, Inc. says its Gulf Permit Index has shown little increase in permits issued since then. “Thus, we maintain that a de facto, deepwater moratorium remains in place.” The group said that, given recent increases in shallow, permit approvals, however, “the de facto shallow-water moratorium ended.”

GNO, Inc. said “the U.S. has experienced accidents in various industries, including mining, air travel, civil engineering, chemical transportation and others, yet none have resulted in the long-term, comprehensive shutdown of an industry.”

The group does not weigh in on Louisiana’s clean energy-versus-oil debate. It does say “the safety of workers and the environment must be of paramount importance.” New systems and procedures should be described and implemented, using transparent methods. “This will allow the nation’s offshore oil and natural gas industry to return to work in a way that will preserve thousands of critical jobs,” in a region still recovering from hurricanes.

Separately, Dr. Loren Scott, emeritus professor in economics at Louisiana State University, said he’s keeping an eye on job numbers in Metropolitan Statistical Areas in the coastal oil patch. In the Houma MSA, covering Lafourche and Terrebonne parishes, unemployment was 5.1 percent, not seasonally adjusted, in December, down from 5.7 percent in November and 5.3 percent in December 2009. Those numbers were all below prevailing national averages. Unemployment also fell in December in the Lafayette, Lake Charles and New Orleans MSAs, including Plaquemines Parish.

Joseph Mason, LSU finance professor, said “nobody has a good number on job losses from the moratorium right now because of the nature of the holdups-limited licensing in shallow and deep water. The Administration and BOEMRE are still barely licensing projects – not just placing procedural hurdles, but simply locking out the industry – thereby leaving in place the ongoing, harsh economic effect.”

Mason continued, saying “Obama said a few weeks back that permitting would gain speed,” but that hasn’t happened.

Meanwhile, President Obama referred to oil as “yesterday’s energy” in his State of the Union speech last week, and said he wants the nation to focus on producing and using cleaner fuels.

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By GERARD SHIELDS

WASHINGTON – Oil drilling proponents are pointing to the crisis in Egypt as a reason to increase production in the Gulf of Mexico.

New deepwater drilling in the Gulf has been shut down since May as a result of the BP Deepwater Horizon oil rig explosion that killed 11 men and resulted in 4.9 million barrels of oil discharging into the Gulf.

Although a five-month moratorium that affected 33 deepwater rigs was lifted in November, no new deepwater permits have been issued. U.S. Interior Department officials said last week that drilling operators failed to adequately provide information that they could handle a Deepwater Horizon type spill.

Republican U.S. Rep. Jeff Landry, of New Iberia appeared on FOX News Sunday calling the Egyptian political uprising critical to the American oil supply. Landry acknowledged that even if more drilling was opened up in the Gulf, it would likely take years to reap the benefits.

But Landry cautioned that the nation must get started to ensure it is not held hostage by other oil producing nations.

“It does take awhile for us to put our production on in the Gulf,” said Landry, in whose district oil and gas is a major industry. “That’s why it is so important for us to get started now.”

Egypt ranks as the 21st largest oil producer in the world. But it also encompasses the world’s two most important energy supply routes, the Suez Canal and the Sumed pipeline. An estimated 1.8 billion barrels of crude oil and refined products per day pass through the area, according to the federal Energy Information Administration.

The average price of gasoline in the U.S. has jumped to $3.10 per gallon, the eighth week of increases and 44 cents more than the same time last year, the organization said.

Other problems of unrest have taken place in Yemen, with the Egyptian crisis also threatening production in Libya and Algiers, part of the Organization of Petroleum Exporting Countries.

“It is the kind of danger that can take the steam clear out of any recovery we have,” Landry said. “If that canal is shut down, the price of oil and the price of gas that we pay at the pump for all Americans is going to go through the roof.”

Kevin Book, an energy analyst with ClearView Energy Partners in Washington, said the Egyptian crisis is an example of how unrest around the world can affect America.

“If you don’t want to depend on OPEC, you have to have an alternative,” Book said. “That alternative is in the deep water.”

Book estimates that it would take one to two years to benefit from production in deepwater wells. For exploratory operations just getting under way, it may take up to seven years, he said. But opening further drilling in the Gulf allows the nation to show that it is attempting to reduce its reliance on foreign oil, Book said.

“The signal you send when it starts is important,” Book said. “The world responds to the signals you send.”

Don Briggs of the Louisiana Oil and Gas Association said that he doesn’t expect the Obama administration to call for more drilling in the Gulf. In last week’s State of the Union address, Obama referred to oil production as “yesterday’s energy.”

Briggs called the Egyptian crisis a wake up call to the administration.

“If they listen to it,” Briggs said.

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During his State of the Union speech earlier this week, President Obama called for swift and immediate measures to speed job creation and cut federal spending. On the top of his agenda was a call to ensure a cleaner environment and foster clean energy like wind, solar and biofuels.

Unfortunately, the way in which the president plans to pay for this agenda means bad news for American consumers.

