By Don Briggs

President, Louisiana Oil & Gas Association

The Gulf of Mexico is the oil and gas hub for the Western Hemisphere with several thousand platforms standing at any given time. As with any industry, safety is of utmost concern. When a platform is built in the Gulf, there are safety concerns for human life, aquatic life, the environment and the Gulf of Mexico itself, to name but a few. However, certain legislation is being proposed in the United States Congress that would be detrimental to the oil and gas industry and have a stifling financial impact on Gulf of Mexico drilling activity  – Section 608 of the United States Coast Guard Reauthorization Bill (CGRB), also known as H.R. 2838.

Congressman Jeff Landry (R-LA) recently amended the bill in the House before passing it on to the Senate. Landry’s House amendment includes Section 608 which is language regarding the use of Stand-By-Vessels. The language requires Stand-by Vessels to be located within three miles of every manned oil and gas platform facility in the Gulf of Mexico, including mobile offshore drilling units (MODUs). This requirement would increase cost to oil and gas operations in the Gulf of Mexico by hundreds of millions of dollars.

The alleged intention of Landry’s amendment of this bill is to improve the ‘safety’ of offshore workers by adding these so-called Stand-By-Vessels. However, the oil and gas industry does not agree with this notion. A recent report by the Bureau of Safety and Environmental Enforcement (BSEE) stated that from the period of 1996 – 2009, there were only three fatalities that were related to hypothermia in the Gulf of Mexico. During this same timeframe, the industry voluntarily reported 1.04 billion man-hours equating to a workforce with an annual average of over 35-thousand personnel.

The industry is projecting that an additional 150-200 vessels would be needed to meet the Stand-By language requirements. Also, additional personnel would be required to operate the additional vessels. All in the name of safety, adding these Stand-By Vessels and personnel would not increase safety, but exponentially increase cost to the oil and gas industry by several hundred million dollars.

Regulations already exist using the most efficient technology that is designed specifically to protect offshore workers, and the regulations have been deemed adequate by the regulating bodies. Reports like the BSEE document and historical incident data do not show a need for such an onerous requirement like the Stand-By language pursues.

The Senate has now voted on the bill, passing it out without language regarding Stand-By-Vessels. However, this issue is far from dead. The bill can potentially go before a Conference Committee where the final language would be decided, but this will most likely not happen until after the November elections. If this Stand-By language were to be added in the Conference Committee and passed within the reauthorization bill, the outcome would be stifling for the oil and gas industry and its future production and success.

As the country is already trying to recover from the worst recession since the Great Depression, it is vitally important that the U.S. Congress not create barriers that prevent energy and economic development within the Gulf of Mexico region.

Louisiana is known as THE oil and gas state of our country. 50% of the gasoline and diesel fuel that drives the engines of our country flows out of Louisiana. North Louisiana is the home to the most productive natural gas field in the country, the Haynesville Shale. But most importantly, around 30% of the nation’s crude oil is produced off the coast of Louisiana in the Gulf of Mexico.

This week, the Bureau of Ocean Energy Management (BOEM), which regulates offshore drilling, held a lease sale on Wednesday in New Orleans for the Central Gulf Of Mexico region. This was the first lease sale for the Central region since the April 2010 Deepwater Horizon incident. The BOEM said they received 593 bids submitted by 48 companies on 454 federally owned oil and natural gas drilling tracts, bringing in a grand total of $1.3 billion. While 48 companies submitted bids, it is interesting to note that in 2010, 77 companies were apart of the bidding process. This 38% decline in companies bidding is clearly due to the uncertainty that companies feel from the federal government and their unfavorable energy policies.

The economic impact of this lease sale for Louisiana is massive, as a significant amount of these dollars will make their way back into the Louisiana economy. While the oil and gas industry is the engine that drives the Louisiana economy, the ripple effect from a lease sale like this one reaches far and wide beyond the acreage of the Gulf of Mexico. This lease sale will create thousands of jobs for rig workers, those working on offshore vessels, helicopter companies, all the way inland to the hotels, restaurants, and shopping centers.

This lease sale or any other positive oil and gas development will always be met by environmental groups that want to stop drilling in general. This week, four national environment groups filed suit in Washington DC in protest of the lease sale. This is to be expected from these types of organizations.

Whether it is a new shale development in Ohio or a lease sale in the Gulf, the main goal of these environmental groups is to shut down drilling. These particular groups filed suits in 2011 challenging the first lease sale in the Gulf of Mexico after the Deepwater Horizon spill. Not only did their filings not stop the bidding process, but the December 2011 lease sale saw high bids of $338 million.

