[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

ONE YEAR AFTER PRESIDENT OBAMA'S GULF OF MEXICO 6-MONTH MORATORIUM
OFFICIALLY LIFTED: EXAMINING THE LINGERING IMPACTS ON JOBS, ENERGY
PRODUCTION AND LOCAL ECONOMIES

=======================================================================

OVERSIGHT HEARING

before the

COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

Wednesday, October 12, 2011

__________

Serial No. 112-69

__________

Printed for the use of the Committee on Natural Resources

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COMMITTEE ON NATURAL RESOURCES

DOC HASTINGS, WA, Chairman
EDWARD J. MARKEY, MA, Ranking Democrat Member

Don Young, AK Dale E. Kildee, MI
John J. Duncan, Jr., TN Peter A. DeFazio, OR
Louie Gohmert, TX Eni F.H. Faleomavaega, AS
Rob Bishop, UT Frank Pallone, Jr., NJ
Doug Lamborn, CO Grace F. Napolitano, CA
Robert J. Wittman, VA Rush D. Holt, NJ
Paul C. Broun, GA Raul M. Grijalva, AZ
John Fleming, LA Madeleine Z. Bordallo, GU
Mike Coffman, CO Jim Costa, CA
Tom McClintock, CA Dan Boren, OK
Glenn Thompson, PA Gregorio Kilili Camacho Sablan,
Jeff Denham, CA CNMI
Dan Benishek, MI Martin Heinrich, NM
David Rivera, FL Ben Ray Lujan, NM
Jeff Duncan, SC John P. Sarbanes, MD
Scott R. Tipton, CO Betty Sutton, OH
Paul A. Gosar, AZ Niki Tsongas, MA
Raul R. Labrador, ID Pedro R. Pierluisi, PR
Kristi L. Noem, SD John Garamendi, CA
Steve Southerland II, FL Colleen W. Hanabusa, HI
Bill Flores, TX Vacancy
Andy Harris, MD
Jeffrey M. Landry, LA
Charles J. ``Chuck'' Fleischmann,
TN
Jon Runyan, NJ
Bill Johnson, OH

Todd Young, Chief of Staff
Lisa Pittman, Chief Counsel
Jeffrey Duncan, Democrat Staff Director
David Watkins, Democrat Chief Counsel

------

CONTENTS

----------
Page

Hearing held on Wednesday, October 12, 2011...................... 1

Statement of Members:
Hastings, Hon. Doc, a Representative in Congress from the
State of Washington........................................ 1
Prepared statement of.................................... 3
Markey, Hon. Edward J., a Representative in Congress from the
State of Massachusetts..................................... 4
Prepared statement of.................................... 5

Statement of Witnesses:
Auer, Chris, Principal, Crevalle Management Services......... 15
Prepared statement of.................................... 16
Craul, Bruce W., Chief Operating Officer, Legendary
Hospitality, and Chairman-Elect, Florida Restaurant and
Lodging Association........................................ 26
Prepared statement of.................................... 27
Galvez, Fernando, Ph.D., Assistant Professor, Department of
Biological Sciences, Louisiana State University............ 29
Prepared statement of.................................... 31
Kief, Cory, President, Offshore Towing, Inc., Larose,
Louisiana.................................................. 18
Prepared statement of.................................... 19
Reese, Albert L., Jr., Chief Financial Officer and Treasurer,
ATP Oil & Gas Corporation.................................. 10
Prepared statement of.................................... 12
Shafer, Sean, Manager of Consulting/Senior Market Analyst,
Quest Offshore Resources, Inc.............................. 6
Prepared statement of.................................... 8
Zales, Captain Robert F., II, President, National Association
of Charterboat Operators................................... 20
Prepared statement of.................................... 23

Additional materials supplied:
Mason, Joseph R., Louisiana State University, Statement
submitted for the record................................... 62

OVERSIGHT HEARING ENTITLED ``ONE YEAR AFTER PRESIDENT OBAMA'S GULF OF
MEXICO 6-MONTH MORATORIUM OFFICIALLY LIFTED: EXAMINING THE LINGERING
IMPACTS ON JOBS, ENERGY PRODUCTION AND LOCAL ECONOMIES.''

----------

Wednesday, October 12, 2011

U.S. House of Representatives

Committee on Natural Resources

Washington, D.C.

----------

The Committee met, pursuant to call, at 10:07 a.m., in Room
1324, Longworth House Office Building, Hon. Doc Hastings
[Chairman of the Committee] presiding.
Present: Representatives Hastings, Gohmert, Lamborn,
Fleming, McClintock, Thompson, Duncan of South Carolina,
Labrador, Southerland, Landry, Markey, and Holt.
Also present: Representative Palazzo.
The Chairman. The Committee will come to order. And the
Chair notes the presence of a quorum, which under our rules,
two Members, and we have greatly exceeded that this morning.
Thank you very much.
The Committee on Natural Resources is meeting today to hear
testimony on an oversight hearing on ``One Year after President
Obama's Gulf of Mexico 6-Month Moratorium Officially Lifted:
Examining the Lingering Impacts on Jobs, Energy Production, and
Local Economies.''
Under Rule 4[f], the opening statements are limited to the
Chairman and the Ranking Member. However, I will ask unanimous
consent to include any Members' opening statements on the
hearing if those statements are submitted to the Committee
before the close of business today. And without objection, so
ordered.
I further ask unanimous consent that the gentleman from
Mississippi, Mr. Palazzo, be allowed to sit on the dais and
participate in the hearing today. He expressed an interest to
do so, and hopefully he is on his way. And without objection,
so ordered.
I will now recognize myself for five minutes.

STATEMENT OF HON. DOC HASTINGS, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF WASHINGTON

Mr. Hastings. On May 2010, shortly after the tragic
Deepwater Horizon explosion and oil spill, the Obama
Administration placed a moratorium on all deepwater drilling in
the Gulf of Mexico. This official moratorium lasted for nearly
six months, and was lifted on October 12th, 2010, exactly one
year ago today.
The official moratorium, unfortunately, was followed by a
de facto moratorium that still did not allow businesses and
their employees to return to work until the first permits were
issued in February of this year. The Obama Administration's
inability or refusal to issue permits in a timely and efficient
manner after the official moratorium was lifted resulted in
lost jobs and significant economic pain.
Since the moratorium was imposed, this Committee has heard
directly from businesses and local community groups about the
economic impacts. Today, one year later, this hearing is an
opportunity to follow up again and listen to those from the
Gulf about what economic conditions are like there today. While
I recognize that some permits indeed are being issued, there
are facts and data that demonstrate recovery is moving at a
pace that continues to hamper job creation and the economy.
First, permitting activity in the Gulf has dramatically
declined under the Obama Administration, as shown by this
chart, and has operated at lows that equate to hurricane-
induced shutdowns. You can see the bottom spike there is
Katrina. The next spike is Gustav. And you can see where we are
now in real time, and it equals those areas.
Additionally, permitting activity has not returned to pre-
Deepwater Horizon levels. The average number of permits issued
in the six months prior to the Deepwater Horizon incident was
71 per month. The average number for the last six months was 52
per month. That is a 20 percent decrease.
Second, instead of looking at the number of permits issued,
we should look at the production levels. This chart shows how
production has declined. The top line is what production in the
Gulf was projected to be before the spill and the President's
moratorium. The bottom line represents the actual production.
As you can see, there is a difference between the two.
Third, the time it takes to get approval for permits and
exploration plans is much longer today. Director Michael
Bromwich has frequently stated that there is not a backup of
offshore drilling permits waiting for approval and that this
proves that there is no de facto moratorium. And this chart
actually helps highlight what Director Bromwich is referring
to. It shows the number of days it took for specific
explorations. And by the way, the bottom line there is the
specific explorations to be accepted and approved in order to
receive the permit to drill.
By the way, the horizontal line is the number of days. So
as you can see from these charts, these plans are being
approved in a relatively short-term time frame, and credit
should be given where it is due. But that is only part of the
story.
This next chart shows exactly how long it took companies to
get their plans approved, sometimes nearly 300 days. What this
chart does is take the last chart and insert below that the
process to declare it deemed submitted. So companies are
submitting plans and getting stuck in a back and forth limbo
through the Department of the Interior that can drag on for
months.
This is the step in the whole process that this
Administration does not talk about. Now, keep in mind,
companies can't apply for permits until its exploration plan
has been submitted and approved. That is why it is disingenuous
to only refer to pending permits and approved permits as the
Department of the Interior likes to do, because the logjams
occur before the companies even get to that point. So it is a
sleight of hand that actually makes the process look more
efficient, when in fact it isn't.
And finally, fourth, 11 deepwater rigs have left the Gulf
of Mexico for foreign countries, such as Egypt and Brazil.
Every time one of these rigs leaves, it takes away good
American jobs. And in addition to that, 84 offshore support
vessels have also left and departed the Gulf. The livelihood of
communities and businesses throughout the Gulf depend on safe
and responsible offshore energy production.
It has been a year and a half since the Deepwater Horizon
incident, and a year since the President's moratorium was
officially lifted. It is time to get people back to work and
get the economy rolling again in the Gulf. And with that, I
will yield to the Ranking Member for his opening remarks. The
gentleman is recognized for five minutes.
[The prepared statement of Mr. Hastings follows:]

