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Access to Offshore Vital for Long Term, Say Producers

Natural gas and oil prices may be low, but the energy industry continues to push for more access to drill in the U.S. offshore. It's all about the future, Devon Energy Corp. CEO Larry Nichols told an audience at the Offshore Technology Conference (OTC) in Houston.

"Whether prices are high or low, these are long-term investments," Nichols said. He shared a panel with other energy executives to talk about why access to the U.S. offshore needs to be increased.

The energy industry, and especially those producers that work offshore, has been in a bit of tizzy for the past few months. The five-year Outer Continental Shelf (OCS) plan for 2010-2015 was placed on hold in February by the Department of Interior pending a review (see Daily GPI, Feb. 11). A federal appeals court in April vacated and remanded back to the Department of Interior the OCS five-year leasing plan for 2007-2012 (see Daily GPI, April 20). And the Obama administration also is proposing to roll back $26 billion in producer tax credits in its fiscal year 2010 budget (see related story).

U.S. producers appear ready to fight back.

Why does the Obama administration need more time to review the OCS plans, Nichols queried. "We need to open up the offshore," he said. "After 27 years of waiting, I don't think we're rushing it," Nichols said of the OCS leasing process.

Executives said they were not opposed to increasing renewable resources, such as wind power, in the offshore. However, it has to be about more than renewables, and the industry needs to make that case, said Gary Luquette, president of Chevron North American Exploration and Production Co. He also derided the Obama administration's call to rescind some of the energy industry's tax credits.

"There are people in positions of power that want the U.S. to move off oil as quickly as possible, and they want us to pay for it through increased taxes and fees," Luquette said. Obama's "aggressive agenda" could reduce the industry's ability to produce more domestic gas and oil. "This administration, and for that matter, a large sector of the population, think we must abandon traditional oil and gas development for the sake of the environment. This is simply not true."

The Chevron executive defended the Deepwater Royalty Relief Act (DWRRA), which has been called a subsidy for offshore producers.

"Not only was DWRRA a success, it was a home run that revitalized production from the Gulf of Mexico [GOM]," said Luquette. "It was passed at a time of historically low crude oil prices as a means to increase domestic production and sustain jobs in a struggling industry." The DWRRA provided near-term royalty relief for long-term production and led to more than 3,000 leases being issued in 1996-2000 in water depths exceeding 200 meters. GOM production, he noted, increased by 50% in less than 10 years.

Gas and oil resources will continue to play a "very important role" to meet U.S. energy needs, Luquette said. However, the energy industry has to help educate those who advocate an "off oil agenda. In my 30 years in this industry there has never been a greater call for engagement," Luquette said. "There is absolutely no reason for us to continue to fight off our back foot...As an industry we have done a very poor job engaging key stakeholders. We are our worst enemy. We need to think about a new engagement model."

ExxonMobil Exploration Co. President Tim Cejka agreed. "Oil and gas resources are finite...Alternative energy sources, such as wind, nuclear power, and biofuels, play an important and growing role in meeting global energy needs." However, even if gas and oil resources are depleted one day, today, "they are far from finished."

The industry has repeatedly proven that it has the technical wherewithal to minimize adverse risks to the environment, panelists said.

"To consumers of our products, the importance of innovation to the oil industry is often not readily apparent," said Cejka. "Gasoline may not appear as technically sophisticated as many consumer electronic goods, for example...but technology is the lifeblood of our industry. Technology infuses the entire supply chain, from the producing reservoirs to the service station. If you just walk around the exhibit floor here at OTC, you can see the incredible depth and breadth of the technology found in the oil and gas industry."

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