The success of this lease sale is yet another example of how the oil and gas industry truly serves as the backbone of the United States economy. When other industries are unloading employees, the oil and gas industry is adding thousands of news jobs thanks to the shale oil and gas boom and the vast amount of resources off the coast of Louisiana in the Gulf of Mexico. The oil and gas industry must continue to produce consumer-ready resources, create thousands of jobs for our workforce, and remain committed to the safety of our communities and the preservation of our environment to which we have been entrusted.

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Earlier this week, the federal Bureau of Safety and Environmental Enforcement (BSEE) awarded BP its first deepwater drilling permit in the Gulf of Mexico since the Deepwater Horizon accident.  The long-awaited permit gives BP the green light to begin drilling a 6,034-foot exploratory well off the coast of Louisiana in BP’s prolific Kaskida Field.

Earlier this month, the Interior Department restructured the federal regulatory agency responsible for oversight of the development of U.S. ocean energy resources.  The Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) was replaced with three new agencies: the BSEE, the Bureau of Ocean Energy Management (BOEM), and the Office of Natural Resources Revenue (ONRR).

BSEE Director Michael Bromwich offered positive comments on the issuance of the permit by stating, “BP has met all of the enhanced safety requirements that we have implemented and applied consistently over the past year.  In addition, BP has adhered to voluntary standards that go beyond the agency’s regulatory requirements.”  Bromwich also noted that the permit approval occurred after thorough well design, blowout preventer, and containment capability reviews.

The permit serves as an encouraging step forward in BP’s return to the Gulf.  However, some politicians in Washington have expressed anger over the government’s decision.  Rep. Ed Markey (D-Mass), ranking Democrat on the House Natural Resources Committee, voiced his opinion by claiming that BP didn’t deserve the permit because it has not paid enough in fines and claims.

A permit to drill should be awarded if a company can successfully meet the new safety requirements established by BSEE.  BP has gone above the required safety standards through utilizing new backup emergency equipment and adding an additional set of shear rams to future blowout preventers.  In the case of BP’s permit, federal regulators vetted the application to drill the Kaskida exploratory well for over ten months.  On top of this, BP has also spent a significant amount of money in response to the oil spill.

Kenneth Feinberg, administrator of BP’s restitution fund, reported that BP paid approximately $5.5 billion to more than 213,000 victims and over $7 billion in other spill-related costs.  A portion of those dollars were spent reimbursing more than $700 million for federal and state government costs, as required by the 1990 Oil Pollution Act.  Individual and business cleanup expense claims continue to be paid through the $20 billion trust fund established by BP.

BP’s return to work is extremely important given its status as the largest producer in the Gulf.  Even with its return, the overall status of Gulf permitting is still significantly below normal levels.

GNO Inc.’s report dated October 11, 2011, found that deepwater permit issuance lags behind the monthly average held in the year prior to the oil spill.  The report claims that 3.7 deepwater permits are being issued per month since August 2011.  That means that deepwater permit issuance is 47% below the monthly average of 7.0 permits per month over the past three years.

Shallow-water permit issuance is also below historical averages. Since August 2011, 4.7 shallow-water permits, on average, were issued from the federal government.  That number represents a 68% reduction from the historical average of 14.7 permits per month over the past three years.

By Don Briggs
President, Louisiana Oil & Gas Industry

On Tuesday night, President Obama addressed the nation during his State of the Union speech where he called for
swift and immediate measures to speed up 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. The President
straightforwardly acknowledged that the clean environment he envisions would come at a significant cost. Who’s to
pay for this visionary clean environment? – That’s right, the American taxpayer and the oil and gas industry.
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 the President plans to eliminate billions of dollars in tax
breaks for oil and 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.”
In his address, President Obama noted that oil was “yesterday’s energy” and urged all Americans to pursue a change
of course. Obama stated, “With more research and incentives, we can break our dependence on oil with biofuels,
and become the first country to have a million electric vehicles on the road by 2015.” The President also added,
“Some folks want wind and solar. Others want nuclear, clean coal and natural gas. To meet this goal, we will need
them all — and I urge Democrats and Republicans to work together to make it happen.”
While we commend the President for his advocacy of clean burning natural gas playing a role in our nation’s energy
future, it’s important that the President’s policies reflect his rhetorical support. A question he may consider is,
“How can we increase taxes on natural gas production and ensure its affordability to meet his economic and
environmental goals?”