Statement of The Honorable Doc Hastings, Chairman,
Committee on Natural Resources

In May 2010, shortly after the tragic Deepwater Horizon explosion
and oil spill, the Obama Administration placed a moratorium on all
deepwater drilling in the Gulf of Mexico. This official moratorium
lasted for nearly six months and was lifted on October 12, 2010--
exactly one year ago today.
This official moratorium, unfortunately, was followed by a de facto
moratorium that still did not allow businesses and their employees to
return to work until the first permits were issued in February of this
year. The Obama Administration's inability, or refusal, to issue
permits in a timely and efficient manner after the official moratorium
was lifted resulted in lost jobs and significant economic pain.
Since the moratorium was imposed, this Committee has heard directly
from businesses and local community groups about the economic impacts.
Today, one year later, this hearing is an opportunity to follow-up and
listen to those from the Gulf about what economic conditions are like
there today.
While I recognize that some permits indeed are being issued, there
are facts and data that demonstrate recovery is moving at a pace that
continues to hamper job creation and the economy.
First, permitting activity in the Gulf has dramatically declined
under the Obama Administration and has operated at lows that equate to
hurricane-induced slowdowns.
Additionally, permitting activity has not returned to pre-Deepwater
Horizon levels. The average number of permits issued in the six-months
prior to the Deepwater Horizon incident was 71 per month. The average
number for the past six months is 52 per month. That's a 27% decrease,
which directly affects jobs and the local economy.
Second, instead of looking at the number of permits issued, we
should also look at production levels. This chart shows how production
has declined. The top line is what production in the Gulf was projected
to be before the spill and the President's moratorium. The bottom line
represents actual production.
Third, the time it takes to get approval for permits and
exploration plans is much longer today. Director Michael Bromwich has
frequently stated that there is not a backup of offshore drilling
permits waiting for approval. . .and that this proves there is no de
facto moratorium. This chart actually helps highlight what Director
Bromwich is referring to. It shows the number of days it took specific
explorations plans to be accepted and approved in order to receive a
permit to drill. As you can see from this chart, these plans are being
approved in a relatively short time-frame. But that is only part of the
story.
This next chart shows how long it actually took companies to get
their plans approved-sometimes nearly 300 days. The biggest delay in
the process, as shown here, is getting the Interior Department to
accept the exploration plan and declare it `deemed submitted.'
Companies are submitting plans and getting stuck in a back and forth
limbo with the Interior Department that can drag on for months. This is
the step the Obama Administration doesn't talk about.
Keep in mind, companies can't apply for permits until its
exploration plan has been submitted and approved. That's why it's
disingenuous to only refer to pending permits and approved permits--as
the Interior Department likes to do--because the log jams occurs before
companies even get to that point. It's a slight of hand to make the
process look much more efficient.
Fourth, 11 deepwater rigs have left the Gulf of Mexico for foreign
countries such as Egypt and Brazil. Every time one of these rigs
leaves, it takes away good-paying American jobs. In addition, 84
offshore support vessels have also departed the Gulf.
The livelihood of communities and businesses throughout the Gulf
depend on safe and responsible offshore energy production. It's been a
year and a half since the Deepwater Horizon incident, and a year since
the President's moratorium was officially lifted. It's time to get
people back to work and get the Gulf's economy growing again.
______

STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS

Mr. Markey. Thank you, Mr. Chairman, very much. Most
Americans likely remember the date April 20th, 2010, as the day
the Deepwater Horizon exploded and the BP oil spill began. But
October 12th, 2010, would likely only trigger blank stares. And
that is the essential problem with this hearing. The Republican
majority is holding a hearing on the one year anniversary of
the end of a temporary pause for a couple dozen of the riskiest
deepwater drilling rigs in the Gulf of Mexico.
Those few months were important to ensure that rigs were
safe and that workers and our environment were protected. But
today, we are having a hearing on that temporary pause as
though it and not the BP spill itself were the cause of all of
the problems. Holding a hearing on the impact of a safety check
following an unimaginable oil spill is a little like holding a
hearing on the impact of wearing a cast after shattering your
leg without looking at the accident that required the cast.
But the Republican majority and the oil industry aren't
holding hearings to examine the lingering effects from the
actual oil spill. They are not talking about how the oil spill
could cost the Gulf region $22 billion over three years and
lost tourism, according to one study. They are not holding a
hearing to demand answers about why there have been recurrent
oil sheens showing up near the site of the Macondo well site a
year after the accident, or reports of mutations in some fish
species in the region. And they are not talking about what we
do to ensure we never have a spill like this occur again.
So today, let us talk about some of the real lasting
impacts from the spill itself. Just a few weeks into the BP
spill, I successfully called on BP to create a $500 million
scientific research fund. One of the first studies from this
fund was released just a few weeks ago. That study, conducted
by a team of researchers from Louisiana State, Texas State, and
Clemson Universities, shows that fish living in the marshes
affected by the spill have undergone changes at the cellular
level that could lead to developmental and reproductive
problems in these fish.
The researchers focused on the killifish, which is the most
abundant fish in the marshes of the Gulf, and an indicator of
the health of that ecosystem. The researchers found that there
have been potentially dangerous changes in this one species
that may indicate the presence of a much larger problem. In
fact, the researchers concluded that these may be some of the
same significant early warning signs that we saw in the years
following the Exxon Valdez oil spill in Alaska, before species
like the Pacific herring and pink salmon suffered population
declines.
We may be seeing the first indications that there are
lasting effects of the oil spill below the surface of the
water. There may in fact be a host of ticking environmental
time bombs in the Gulf whose impact we are only beginning to
understand. But the most important species impacted by the
spill has been the resilient people of the Gulf of Mexico. They
were the ones who lost jobs because of the spill. They lost
tourism dollars and fishing dollars, and endured the priceless
impacts on the environment of the Gulf. And families lost
husbands and sons and brothers on the Deepwater Horizon.
This Congress should finally end its moratorium on common
sense and pass legislation to prevent similar spills in the
future. We should ensure that there is proper monitoring of the
Gulf ecosystem so that we are ready to adapt to possible
impacts of the spill on fish and other species. Each time this
Committee holds another hearing that avoids these
responsibilities, it does a disservice to the people of the
Gulf. I yield back.
[The prepared statement of Mr. Markey follows:]