It’s the president’s hope to spur American innovation and job creation through advancements in clean energy technologies. In order to pay for these advancements, he plans to eliminate billions of dollars in tax breaks for oil and natural gas companies. Obama candidly remarked, “And to help pay for it, I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I don’t know if you’ve noticed, but they’re doing just fine on their own.”

What the president and his advisers fail to realize is the exploration and development of oil and natural gas reserves is becoming an expensive business. With much of the world’s conventional oil and natural gas reserves already discovered, developed and in decline, companies must move toward non-conventional and offshore resource developments.

The development of these resources comes at a significantly high cost. And vital tax incentives for oil and natural gas companies are central to ensuring they remain economical and sustainable.

Removing tax breaks and incentives for oil and natural gas companies can mean only one thing — higher energy prices for American consumers. This is a concept some policy makers and politicians seem to forget.

It also does not only apply to the oil and natural gas business. When an added cost, like a tax increase, is placed upon businesses, that cost is made up through an increase in prices. This is the only way companies can continue to be competitive and stay in business.

Other than the high cost associated with developing offshore and non-conventional resource plays, there are other factors contributing to increasing energy prices. Global oil production decline and rapid demand in developing countries are driving the cost of energy up rapidly. Today, we already are feeling the effects of this energy crunch. We once again are in the midst of $100 oil and $4 gasoline, and the numbers are climbing.

Even with billions of dollars in direct subsidies, “green” energy businesses are not cost-effective. The only way they can become competitive in the marketplace is to increase the cost of fossil fuels through raising taxes on the oil and natural gas industries. Raising taxes on fossil fuels will not bring about job creation and economic growth. Inevitably, it will lead to increased energy costs and higher food prices and result in a lower standard of living for all Americans.

If the president is serious about getting us out of this economic situation and job creation is his top priority, he should refrain from stifling industries that will help our nation rise above our economic challenges.

Don Briggs is president of the Louisiana Oil & Gas Association.

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By Jeremy Alford

BATON ROUGE — There’s a gulf between the oil-and-gas industry, as it attempts to recover from last year’s epic spill, and the federal regulatory agencies that seem to be holding all the cards.

Louisiana’s oil-and-gas industry is in a holding pattern as it waits on the feds to permit drilling in the Gulf of Mexico at previous levels.

Over the past week, roughly a half dozen deepwater rigs vacated the region due to last year’s temporary ban and the lack of activity after it was lifted by the White House.

“There’s so much uncertainty it’s difficult for a company to really make decisions on capital investments,” said Don Briggs, president of the Louisiana Oil and Gas Association. “That’s one of the concerns I have.”

While the temporary drilling ban only impacted deepwater exploration, Briggs and others say shallow-water permitting is running way below historic levels as well.

Industry leaders are concerned that investments in the Gulf of Mexico are drying up.

“I’ve never seen anything like this,” Briggs said. “When you stop and think about it, just in the stroke of a pen, the entire Gulf of Mexico was practically shut down. Literally billions and billions of dollars in investments came right to an end and could not move forward.”

If there’s a similar sense of urgency at the U.S. Department of Interior, it’s subdued, punctuated chiefly by organizational meetings and news conferences.

The department’s newly created Bureau of Ocean Energy Management, Regulation and Enforcement, or BOEMRE, announced last week the structures and responsibilities of two independent agencies that will assume offshore-energy management and enforcement functions once assigned to the former Minerals Management Service, or MMS.

Last week, BOEMRE Director Michael R. Bromwich also made a public appeal for nominations for the Offshore Energy Safety Advisory Committee, which will become a permanent advisory body of scientific, engineering and technical experts providing input on offshore drilling safety, well containment and spill response.

While critics argue that the new bureau is already getting bogged down in bureaucracy as Gulf energy action plummets, federal officials insist they’re being careful and thorough.

“We are moving ahead quickly and responsibly to establish the strong, independent oversight of offshore oil-and-gas drilling that is needed to ensure companies are operating safely and in compliance with the law,” Interior Secretary Ken Salazar said.

Bromwich added that progress doesn’t come cheap or fast.

“The former MMS was saddled with the conflicting missions of promoting resource development, enforcing safety regulations and maximizing revenues from offshore operations,” Bromwich said. “Those conflicts, combined with a chronic lack of resources, prevented the agency from fully meeting the challenges of overseeing industry operating in U.S. waters.”

He said the reorganization is designed to remove such conflicts by clarifying and separating missions across the three agencies.

Louisiana Department of Natural Resources Secretary Scott Angelle had his own meeting with Bromwhich Friday to discuss the obstacles that keep new drilling permits from being issued for the Gulf of Mexico.

The meeting — the third in two weeks — covered a handful of regulatory rules that are being drafted for what will become the new permitting process.

“Director Bromwich also assured us that, despite the reorganization efforts taking place at the [bureau], our efforts to work through the permitting process will not lose momentum,” Angelle said.

For now, he said the game plan is to stay involved, continue to weigh in on the regulatory side and, basically, wait.

“We identified our list of actions that need to be taken. We were constructive and we worked to ask the appropriate, but tough questions that will hold [the bureau] accountable and will lead the industry to the first new permits issued in almost a year,” he said.

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