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Salazar Gets Earful from Pro- and Anti-OCS Drilling Sectors

On the second leg of a four-city tour to hear from stakeholders as an Outer Continental Shelf (OCS) energy policy is crafted, Interior Secretary Ken Salazar last Wednesday faced a crowd in New Orleans that was decidedly more friendly to oil and natural gas than the East Coast audience that he met earlier last week. Gulf Coast congressional members and industry representatives said the Obama administration's plans to move toward renewables was a solid idea, but conventional gas and oil production remained paramount to domestic energy security. They also blasted the administration's proposed to raise producer taxes.

The tenor of the crowd at the first gathering in Atlantic City, NJ, last Monday was completely different. The majority of environmentalists, East Coast state representatives and the public told Salazar that they supported renewable energy development -- particularly wind development -- off their coastline, but opposed opening it up to oil and gas drilling.

Several people last Wednesday voiced concerns about expanding OCS energy development along the Gulf Coast, particularly proposals to open portions of the eastern Gulf of Mexico (GOM) to drilling. However, those comments were tempered by a healthy contingent from the pro-drilling sector, especially industry representatives and congressional members representing the Gulf Coast states -- Texas, Louisiana, Alabama and Mississippi. Salazar remained neutral through most of the morning testimony, taking notes and asking questions. And he attempted to make clear that the Department of Interior's goal is not to expand alternative energy resources at the expense of the vast supply of domestic fossil fuels available, especially natural gas and coal.

"As the oil and gas industry has moved forward, technology continues to advance," Salazar said. "Directional drilling is more safe than it was 30 years ago. Efficiency, advanced technology...those agendas are important to us." The financial commitments made by producers to develop conventional resources are notable, he said. "We depend on conventional fuels, and we need strong economics and a strong energy policy. Here, oil and gas are part of America. We cannot shut down that part of the energy world...this is part of the critical agenda facing all of us."

Going forward, he said, conventional fuels and alternative development of the OCS will be a "significant component" of the nation's future energy plan.

"Some have said we are at war with the oil and gas industry...I would beg to differ," Salazar said. "Yes, we want a balanced approach to how we develop oil and gas. In some places we don't feel it is appropriate to drill...On the other hand, we are moving forward with our production agenda. Since Jan. 21 [the day after Obama took office], we have offered 987 lease parcels on 1.3 million acres for sale...and on the Gulf Coast, I participated [in March] help lease 34 million acres in [Central GOM] Lease Sale 208" (see NGI, March 23).

Salazar in February scheduled four public hearings across the country to discuss OCS energy development after placing a hold on a new five-year OCS plan (2010-2015) that was issued in the final days of the Bush administration (see NGI, Feb. 9). The final two hearings will be held Wednesday (April 15) in Anchorage, AK, and the day after in San Francisco. In addition to the public hearings, MMS will accept comments about offshore energy development in the OCS until Sept. 23.

Louisiana's Democratic Sen. Mary Landrieu told Salazar that she shared the administration's "vision for energy security for our country. I would like to achieve energy independence, and I think we can achieve energy security..." However, the domestic energy industry has to be supported as alternative energies are pursued. "The industry has changed, and it has rapidly become more environmentally sensitive."

Landrieu said she toured the "front line" of several independent producers in Louisiana in the past few days and found many of them operating "more like the space industry than the old-fashioned rigs and derricks people are familiar with...The breadth and depth of this technology to find resources 10,000 feet below the water level and to find it safely and securely is truly breathtaking...

"So I come here today to plead and urge you to look very hard at promised tax changes that would diminish the muscle and the power of this industry." Now is not the time to take away drilling and development tax incentives, she said. President Obama has proposed increasing oil and gas producers' taxes by $33 billion as part of his fiscal year 2010 budget blueprint (see NGI, March 2). The proposed tax hike would mostly affect independent producers.

"There are large differences between large, integrated oil and gas producers and our...thousands of independent production companies," Landrieu told Salazar. "The large production companies that we are familiar with, they raise capital through public offerings spreading the risk among many...The independents...have direct investment by the owners, who use their personal money to take risks, and the result is that the personal risks are far larger...The small independents employ a large amount of people and they reinvest 100% of their money right here in America, As we search for security independence, we need to support the industry..."

Louisiana Rep. Charles Boustany said it "disturbed" him that more taxes might be imposed on the energy industry "at a time when the industry's needs are important...The bottom line is, this is about jobs. We have tens of thousands of jobs involved in the energy industry along the Gulf Coast. We're not talking about just killing exploration and production jobs, but we're also talking about welders, pipe fitters, collar jobs and white collar jobs in the face of the worst recession that we have ever had."

Michael Willis, COO of privately held Century Exploration, which is based in Louisiana, said more taxes could doom many of the small producers.

"We rely on cash flow in order to drill wells," Willis said. "We don't have access to public funds. If we have these increased tax burdens put on us, we won't have enough capital to replace our reserves and keep our business viable. We have bank debt and we have to meet our obligations to bankers, and to the extent that we can't replace our reserves, the banks can come to us and tell us to give the money back...When oil is at $140, you can't go wrong...When gas is at $9-10, we can't go wrong. But when gas falls to $3-4 in just a short space of time, it's of particular concern to us." Century Exploration has 50 employees, but it creates "1,000 jobs when we have three to four rigs running and producing gas and oil."