Statement of The Honorable Edward J. Markey, Ranking Member,
Committee on Natural Resources

Most Americans likely remember the date April 20, 2010 as the day
the Deepwater Horizon exploded and the BP oil spill began.
But October 12, 2010 would likely only trigger blank stares.
And that is the essential problem with this hearing. The Republican
Majority is holding a hearing on the one year anniversary of the end of
a temporary pause for a couple dozen of the riskiest deepwater drilling
rigs in the Gulf of Mexico.
Those few months were important to ensure that rigs were safe and
that workers and our environment were protected. But today we are
having a hearing on that temporary pause as though it, and not the BP
spill itself, were the cause of all problems.
Holding a hearing on the impact of a safety check following an
unimaginable oil spill is a little like holding a hearing on the impact
of wearing a cast after shattering your leg, without looking at the
accident that required the cast.
But the Republican Majority and the oil industry aren't holding
hearings to examine the lingering effects from the actual oil spill.
They're not talking about how the oil spill could cost the Gulf
region $22.7 billion over three years in lost tourism, according to one
study.
They're not holding a hearing to demand answers about why there
have been recurrent oil sheens showing up near the site of the Macondo
well site a year after the accident, or reports of mutations in some
fish species in the region.
And they're not talking about what we do to ensure we never have a
spill like this again.
So today, let's talk about some of the real lasting impacts from
the spill itself.
Just a few weeks into the BP spill, I successfully called on BP to
create a $500 million scientific research fund. One of the first
studies from this fund was released just a few weeks ago.
That study, conducted by a team of researchers from Louisiana
State, Texas State and Clemson Universities, shows that fish living in
the marshes affected by the spill have undergone changes at the
cellular level that could lead to developmental and reproductive
problems in these fish. The researchers focused on the killifish [KILL-
EE-FISH], which is the most abundant fish in the marshes of the Gulf
and an indicator of the health of that ecosystem.
The researchers found that there have been potentially dangerous
changes in this one species that may indicate the presence of a much
larger problem. In fact, the researchers concluded that these may be
some of the same significant early warning signs that we saw in the
years following the Exxon Valdez oil spill in Alaska before species
like the pacific herring and pink salmon suffered population declines.
We may be seeing the first indications that there are lasting effects
of the oil spill below the surface of the water. There may in fact be a
host of ticking environmental time bombs in the Gulf whose impacts we
are only beginning to understand.
But the most important species impacted by the spill has been the
resilient people of the Gulf of Mexico. They were the ones who lost
jobs because of the spill. They lost tourism dollars and fishing
dollars and endured the priceless impacts on the environment of the
Gulf.
And families lost husbands, sons and brothers on the Deepwater
Horizon.
This Congress should finally end its moratorium on common sense and
pass legislation to prevent similar spills in the future. We should
ensure that there is proper monitoring of the Gulf ecosystem so that we
are ready to adapt to possible impacts of the spill on fish and other
species. Each time this Committee holds another hearing that avoids
these responsibilities, it does a disservice to the people of the Gulf.
I yield back.
______

Mr. Hastings. I thank the gentleman for his opening
statement, and want to welcome our panel here today. We have
Mr. Sean Shafer, Manager of Consulting and Senior Marketing
Analyst of Quest Offshore Resources; Mr. Al Reese, Jr., Chief
Financial Officer of ATP Oil & Gas Corporation; Mr. Chris Auer,
Principal of Crevalle Management Services--did I say that
correctly?
Mr. Auer. You did.
Mr. Hastings. Mr. Cory Kief, President of Offshore Towing;
Captain Bob Zales, President of the National Association of
Charterboat Operators; Mr. Bruce Craul, Chief Operating
Officer, Legendary, Inc.; and Dr. Fernando Galvez, Assistant
Professor, Department of Biological Sciences, Louisiana State
University.
For those of you that aren't familiar with our timing
lights, your full statement will appear in the record, and many
times your full statement is longer than what you can speak
orally for five minutes, and we recognize that. That is why
your full statement is in the record. But we would like you to
confine your oral statements to five minutes, and the light in
front of you, when the green light is on, it means you are
doing fine. When the yellow light comes on, it means you are
down to one minute. And then when the red light comes on, it
means that your five minutes have expired. I would ask you to
try to confine your remarks within that time frame so that we
can get onto hearing from all of you, and then have followup
questions from the Committee.
So with that, Mr. Shafer, we will start with you, and you
are recognized for five minutes.

STATEMENT OF SEAN SHAFER, MANAGER OF CONSULTING/SENIOR MARKET
ANALYST, QUEST OFFSHORE RESOURCES

Mr. Shafer. Thank you, Mr. Chairman, and I appreciate the
opportunity. Despite the official end of the drilling
moratorium in October 2010, the offshore Gulf of Mexico oil and
natural gas industry is still feeling the lingering effects of
the official moratorium. These effects, combined with the
impact of the subsequent regulatory slowdown are being felt
throughout the Gulf Coast region----
Mr. Hastings. Mr. Shafer, could you move that microphone
closer to you so we can hear?
Mr. Shafer. Of course. Sorry about that.
Mr. Hastings. Thank you very much.
Mr. Shafer. Excuse me. While the offshore Gulf of Mexico
oil and industry has seen some signs of recovery from the low
state it was in during the drilling moratorium, activity levels
are still well below the levels seen before the Macondo
incident, and well below the levels of the Quest baseline
forecast before the incident.
From a permitting rig and drilling activity perspective,
the industry is at best flat compared to where it was before
the drilling moratorium, with the growth that had been
previously expected both delayed and diminished. The only
industry sector seeing healthy growth is in the development of
projects not dependent on further near-term drilling. While
this is positive, the majority of these projects were already
well in the works before the incident, and are thus seeing
these major equipment orders despite the moratorium.
As of the end of September 2011, 21 floating rigs, which
are defined as those with subsea blowout preventers, are
operating in the Gulf of Mexico, of which only 18 are currently
drilling wells. Pre-moratorium, 33 floating rigs were operating
in the Gulf of Mexico, with 29 drilling wells at that time.
This indicates a roughly 37 percent drop in both the number of
rigs operating and drilling. Since the moratorium began, 11
rigs have left the Gulf of Mexico. Only one of these has
returned with three rigs currently sitting idle.
Seven of these rigs have left for African countries,
including Egypt, Nigeria, Liberia, and the Republic of Congo.
Three of these rigs have left to South America, including
Brazil and French Guinea, and the remaining rig recently
mobilized to Vietnam.
As of today, none of these operators have announced plans
to return these rigs to the Gulf of Mexico this year. Two rigs
are planned for return in early 2012, but neither operator has
a permit to drill with these rigs yet, casting doubt on the
likelihood of this happening. This translates to approximately
60 wells lost based on the original contract terms of these
rigs. The loss of these rigs amounts to lost spending of $6.3
billion annual loss of direct employment of 11,500 jobs over
two years.
While the number of rigs operating the Gulf of Mexico is
expected to recover to pre-moratorium levels by the middle of
2012, this fails to take into account the number of rigs which
were expected to be operating in the region in 2012 based on
previously stated operator schedules. While rig counts are
forecast to return to pre-moratorium levels of 35 floating rigs
by mid-2012, prior to the incident and subsequent regulatory
slowdown, operating numbers were expected to have reached 44
rigs by this point.
In addition, drilling activity is not expected to return to
pre-moratorium levels before 2014 due to currently low
permitting rates and operators not relocated rigs back to the
Gulf of Mexico. While the Gulf of Mexico is currently seeing an
uptick in certain types of development activity due to projects
that were delayed by the credit crunch and economic slowdown,
overall capital expenditures are down 10 percent from 2009,
which was already considered a down year for the industry owing
to macroeconomic conditions.
Compared with 2008, which would be a better indicator,
capital spending levels are roughly down by roughly 25 percent.
Continued regulatory uncertainty will only exacerbate this
trend, as operators reallocate resources to other major
offshore provinces. The long-term effects of the moratorium and
subsequent regulatory slowdown will lead to lower development
levels in the Gulf of Mexico, which will lower oil and gas
production levels and associated employment and economic
activity.
In fact, the most pronounced effects of the moratorium and
continued regulatory issues may not be seen until later years,
due to the long time frames associated with developing offshore
oil and gas products. With the length of time from first drill
date to project sanctioning averaging over four years, and the
length of time from project sanctioning to first production
averaging over four years as well for major projects, the most
pronounced effects of the moratorium and subsequent slowdown
will begin to be seen in the middle of the decade.
Due to low levels of drilling beginning with the
moratorium, the number of actionable projects in the Gulf of
Mexico will begin to decline, which will lead to lower levels
of development activity. Since the vast majority of spending
associated with these large capital projects occurs within the
United States, a wide array of industry sectors will be
negatively impacted, including such sectors as oil and gas
machinery, air transportation services, and financial services.
The offshore oil and gas industry is a key contributor to
the energy supply of the United States. Additionally, the
industry contributes both to the gross national product and
overall employment. The offshore Gulf of Mexico contributed 14
percent of the oil and gas produced in the United States in
2010. Additionally, capital investment operational spending by
the Gulf of Mexico oil and natural gas industry supports
hundreds of thousands of jobs across multiple sectors and
regions, supports economic growth, and generates significant
tax revenues at all levels of government.
It is therefore critical that permitting return to
historical rates and that development and production are
allowed to reach their potential in an environmentally
responsible manner under a balanced regulatory regime. Thank
you.
[The prepared statement of Mr. Shafer follows:]