It’s time to get real
We need to be clear about the difference between tax breaks and direct subsidies. The President notes that the U.S.
taxpayer is in someway footing the bill for America’s oil and gas industry. This could not be further from the truth.
Taxes are an interesting and complex tool utilized by politicians and government. For instance, if you create a tax
one day, distribute the revenue, and then eliminate the tax on down the road – you’ve essentially created the
perception that tax dollars were “taken” from the public. It’s one thing to offer tax breaks to an industry, but to
directly subsidize it is an entirely different scenario.
Take for instance the U.S. renewable energy market. Companies developing windmills, solar panels, and other
renewable energies receive financial start-up money from the federal government that covers 80% of all their costs.
In reality, the American taxpayer is footing the bill for renewable energies that cannot compete in the marketplace.
The President may think that oil is the energy of the past, but the American consumer is saying something different.
According to a 2007 Department of Transportation study, there was an estimated 254.4 million registered passenger
vehicles in the United States. It’s safe to say that 99.9% of those vehicles run on fossil fuels. Until cars and trucks
run on windmills and solar panels, I don’t suspect the public will shift significantly from petroleum usage.

What about these electric cars?
Unfortunately, electricity is not an energy source. It takes energy to create electricity. The majority of electricity
generation comes from coal and natural gas. If the President plans to put a million electric cars on the road it may
be a good idea to incentivize natural gas production rather than stifle it with his tax increase plans. Higher
electricity costs mean less affordable electric vehicles.
According to the U.S. Energy Information Agency, less than 7% of U.S. energy consumption derives from
renewable energies like wind, solar, geothermal, and biofuels. Natural gas and petroleum make up nearly 70% of
energy consumed in America. There is a reason why alternative energies makeup such a small percentage of our
energy production – these technologies are significantly inferior to the energy provided by affordable fossil fuels and
renewable energy is too costly for the American consumer.
Even with billions of dollars in incentives, alternative sources of energy like solar and wind 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 gas industry. Raising taxes on fossil fuels will not bring about job creation and economic
growth. If anything it will lead to increased energy costs, 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 an industry that will help our nation rise above our economic challenges

On Thursday, Michael Bromwich, chief regulator of the offshore oil industry, claimed the Interior Department expects new deepwater drilling permits to be issued sometime this summer. During discussions, he noted offshore permitting likely never would return to the pace set before the Deepwater Horizon disaster. After being asked when the pace of permitting would return to the pre-April 20 levels, Bromwich retorted, “The honest answer is, probably never.” Bromwich continued by expressing his thoughts on the return of deepwater drilling by adding, “It’s around the corner, just a longer block.”

Bromwich promised the Department of Interior is doing all it can to establish the new regulatory regime for deepwater drilling without shutting down the industry for longer than necessary. It is his intention to pursue reforms that are in line with the recommendations of the President’s National Oil Spill Commission, which released its conclusions Tuesday.

The industry feels the return of deepwater drilling is not just around the corner, as Bromwich would have us believe. Unfortunately, the only thing that is around the corner is a continued shutdown of a vital industry and, of course, higher energy prices for all Americans.

The National Oil Spill Commission’s final report lays out a number of comments and recommendations that lawmakers, industry and the public must seriously vet and review over the next few months. Industry’s response to the conclusions in the report have been ill-received and for just reasons. The unfair and unbalanced recommendations set forth in the report suggest the root causes of the BP oil spill were “systemic and, absent significant reform in both industry practices and government policies, might well recur.”

To be clear, industry does not take the position no reform is needed in light of the tragic oil spill; however, the report’s conclusions and demonization of an entire industry for the missteps and accident of a few companies are unfair and unwarranted.

History will show industry has gone above and beyond taking the proper measures for safety preparedness and practices in its operations in the outer continental shelf. First and foremost, companies operating in the Gulf of Mexico have kept safety in mind for the environment and for their employees for decades. Since 1947, more than 50,000 successful wells have been drilled in the Gulf of Mexico with no serious environmental or safety occurrence. Of those wells, nearly 14,000 have been drilled in the deepwater Gulf of Mexico without an incident of this magnitude. The success rate of the offshore industry is not attributable to luck or sound federal regulation. The more than 60-year successful track record of the offshore industry is due, in part, to a safety-first culture. With these facts in mind, it is discouraging the Oil Spill Commission has attempted to deflect blame for the well blowout towards an entire industry.

Industry practices in regards to safety always have been ahead of the curve to legislative measures. A panel of ill-experienced bureaucrats in Washington knows little about the complexities of offshore drilling. Companies that operate in the Gulf of Mexico do so in real-time. It’s imperative we put an end to the stall tactics and get deepwater drilling back online.

By Don Briggs

As crude oil prices hover around $90 a barrel and gasoline at an average of $3.00 per gallon according to AAA, it appears that many analysts are predicting even higher prices for 2011.

Due to growing global demand, analysts from companies such as Morgan Stanley, Goldman Sachs Group Inc., JPMorgan, and Merrill Lynch all see oil prices climbing to $100 in 2011.  As well, other analysts are predicting even higher prices.  Economist Dian L. Chu is predicting crude could hit $110 to $115 a barrel in March of 2011.  In a recent blog post Chu wrote, “At that level, gasoline at the pump could hit $3.70-$3.80 a gallon range.”