Some speakers were wary of producers having less access to the OCS. Although Louisiana accounts for only 13% of the total net exports of the energy-producing states, "almost 77% of the natural gas consumed in Louisiana is for industrial consumption," said Virginia Sawyer, vice president of the Louisiana Association of Business & Industry. Louisiana's 154,000 manufacturing jobs depend on oil and gas access in the OCS, she said.

The potential for generating electricity from alternative energy sources "does not mean that federal policy should focus solely on electricity generation at the expense of carbon-based energy,” Sawyer said. "While tens of thousands of jobs may be created by the development of alternative electricity sources, hundreds of thousands of jobs in Louisiana and along the Gulf Coast will be negatively affected if OCS oil and gas production is not aggressively continued. Orderly development of energy should be as fuel-neutral as possible."

At the Atlantic City gathering, both New Jersey Gov. Jon Corzine and Sen. Robert Menendez (D-NJ) were on hand to express their strong opposition to oil and gas drilling off the Atlantic Coast. One of the few advocates of expanded oil and gas development on the OCS was former Congressman John Peterson (R-PA).

"I think you [Salazar] and the administration should use your wisdom and [the] brains God's given you [to determine where to drill in the OCS]. We should do seismic. We should know what we have. We should go after what's easiest to get to. We know that the Pacific [resources] would be quicker [to develop than Atlantic resources] because we have infrastructure there," he said.

But Peterson urged Salazar not to write off the East Coast. "There's some tremendous [natural gas] reserves...from New York south that we could produce," he noted. "Natural gas is the bridge to renewables."

He criticized Salazar for his actions against oil and gas in recent months. "I have been disappointed. I think you're a good person, but you did remove the Roan Plateau [from leasing]. You did lock up the [development of] shale oil in the West. You did pull back Utah leases that were already leased...Please don't lock up the OCS. We need energy for America," Peterson said (see NGI, Feb. 9; July 21, 2008).

"I'm for all the wind [development] we're talking about today. I'm for all the solar...But we have to remember wind and solar are intermittent," he said. "I hope we can grow those in time, but we also have to remember that if we double wind and solar in the next year, [they] will still be less than one-half percent of the energy in this country."

Salazar indicated that while wind energy has great potential off the East Coast, the department has not taken offshore oil and gas development off the table. "President Obama has made it loud and clear...that we move forward to develop a comprehensive energy plan and the OCS will be part of that," he told the gathering in Atlantic City. A "comprehensive energy and climate change plan is necessary for our country."

With respect to renewable energy development, he said Interior hopes to issue a final rule within the "next month or two."

Representatives of Virginia state Sen. Frank Wagner, a proponent of offshore drilling, and Virginia Gov. Tim Kaine offered widely divergent views on proposed drilling off the state's coastline. Wagner's spokesman urged Salazar to keep the state's proposed offshore lease sale for 2011 on track, while the governor's representative called for a postponement (see NGI, March 2). The Virginia lease sale, which is included in the current five-year leasing plan (2007-2012), is the first lease sale proposed off the East Coast in nearly three decades (see NGI, Nov. 17, 2008).

A representative of Oceana, an advocacy group for healthy oceans, called on the Obama administration to reinstate the moratorium on offshore drilling. She added that Oceana objected to the federal government doing this in a "piecemeal" manner. Oceana also opposed seismic and exploration activities, saying "it would be a waste of money."

Alison Chase of the Natural Resources Defense Council warned that seismic surveys could cause additional environmental harm to the ocean. She said she supported the development of renewable energy projects in the ocean, but noted that it was important for the agency to "think through carefully" where to site projects.

In related action on Capitol Hill, Rep. Lois Capps (D-CA) introduced legislation to reinstitute the ban on oil and natural gas leasing in the federal Outer Continental Shelf (OCS) off the coast of California.

The bill (HR 1906), the "California Ocean and Coastal Protection Act," was co-sponsored by 28 lawmakers, all from California, and has been forwarded to the House Natural Resources Committee for consideration.

The Capps legislation came on the heels of another bill offered by six House Democrats to reinstitute the moratorium on oil and gas leasing in federal waters off the Mid-Atlantic and North Atlantic coastlines (see NGI, April 6).

That measure also was referred to the House Natural Resources Committee. But it's unclear whether either bill will see any major action, given that House leadership has signaled that it will not pursue the reimposition of the congressional moratorium, which was lifted last October (see NGI, Oct. 6, 2008).

The reprieve from the nearly 30-year-old drilling ban permits oil and gas leasing as close as three miles to the Atlantic and Pacific coasts and in the eastern Gulf of Mexico -- except off the western coast of Florida. A 125-mile buffer off the Florida coast will remain in place until 2022.

The legislation seeking to reimpose the ban in the Mid-Atlantic and North Atlantic offshore regions is sponsored by Rep. Frank Pallone Jr. of New Jersey and co-sponsored by Reps. Kathy Castor of Florida, William D. Delahunt of Massachusetts, James Moran of Virginia, Steven Rothman of New Jersey and Albio Sires of New Jersey.

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