Statement of Sean Shafer, Manager of Consulting,
Quest Offshore Resources, Inc.

Despite the official end of the drilling moratorium in October,
2010 the offshore Gulf of Mexico oil and natural gas industry is still
feeling the lingering effects of the official moratorium. These effects
combined with the impact of the subsequent regulatory slow down are
being felt throughout the Gulf coast region as well as nationwide.
While the offshore Gulf of Mexico oil and gas industry has seen
some signs of recovery from the low state it was in during the drilling
moratorium, activity levels are still well below the levels seen before
the Macondo incident and well below the levels of the Quest baseline
forecast before the incident. From a permitting, rig, and drilling
activity perspective the industry is at best flat compared to where it
was before the drilling moratorium, with the growth that had been
previously expected both delayed and diminished. The only industry
sector seeing healthy growth is in the development of projects not
dependent on further near term drilling. While this is a positive, the
majority of these projects were already well in the works before the
incident and are thus seeing these major equipment orders despite the
moratorium.
As of the end of September 2011, 21 floating rigs (those with
subsea blow out preventers) are operating in the Gulf of Mexico, of
which only 18 are currently drilling wells. Pre-moratorium 33 floating
rigs were operating the Gulf of Mexico with 29 drilling wells at that
time. This indicates a roughly 37 percent drop in both the number of
rigs operating and drilling. Since the moratorium began, 11 rigs have
left the Gulf of Mexico. Only one of these has returned, 3 rigs are
currently sitting idle.
Seven of these rigs have left to African countries including Egypt,
Nigeria, Liberia, and The Republic of Congo. Three of these rigs have
left to South America, including Brazil and French Guiana. The
remaining rig recently mobilized to Vietnam.
As of today, none of the operators of these rigs have announced
plans to return these rigs to the Gulf of Mexico. Two rigs are planned
for return in early 2012 but neither operator has a permit to drill
with these rigs yet, casting doubt on the likelihood of this happening
This translates to approximately 60 wells lost based on the
original contract terms of these rigs. The loss of these rigs amounts
to lost spending of $6.3 billion and annual lost direct employment of
11,500 jobs over two years.
While the number of rigs operating in the Gulf of Mexico is
expected to recover to pre-moratorium levels by the middle of 2012,
this fails to take into account the number of rigs which were expected
to be operating in the region (based on stated operator schedules) in
2012.
While rig counts are forecast to return to pre-moratorium levels of
35 floating rigs operating by mid 2012, prior to the incident and
regulatory slow-down, operating numbers were expected to have reached
44 rigs by this point. In Addition, drilling activity is not expected
to return to pre-moratorium levels before 2014 due to low permitting
rates and operators not relocating rigs back to the Gulf of Mexico.
While the Gulf of Mexico is currently seeing an uptick in certain
types of development activity due to projects that were delayed by the
credit crunch and economic slowdown, overall capital expenditures are
around 10% lower than in 2009 which was considered a down year for the
industry owing to macroeconomic conditions. Compared with 2008, which
would be better indicator, capital spending levels are down by roughly
25%.
Continued regulatory uncertainty will only exacerbate this trend as
operators reallocate resources to other major offshore provinces. The
long term the effects of the moratorium and subsequent regulatory slow
down will lead to lower development levels in the Gulf of Mexico which
will lower oil and gas production levels and associated employment and
economic activity levels in the economy.
In fact the most pronounced effects of the moratorium and continued
regulatory issues may not be seen until later years, due to the long
time frame associated with developing offshore oil and gas projects.
With the length of time from first drill date to project sanctioning
averaging over 4 years, and the length of time from project sanctioning
to first production averaging over 4 years for major projects, the most
pronounced effects of the moratorium and subsequent regulatory slow
down will begin to be seen in the middle of the decade. Due to low
levels of drilling beginning with the moratorium, the number of
actionable projects in the Gulf of Mexico will begin to decline which
will lead to lower levels of development activity. Since the vast
majority of the spending associated with these large capital projects
occur within the United States, a wide array on industry sectors will
be negatively impacted including oil and gas machinery, air transport
services and financial services to name a few.
The offshore oil and natural gas industry is a key contributor to
the energy supply of the United States; additionally the industry
contributes both to the gross national product and overall employment
of the country. The offshore GoM industry contributed 14 percent of the
oil and natural gas produced in the United States in 2010.
Additionally, capital investment and operational spending by the Gulf
of Mexico oil and natural gas industry supports hundreds of thousands
of jobs across multiple sectors and regions, spurs economic growth, and
generates significant tax revenue at all levels of government.
It is therefore critical that permitting return to historical
rates, and that development and production are allowed to reach their
potential in an environmentally responsible manner under a balanced
regulatory regime.

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[GRAPHIC] [TIFF OMITTED] T0719.002

Mr. Hastings. Thank you very much, Mr. Shafer. Mr. Reese,
you are recognized for five minutes.