On a recent CBS talk show, Former Shell Oil president John Hofmesiter predicts that world oil supplies will tighten and gasoline prices will hit $5.00 in 2012.  In his opinion, these price increases are caused by competition and growth of the emerging economies of China and India.  “We’re right back to where we were in 2007 and 2008, in terms of U.S. demand.  What’s different this time, however, is that Asia’s demand is much, much higher than two years ago,” said Hofmesiter.

World crude oil production has leveled off in the past 3 years in the range of 85 million barrels per day, indicating peak oil has arrived.  In the 1970’s, the U.S. produced 10 million barrels per day.  Currently, the U.S. consumes 20 million barrels a day and produces a mere 7 million.  Instead of producing more oil to meet our demand, the unfortunate scenario is that we’re producing less.

Growing U.S. oil production would have a significant and beneficial impact on oil and gasoline prices in our country.  The big question is, “Why are prices increasing and are we doing enough here at home to thwart these inevitable increases?”  Unfortunately, instead of sustaining our demand through domestic production, policy makers keep 90% of our Outer Continental Shelf resources off limits.  Additionally, drilling in the Gulf of Mexico is shut down and the next five-year federal leasing plan has been postponed until 2017.

Rising prices in an economic recession can be a confusing scenario.  It’s important to understand how this could occur and how the coming price increases are indications of a larger global issue.

Many will suggest that speculators play a part in rising prices, as was the case when oil prices hit a record of $147.  Speculators will always have some degree of price impact in any commodity market.  However, we see a greater issue here at work: oil supply vs. oil demand.

The truth is that oil is finite and rising global demand is unsustainable at current production rates.  Simply put, world supplies of crude production can’t keep up pace with skyrocketing global demand.  While U.S. demand for oil remains flat, demand for oil continues to rise in developing economies such as India and China.  This rising demand, lack of supply, and continued production decline is the root of continued price increases and is driving the global market today.  Peak oil is real and prices will continue to rise as global production continues to decline.  For the sake of our country and our way of life, we must seek policies that increase our access to produce domestic energy and establish sound policies that address the coming energy crisis.

Don Briggs – Louisiana Oil & Gas Association -

Earlier this year in March, the Obama Administration announced plans to expand offshore drilling and allow oil and natural gas exploration off the coasts of New Jersey, Virginia, and the eastern portion of the Gulf of Mexico at least 125 miles off the coast of Florida.  Unfortunately, the Administration announced this week that they would rescind these future plans for offshore drilling expansion and move in a different direction.  In a public announcement, Secretary of the Interior Ken Salazar noted that the Eastern Gulf of Mexico that remains under a congressional moratorium and the mid- and south-Atlantic areas are no longer under consideration for potential development through the year 2017.

It’s no surprise that the Administration is looking towards the tragic BP oil spill as a justification to ban any new offshore drilling for the Eastern Gulf and the Atlantic and Pacific coasts for the next seven years.   Secretary Salazar clearly noted, “As a result of the Deepwater Horizon oil spill, we learned a number of lessons, most importantly that we need to proceed with caution and focus on creating a more stringent regulatory regime.”  Salazar continued by adding, “Our revised strategy lays out a careful, responsible path for meeting our nation’s energy needs while protecting our oceans and coastal communities.”

A great question for Secretary Salazar and the Administration is this, “Are we truly on a responsible path to meeting our nation’s energy needs when we limit access to over 99% of our nation’s offshore oil and gas reserves?”  Better yet, “If we shut off access to these vital resources, where are we going to get it?”  Supply and demand economics are fairly simple to understand.  If you limit access to create supply and the demand for oil continues to rise not only here at home but significantly in developing countries around the world, the obvious repercussion of this policy will result in higher energy prices for all Americans.

In reality, the Obama plan to expand offshore drilling was just that, a plan.  Technically, the Administration has nothing to rescind given that Congress gave no approval to open these areas for oil and gas exploration.  The announcement to shut off offshore access is nothing more than smoke and mirrors and political posturing.Although the expansion of new areas in offshore production are extremely important, at the moment, the most pressing issue the Administration should be working towards is alleviating the permitting gridlock caused by the recent deepwater drilling moratorium.  In his comments on the Administration’s decision, Secretary Salazar claimed, “We believe the most appropriate course of action is to focus development on areas with existing leases and not expand to new areas at this time.”  If it is the intention of the Administration to focus on areas already open for exploration, it is imperative that they ensure an adequate and streamlined permitting process and remove the de facto moratorium that is stifling growth in the Gulf of Mexico.

In the end, the continuation of a failed energy policy that shuts off access to our vast offshore reserves will pave the future road with higher energy prices, drastic unemployment, and will perpetuate our insatiable dependency on foreign sources of energy.