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Use Science, 'Not Supposition' for Rules: ConocoPhillips Chief

ConocoPhillips CEO Ryan Lance on Tuesday called on his colleagues to make the case for "smart" regulations and government collaboration to ensure the shale revolution is not suppressed by uninformed critics.

Making the most of the "new energy landscape" requires three things: responsible operations by industry, a favorable investment climate by government, and collaboration "on the part of everyone," Lance told the standing room-only audience during a keynote speech at IHS CERAWeek 2013 in Houston.

Because of unconventional drilling success, the industry is challenged by new drilling in areas that until recently were "unaccustomed to development," Lance said.

"Our critics have focused on the hydraulic fracturing completion process. And they've succeeded in creating fear and rallying support. The industry is responding through community engagement, public disclosure of data and adopting best operating and environmental practices. But we've not fully satisfied the skeptics.

"It doesn't take long for critical stories and videos to spread in today's 24/7 Twitter world. So we must always demonstrate environmental stewardship, safety and good community relations."

There's a real risk, he said, "that society won't see the shale revolution through to its full potential due to misinformation and fear." Twitter and other social media tools have helped the industry communicate its story, but it's a two-way street. "It can be a double-edged sword, but the opportunity there is the real alignment that it drives in terms of where you are trying to take the company and make sure everybody knows the direction you are going..."

To some extent, Lance said, "industry and government have shared goals: ensuring that society has access to affordable energy, in a sustainable and socially responsible manner. So there are opportunities for collaboration.

"For example, in the Eagle Ford field, our industry worked with government and farmers to address water use during a drought. Rather than requiring recycling, which is impractical there, we use saline water. In the Permian Basin, the industry committed nearly one million acres to help the U.S. Fish and Wildlife Service protect habitat for the Dunes Sagebrush Lizard. This helped avoid listing of the lizard as an endangered species, which could restrict access and increase costs.

"We also believe that government regulations should be smart and based on science and not supposition. New rules should be tested on their environmental effectiveness and their cost verses benefits. Here too, collaboration helps. Our company cooperated with the U.S. Environmental Protection Agency and Bureau of Land Management during their data gathering on fracturing. We offered suggestions on alternative technologies, and they listened."

Collaborating with communities also is "vital," he told the audience. In Australia, ConocoPhillips is building a liquefied natural gas project on an island near the Great Barrier Reef. "We planned to build a desalination plant to supply it with water. Instead, we worked with the community and built a pipeline to bring fresh water from shore. This eliminated 5 million barrels a year of brine discharge and reduced our land and carbon footprint."

A challenge exists in making over operational expertise in the new drilling landscape, said Lance.

"Unconventional development demands speed, because drilling windows to hold land leases are often short here in the U.S. So the fast deployment of fleets of rigs and completion equipment is essential. It's like repeatable manufacturing, with hundreds or thousands of near-identical wells drilled over many years. The focus is on continuous efficiency improvement and cost control...These are huge drilling programs that need more people to run them. So planning and execution is very different from a deepwater development with far fewer wells."

The way of doing business investment-wise is evolving, said Lance. "Shale development requires measured, ongoing investment but it gives you a quick payback. By comparison, traditional mega-projects need enormous upfront investment, with payback 10 or more years out. These are entirely different investment profiles. Companies may do one or the other, or both, depending on how they diversify their portfolios."

The ConocoPhillips chief chastised regulators for funding unproven energy technologies and attempting to burden the fossil fuel industry with more taxes.

"First, give credit where due to oil and natural gas," he told the audience. "We refer to gas as nature's gift, and shale liquids are a second gift. But producing them and getting them to market takes ingenuity, technology and investment. So recognize our industry for what we contribute: 9.6 million jobs supported here in the U.S., and economic stimulation at a time when it's badly needed."

Second, "tax us fairly. Development lives or dies on fiscal terms. Energy companies make easy targets, although we already pay higher tax rates than other industries. Government should keep the long term in mind. Set competitive tax rates that allow ongoing investment, job creation and prosperity." The U.S. government also "should open more areas for development, and facilitate permitting of infrastructure."

In addition, "we recommend that government provide a level playing field. Don't pick preferred energy sources or solutions. After all, the Obama administration itself says the U.S. needs an 'all of the above' energy policy. It should live up to those words. Let the market choose the best ways to supply affordable energy and meet environmental standards."

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