STATEMENT OF AL REESE, JR., CHIEF FINANCIAL OFFICER, ATP OIL &
GAS CORPORATION

Mr. Reese. Good morning, Mr. Chairman and Ranking Member
Markey, and Members of the Committee. I appreciate the
opportunity to testify here this morning.
We have seen a lack of understanding of the special role
that small and mid-sized oil and gas companies like ATP play in
the safe and efficient development of the Nation's energy
resources, and the role we play in the creation of jobs and
other economic benefits.
ATP's business model is unique: to acquire and develop
properties which have previously discovered but as yet
undeveloped oil and gas reserves. This model allows us to
acquire a lease, often very late in the lease term, and bring
it to production quickly when it might otherwise not have been.
Over the past 20 years, ATP has brought to production 98
percent of the properties that we placed in a development
program. We have invested $5.4 billion, with a large majority
of that in the Gulf of Mexico. These properties have produced
over 28 million barrels of oil and 276 billion cubic feet of
gas. If ATP had not acquired and developed these properties,
most, if not all, would still be undeveloped today.
Despite the relatively small size of our company, ATP is
the fourth most active operator in the deepwater Gulf of
Mexico, behind Shell, BP, and Anadarko. We have fewer than 100
employees, but we regularly use the services of independent
consultants and contractors, all of which are substantial
sources of jobs and economic benefits. ATP makes payments to
royalty owners, vendors, and contractors in 34 different states
throughout the country.
ATP incurred acquisition and development costs in the Gulf
of Mexico of $554 million in 2010, down substantially from the
$713 million we incurred in 2009, and $747 million in 2008. Our
flagship, the ATP Titan, was built in shipyards in Texas and in
Louisiana. The ATP Titan was the first multi-column, deep draft
floating, drilling, and production structure built in the
United States. It surpassed all regulatory requirements, and is
the only floating platform in the Gulf of Mexico with a surface
blowout preventer on its platform deck, and a second subsea
shut-in isolation device with blind sheer rams at the mud
level.
More than 268 U.S. service and supply companies were
involved in the construction and installation. Construction
involved 31 countries, 30 U.S. States. More than 1,100
suppliers received payment from ATP, and more than 3.9 million
man hours were expended in its construction.
ATP is an independent, a small and mid-sized energy company
which is involved in the Gulf of Mexico operations. The
independents are important and indeed necessary to the
effective accomplishment of this Nation's overall energy
objective. Independents hold a majority interest in most of the
producing leases in the Gulf of Mexico.
In 2009, independents were responsible for more than
200,000 jobs. Before the Macondo incident, that number was
expected to grow to 300,000 by 2020 and result in $38 billion
in economic benefit. The impact occurs not only in the Gulf of
Mexico States, but also in Massachusetts, California, New York,
Georgia, Illinois, Pennsylvania, and many, many States.
The efficiency which independents provide requires an
efficient and predictable regulatory system. This can be
accomplished without compromising effective regulatory
oversight, safety, and environmental protection. A recent EIA
report stated that the Deepwater Gulf of Mexico is the single
largest contributor of U.S. production growth for the
foreseeable future.
Once the moratorium was lifted October 12th, a year ago
today, it took 139 days for that first permit to be issued. ATP
was the only company to receive 2 of the first 11 permits.
Since then, ATP has received six drilling and completion
permits. While we are employing people today as a result of
these permits being issued, overall the process has been unduly
difficult, time consuming, and in our view, an unnecessary,
contentious process.
Based on recent history, there is uncertainty that future
permits and approvals will be issued in a timely manner. We see
a clear need for continued improvement by the Federal
Government in expediting the processing plans and permit
applications and priority consideration of the job creation.
In conclusion, what has been lost among all the discussion
is consideration of long-term implications of reduced activity
in the Gulf of Mexico. According to the 2001 Annual Energy
Outlook published by the EIA, and I quote, ``Consumption of all
fuels increases in the 2011 reference case, but the aggregate
fossil fuel share of total energy use falls from 83 percent in
2009 to 78 percent in 2035, as renewable fuel use grows
rapidly. The renewable share of total energy use increases from
8 percent in 2009 to 13 percent in 2035.''
What this report says is there a tremendous push for
renewables. In fact, in this 25-year period, renewable usage
rises by 62 percent. But 25 years from now, more than three-
quarters of our country's energy will still come from fossil
fuels: coal, natural gas, and oil. There is a vast resource,
the deepwater Gulf of Mexico. We can regulate and legislate,
increase and decrease rules and constraints, but cannot
regulate or legislate energy into existence. Thank you.
[The prepared statement of Mr. Reese follows:]

Statement of Albert L. Reese, Jr., Chief Financial Officer and
Treasurer, ATP Oil & Gas Corporation

Introduction
My name is Albert L. Reese, Jr. and I am the Chief Financial
Officer of ATP Oil & Gas Corporation. I have been with ATP since its
inception in 1991, having served as its Chief Financial Officer for
eleven years and prior to that, in a consulting capacity as Director of
Finance. I have worked in the field of finance and management for over
40 years.

Background
ATP Oil & Gas Corporation is an international offshore oil and gas
company focused in the Gulf of Mexico and North Sea. In August 2010, we
expanded our interest to offshore Israel in the Mediterranean Sea. ATP
acquires and develops properties, many of which have proved undeveloped
reserves at the time of acquisition that are economically attractive to
ATP, but not strategic to exploration-oriented oil and gas companies.
Since its inception in 1991, the company has had an exceptionally
strong development success record of 98% of converting non-producing
properties to commercial production. Recently ATP became the 4thmost
productive offshore deepwater operator in the Gulf of Mexico, as a
company that emphasizes critical elements of technology, safety, and
infrastructure assets. ATP's business model is particularly efficient
in accelerating production from leases which are nearing their
expiration date and which, in the absence of ATP's involvement, would
go back into the lease pool and be developed, if ever, near the end of
the next ten year lease period. While particularly effective in meeting
the objectives of promoting jobs and enhancing energy independence, our
model is also particularly dependent on an efficient and reliable
permitting and plan approval process, and particularly vulnerable to
harm from unpredictability and delays.

ATP's Investment in the Gulf of Mexico
Currently ATP has 55 full-time employees in its Houston office, 7
full-time employees in its U.K. office, and 2 full-time employees in
its Netherlands office. ATP regularly uses the services of independent
consultants and contractors to perform various professional services,
particularly in the areas of construction, design, well-site
supervision, permitting and environmental assessment. Independent
contractors usually perform field and on-site production operation
services, including gauging, maintenance, dispatching, inspection and
well testing. All of these contractors and consultants are substantial
sources of jobs and economic benefits to the industry in which ATP
operates. In fact, through its normal course of business in any given
year, ATP makes payments to vendors and other contractors in 42 states
throughout the country. Thus, though ATP is a ``small' company by oil
industry standards, it serves a critical role in energy production in
the Gulf, and provides substantial jobs and economic activity on the
Gulf Coast and throughout the country.
At December 31, 2010, ATP had estimated net proved reserves of
126.4 MMBoe, of which approximately 83.9 MMboe (66%) were in the Gulf
of Mexico and 42.5 MMBoe (34%) were in the North Sea. ATP's proved
reserves in the deepwater area of the Gulf of Mexico account for 62% of
its total proved reserves, and proved reserves on the Outer Continental
Shelf account for 4% of its total proved reserves. The estimated PV-10
of its proved reserves at December 31, 2010 was $2.6 billion. At
December 31, 2010, ATP owned leasehold and other interests in 51
offshore blocks and 88 wells, including 24 subsea wells, in the Gulf of
Mexico. ATP operates 82 (93%) of these wells, including 100% of the
subsea wells.
ATP owns an interest in 29 platforms, including two floating
production facilities in the Gulf of Mexico, the ATP Innovator at its
Gomez Hub and the ATP Titan at its Telemark Hub. A third floating
production facility called an Octabuoy is under construction for
initial deployment at its Cheviot Hub in the U.K North Sea, which is
expected in 2014. ATP operates the ATP Innovator and the ATP Titan, and
also expects to operate the Octabuoy when it is placed in service. The
floating production facilities have longer useful lives than the
underlying reserves, and thus are capable of redeployment to new
producing locations upon depletion of the reserves. Accordingly, they
are expected eventually to be moved several times over their useful
lives.
Of particular interest is the U.S. construction of the ATP Titan in
2008-2009. The ATP Titan was the first multi-column, deep-draft,
floating drilling and production platform structure built in the U.S.
More than 268 U.S. service and supply companies were involved in the
construction and installation. Of those companies, 147 were Texas
companies and 68 were located in Louisiana. Construction involved the
efforts of 31 countries and 30 U.S. states. More than 1,100 U.S.
suppliers received payment from ATP. During construction of the hull,
3.3 million man-hours were expended and there were 600+ jobs created
onsite at peak manning levels. The topside platform decks required
600,000+ man hours. Total investment in the ATP Titan is to date close
to $1 billion.
During 2010, ATP's cash expended in the Gulf of Mexico for
additions to oil and gas properties was approximately $534.3 million.
During 2009, cash expended in the Gulf of Mexico for additions to oil
and gas properties was approximately $551.4 million. During 2008, cash
expended in the Gulf of Mexico for additions to oil and gas properties
was approximately $751 million.

Implications and ramifications
The Macondo event that occurred in 2010 and subsequent government
response that has been taken in 2010 and 2011 have had a major impact
on ATP's operations and ability to move forward with development plans.
ATP has been severely affected since May 6, 2010, when the Department
of Interior instructed the predecessor of BOEM to stop issuing drilling
permits for OCS wells, and to suspend existing OCS drilling permits
issued after April 20, 2010, and subsequently by the July 12, 2010,
issuance of a second moratorium, originally scheduled to end on
November 30, 2010. This second moratorium suspended all existing
operations in the Gulf of Mexico and other regions of the OCS utilizing
a subsea blowout preventer (``BOP'') or a surface BOP on a floating
facility, and suspended pending and future permits to drill wells
involving the use of a subsurface BOP or a surface BOP on a floating
facility. Although the second moratorium was lifted on October 12,
2010, ATP has been and continues to be negatively impacted by the
drilling moratorium and subsequent related regulatory delays and
uncertainties.

Industry Implications
An Energy Information Administration Annual Energy Outlook 2009
report stated that the Gulf of Mexico, especially the deepwater, is the
single largest contributor to U.S. production growth for the
foreseeable future. In 2009, the Gulf of Mexico provided 29% of the
U.S. daily crude oil production, a 347% increase since 1981. According
to a recent Quest Offshore Resources study, since the moratorium began,
11 rigs have left the Gulf of Mexico. Only one of these has returned,
and 3 rigs are currently sitting idle. Seven of these rigs have left to
African countries including Egypt, Nigeria, Liberia, and The Republic
of Congo. Three of these rigs have left to South America, including
Brazil and French Guiana. The remaining rig recently mobilized to
Vietnam. That translates to approximately 60 wells lost, based on the
original contract terms of these rigs. The loss of these rigs amounts
to lost spending of $6.3 billion, and annual lost direct employment of
11,500 jobs over two years. Even as rig counts begin to recover, the
rate of permitting for wells in the Gulf of Mexico, unless it recovers
to historical levels, will continue to hinder the pace of drilling in
the Gulf of Mexico. From September 2009 to September 2010, 59% more
permits (114) were issued than the period of September 2010 to
September 2011 (50).

Role of the Independents
There are currently 114 operators of producing leases in the Gulf
of Mexico. A July 2010 IHS Global Insight report noted that
Independents hold a majority interest in 81% of producing leases, 66%
of all Gulf of Mexico leases and 52% of deepwater leases. The study
also noted that Independents have drilled 50%+ of the exploration wells
in the deepwater. In 2009, Independents were responsible for 200,000+
jobs, which were expected to grow to 300,000+ by 2020, and $38 billion
in economic benefit, anticipated to grow each year thereafter.
Additionally, Independents would create $10 billion in Federal and
state tax revenues, also expected to grow each year thereafter.

Current ATP Activities
ATP was the only company to receive two of the first eleven
deepwater permits since the moratorium was lifted, due to its
reputation for safety, environmental responsibility, skillful use of
advanced technology and a steadfast drive for quality. The ATP Titan in
2007, built three years prior to the Macondo disaster, was designed and
built with tens of millions of dollars of redundant safety equipment.
It surpassed all regulatory requirements, and is the only platform in
the Gulf of Mexico with a surface blowout preventer (BOP) on the
platform deck and a subsea shut in isolation device (SID) with blind
shear rams, which is controlled independently of the rig's surface BOP.
ATP's near-term operating and development plans in the Gulf of
Mexico, as well as its longer-term business plan, are dependent on
receiving additional approvals for deepwater drilling and other permits
under applications, which have been and will continue to be submitted
to the Bureau of Ocean Energy Management (BOEM). In the first quarter
of 2011, ATP received permits to complete the drilling of the third
well at Mississippi Canyon Block 941 at its Telemark Hub, and to
complete a well at Green Canyon Block 300. While ATP can satisfy the
permitting requirements for the additional planned 2011 development
wells, there is still uncertainty that the permits will be issued or,
if issued, that they will be received in a timely manner.
ATP incurred additional costs in 2010 caused by the deepwater
drilling moratoriums and subsequent drilling permit delays. Some of
these additional costs are continuing into 2011, and are expected to
continue. During the second quarter of 2011 throughout 2010, ATP
recognized impairment of proved Gulf of Mexico oil and gas properties
of $45.7 million and $3.9 million of unproved Gulf of Mexico
properties, respectively. The majority of the expense was associated
with leases which were approaching their expiration dates, and became
unlikely to be drilled primarily due to the moratorium on drilling in
the Gulf of Mexico. Drilling interruption costs were $1.2 million and
$8.7 million in the second quarter of 2011 and 2010, respectively. They
consist of stand-by costs for drilling operations at ATP's Telemark and
Gomez Hubs, resulting from the deepwater drilling moratoriums and
subsequent drilling permit delays.
We at ATP realize that the Department of Interior and its agencies
required time to review their programs to make certain that they were
doing an adequate job of assuring that the operations on its leases
were safe and adequately protective of the environment. At the same
time, however, it is difficult for us to understand why some priority
is not being given to actions that BOEM might do to help our industry
and the Gulf economy recover from the grave injuries which it suffered
as a result of the Macondo event and the regulatory response to it.
Although President Obama has said that jobs and the economy are his
Administration's number one priority, our experience suggests that the
priorities at the Department of Interior are solely limited to safety,
environmental protection and enhancement of government royalty
revenues. We agree that those are important and serve as the foundation
of BOEM's mission. However, there is a critical need to correct the
harm which has been done by the spill and subsequent regulatory
backlog, and put the Gulf back to work. Jobs created in the offshore
oil and gas industry cross the gamut of blue-collar jobs requiring a
high school education coupled with in-house training, to those
requiring post-graduate degrees. With an efficient, predictable and
properly motivated regulatory structure, ATP and companies like it can
continue to make a significant contribution to job creation, revenue
generation for the federal, state and local governments, and our
nation's oil independence.
______

Mr. Hastings. Thank you very much, Mr. Reese. Mr. Auer, you
are recognized for five minutes.

STATEMENT OF CHRIS AUER, PRINCIPAL,
CREVALLE MANAGEMENT SERVICES

Mr. Auer. Thank you. My core business deals with
reclamation operations associated with offshore oil and gas
production, specifically the abandonment of pipelines, the
removal of platforms, and site clearance. Operators are
required to perform reclamation after reserves have been
depleted. It is all covered until Title 30 CFR 250.
At any given time during late April to early October, there
is an average of six to ten heavy-lift vessels working in the
Gulf of Mexico. Most of these are working in an abandonment
capacity. The average crew complement of these heavy-lift
vessels is 100. These vessels are supported by crew boats,
tugboats, dive boats, helicopters, shore-based facilities, and
numerous engineering and administrative personnel. In effect,
an entire micro-economy is developed around abandonment
activities and these vessels.
If you shut down just the abandonment work in the Gulf of
Mexico, it affects thousands of jobs. There are several factors
that dictate when and how the Gulf of Mexico reclamation work
is performed, and they are reserve depletion, availability of
vessels, weather, and permitting. Of these four factors,
weather and permitting are the two wildcards. The best weather
working window in the Gulf of Mexico is between late April and
early October, barring any hurricanes.
Once weather fronts begin arriving from the north, the seas
and winds become unpredictable and extreme. Abandonment
operations conducted in these environments present a higher
risk to human life and equipment loss or damage. Typical
permits required for abandonment are: we have an APM, which is
A Permit to Modify a well bore with pipeline abandonment
permit, a platform removal permit, a reefing permit, and a site
clearance permit.
Since the Macondo accident, the review and approval process
as related to pipeline and platform abandonment permits, not
well permits, have become lengthy. I have had platform permits
take as long as 510 days to reach the approved status, with the
average processing time post-Macondo being 129 days, as
compared to a pre-Macondo average of 42 days.
Such lengthy processing times push work into bad weather
months or delay it altogether for the work season. These delays
in turn idle the vessels, render crew and supporting crew
unemployed. Anything that can be done to streamline the
permitting process will help, and my recommendations are to
hire more regional BSEE staff, standardize the permitting
forms, automate the permitting process, and establish a better
avenue for variance response.
The BSEE employees in the New Orleans regional office
perform a thankless job with a high level of professionalism
and much diligence. These folks are some of the hardest working
in the Gulf of Mexico. But as we know, there are capacity
limits. The BSEE regional staff approving abandonment permits
needs to be expanded. The first step in lowering approval time
is to staff the process with the appropriate number to handle
the workload. That number should be recommended by the regional
head and honored by the Department of the Interior.
With the exception of the APM form MMS-124--this is the
form that you file to plug a well--no other abandonment permit
application is standardized. For years, there has been talk
about standardizing these forms, but it just hasn't been done.
A system similar to eWell should be set up to handle the
submission of applications, any questions BSEE might have
concerning the application, quick access to the application
status, and delivery of the final approval. Sometimes meeting
the letter of the permit is impossible when we get in the
field. In these cases, we have to get with BSEE, and we have to
get a variance. We need some sort of 24/7 quick response force
set up with these guys so that they can handle these variances
in a timely manner so that we are not waiting for days for an
answer.
Again, the BSEE employees in New Orleans do everything they
can to make themselves available to us 24/7, but there is not
enough of them. I mean, we are asking way too much out of way
too few.
In closing, I just want to say that the people of the Gulf
Coast are highly skilled and extremely efficient workers. They
aren't asking for a handout from their government. They are
asking for the handcuffs to be removed so that they can do
their part in keeping the United States rolling. What I am
suggesting here is not a remarketing campaign, which is what we
have seen. It is a streamlining campaign.
I appreciate the opportunity to address the Committee, and
I am available for any questions. Thank you.
[The prepared statement of Mr. Auer follows:]

Statement of Chris Auer, Principal, Crevalle Management Services

The tragedy of Macondo sent the first shock wave throughout the
offshore oil & gas industry as it should have. The moratorium imposed
by President Obama sent the second shockwave. The effects of these
events are still being felt today.
My core business deals with reclamation operations associated with
offshore oil and gas production, specifically the abandonment of
pipelines, the removal of platforms and site clearance. Operators are
required to perform reclamation after reserves have been depleted.
Title 30 CFR Sec. 250 defines the requirements for abandonment as
covered in this testimony.
At any given time during late April to early October there is an
average of six to ten heavy lift vessels working in the Gulf of Mexico.
Most of these are working in an abandonment capacity. The average crew
complement of these vessels is one hundred. These heavy lift vessels
are supported by crew boats, dive boats, helicopters, shore base
facilities and numerous engineering and administrative personnel. In
effect an entire micro economy has developed around the activities of
these vessels and abandonment. Shut down just the abandonment work in
the gulf and you shut down 1000's of jobs.
There are several factors that dictate when and how Gulf of Mexico
reclamation work is performed. They are:
Reserve depletion
Availability of vessels
Weather
Permitting
Of these four factors weather and permitting are the two wild cards.
The best weather window for working in the Gulf of Mexico is
between late April and early October barring any hurricanes. During
this period, seas are small and weather trends are more predictable.
Once weather fronts begin arriving from the north, seas and winds
become unpredictable and extreme. Abandonment operations conducted in
such environments present a higher risk to human life and equipment
loss or damage. It also exponentially increases the overall cost and
time associated with abandonment.
No abandonment activities may take place without the proper
approved permits in hand (Ref Title 30 CFR Sec. 250.1703). Typical
permits required for abandonment are:
Application for Permit to Modify Form MMS-124 (APM)
permit to modify a well bore
Pipeline abandonment permit
Platform Removal permit
Reefing permit
Issued by the U.S. Army Corp of Engineers (COE)
and the state in which the reefing will take place
Site clearance permit
These permits must be submitted to different entities within Bureau
of Safety and Environmental Enforcement (BSEE) along with accompanying
support documents for review and comment. Once BSEE has completed their
review and any additional concerns have been addressed and documented
an approved permit is issued.
Since the Macondo accident, the review and approval process as
related to pipeline and platform abandonment permits has become
lengthy. I have had permits take as long as 510 days to reach the
approved status with the average processing time post Macondo being 129
days as compared to a pre-Macondo average of 42 days. Such lengthy
processing times push work into bad weather months or delay it for the
work season all together. These delays in turn idle vessels and render
crew and supporting crew unemployed. Anything that can be done to
stream line the permitting process will help. My recommendations are:
Hire more BSEE staff
Standardize permitting forms
Automate the permitting process
Establish a better avenue for variance response
The BSEE employees in the New Orleans regional office perform a
thankless job with a high level of professionalism and much diligence.
These folks are some of the hardest working in the Gulf of Mexico but
as we all know there are capacity limits. The BSEE regional staff
approving abandonment permits needs to be expanded. The first step in
lowering approval times is to staff the process with the appropriate
number to handle the work load. That number should be recommended by
the regional head and honored by Department of Interior (DOI).
Standardization of permit applications is the second step. With the
exception of the APM Form MMS-124 required to plug and abandon a well
bore, no other abandonment permit applications exist. For years there
has been talk of such standardized forms but no action has been taken.
Currently most of us who submit permit applications for abandonment use
our own format. While these formats are consistent in the data they
contain they differ in its location and format. This further adds to
the time it takes a BSEE employee to review and approve the permit. It
would also seem to make training essential new hires difficult. It's no
secret that large groups tend to operate better when things are
standardized.
The aforementioned, standardized forms should be automated as well.
A system similar to eWell should be set up to handle the submission of
applications, any questions BSEE might have concerning the application,
quick access to the application's status and delivery of the final
approval. Currently meetings, email, traditional mail and telephone are
the communication methods used for application submission, review,
comment and approval. Again these methods take time away from the
processing of the application. These methods should be reserved for
special cases requiring closer investigation. This is step three.
My fourth and final recommendation pertains to abandonment work as
it is being performed in the field. Sometimes meeting the letter of the
permit is impossible when field work is underway. In these cases the
operator must notify BSEE regional, explain the issue and ask for a
variance. As with most critical issues these always seem to happen on a
weekend at 0200 hrs. If there were some sort of regional Quick Response
Force (QRF) on duty 24/7 these issues could be handled in a timelier
manner. Offshore oil and gas operations don't stop for holidays,
weekends or business hours. Again it is important for me to restate
that the current BSEE regional employees do everything they can to make
themselves available to industry 24/7 but there are just not enough of
them.
The people of the Gulf Coast are highly skilled and extremely
efficient workers. They aren't asking for a hand out from the
government they're asking for the handcuffs to be removed so that they
can do their part in keeping the United Sates rolling. What I am
suggesting here is not a remarketing campaign; it's a stream lining
campaign. I appreciate the opportunity to address the Committee and am
available for questions and or comments.
______

Mr. Hastings. Thank you very much, Mr. Auer. Next, we will
go to Mr. Kief. You are recognized for five minutes.

STATEMENT OF CORY KIEF, PRESIDENT,
OFFSHORE TOWING

Mr. Kief. Good morning, Chairman Hastings, Ranking Member
Markey, and all Committee Members. Thank you for the
opportunity to testify on behalf of Offshore Towing, and how we
have been impacted in the Gulf of Mexico as a result of the
drilling moratorium and related issues.
Offshore Towing is a partnership of three small marine
towing companies who collectively operate a fleet of seagoing
tugboats in the Gulf of Mexico, providing services in the oil
and gas sector, primarily towing drilling rigs to and from
various locations in shallow water. We are located along the
Gulf Coast in Larose, Louisiana, and collectively employ about
110 people.
Although the moratorium has been lifted, substantial
negative economic impacts have been felt, and economic
conditions continue to deteriorate. Challenges with issuance of
drilling permits from the BOEM to operators are still
prevalent, causing delays in drilling programs. As we
understand, at times, the BOEM claims that operators are
submitting incomplete or flawed drilling plans and other data,
and the operators claim that the BOEM is dragging their feet
approving drilling plans and permits.
Either way, or a combination of the both, drilling
contractors are leaving the Gulf to go work in other countries
that have the ability to obtain steady financial commitments.
These drilling contractors have already demonstrated that they
will not stay in the U.S. waiting for the government and the
operators to get their act together and iron out the wrinkles
in this new regulatory environment.
Service companies such as ours who depend on the system are
now facing severe economic decline due to the lack of
efficiency. Every day, we are seeing more and more equipment
being taken out of service, which sends more people home
jobless, which leads to my remarks on the proposed jobs bill
that is receiving so much attention these days.
As I understand, one of the elements of the jobs bill would
grant payroll tax relief to the employer if an employer would
hire someone who has been jobless for six months or more. For
my company, this does not create jobs. It is a hiring
incentive, and that is all. There are no jobs to offer. We
would not be inclined to hire people simply to get payroll tax
relief when we don't have enough work for them to do as it
stands now.
Further, there is no relief to hire people who were just
discharged a couple of months ago. I would prefer to hire back
the people that were discharged a couple of months ago who are
adequately trained to do their jobs without having to retrain
new people who don't know what they are doing at my expense. I
don't think that you folks realize how much time, energy, and
resources are put into training people to effectively work in
this industry. The six-month issue is hard to understand.
On another note, there is no relief or benefits for a
company like ours, who have had minimal layoffs because we
don't want to lose our trained workers. Instead, we have
reduced wages, used our capital, lines of credit, and blends of
these resources to retain our workers, trained workers. We are
fighting to survive and keep our employees because economically
and morally, it is the right thing to do. And all of this
discussion of underfunded infrastructure spending or tax breaks
or tax hikes, illegal immigrants in the workplace, I do not
hear any talk of economic benefits of the Federal Government
being more efficient or being an advocate for job creation with
what they have to work with now.
From my company's perspective, an increased rate of Federal
permitting in the Gulf of Mexico will bring my employees back
to a level of security to earn a good living and produce an
economic environment with the potential to train and hire more
workers. That is economic stimulus.
IHS Global Insight and IHS CERA recently conducted a study
that described a return to regular permitting would result in
230,000 new or retained American jobs, $44-plus billion in U.S.
gross domestic product, and about $12 billion in tax revenue, a
reduction of $15 billion in America's bill for imported oil in
2012 alone. One-third of these jobs created would be outside of
the Gulf region in States like California, Illinois, and New
York. These results prove that the Gulf of Mexico energy
activity is a national economic generator.
This country is more in the world than what is being given
credit for. Americans all over this country depend on each
other for a variety of different resources. Our leaders need to
focus on that. This Administration, government, and the media
need to stop separating American people by creating political
boundaries to satisfy political agendas. As one businessman
speaking to his country's leaders, there are more jobs and
additional State revenues to be realized in this offshore
energy sector of the Gulf of Mexico. It is your duty as
stewards of the people to address this.
Thank you again for your opportunity to speak before you
today.
[The prepared statement of Mr. Kief follows:]

Statement of Cory Kief, President,
Offshore Towing, Inc.,, Larose, Louisiana

Good morning Chairman Hasting, Ranking Member Markey and all
committee members. Thank you for the opportunity to testify on behalf
of Offshore Towing, and how we have been impacted in the Gulf of Mexico
as the result of the drilling moratorium, and related issues. Offshore
Towing is a partnership of three smaller marine towing companies who
collectively operate a fleet of sea going tug boats in the Gulf of
Mexico, providing services in the Oil and Gas sector, primarily towing
drilling rigs to and from various locations in shallower water. We are
located along the Gulf Coast in Larose, Louisiana, and collectively
employ approximately 110 people.
Although the moratorium has been lifted, substantial negative
economic impacts have been felt, and economic conditions continue to
deteriorate. Challenges with issuance of drilling permits from the BOEM
to operators are still prevalent, causing delays in drilling programs.
As we understand, at times, the BOEM claims that Operators are
submitting incomplete or flawed Drilling Plans and other data, and the
Operators claim that the BOEM is dragging their feet approving drilling
plans and permits. Either way, or a combination of both, Drilling
Contractors are leaving the gulf to go to work in other countries that
have the ability to obtain steady financial commitments. These drilling
contractors have already demonstrated that they will not stay in the
U.S. waiting for the government and the Operators to ``get their act
together'' and iron out the wrinkles in this new regulatory
environment. Service companies, such as ours, who depend on this
system, are now facing severe economic decline due to this lack of
efficiency. Every day we are seeing more and more equipment being taken
out of service, which sends more people home, jobless!
Which leads to my remarks on the proposed ``Jobs Bill'' that is
receiving so much attention these days? As I understand, one of the
elements of the Jobs Bill would grant payroll tax relief to an
employer, if an employer would hire someone who has been jobless for 6
months or more. For my company, this does not create new jobs, it is a
hiring incentive and that is all! There are no jobs to offer. I would
not be inclined to hire people simply to get payroll tax relief when we
don't have enough work for them to do as it stands now. Further, there
is no relief to hire people who were just discharged two months ago. I
would prefer to hire back the people that were discharged a couple of
months ago, who are adequately trained to do their jobs, without having
to re-train new people who don't know what they doing, at my expense. I
don't think that you folks realize how much time, energy and resources
are put into training people to effectively work in this industry. The
six month issue is hard to understand.
On another note, there is no relief or benefits for companies, like
ours, who have had minimal layoffs, because we don't want to lose our
trained workers. Instead, we have reduced wages, used our capital,
lines of credit, and blends of these resources to retain our workers. .
.. . .trained workers. We're fighting to survive, and keep our
employees because economically and morally it is the right thing to do.
In all of this discussion of underfunded infrastructure spending, or
tax breaks or tax hikes, Illegal Immigrants in the work place, I do not
hear any talk of economic benefits of the federal government being more
efficient, or being an advocate for job creation with what they have to
work with now. From my company's perspective, an increased rate of
federal permitting in the Gulf of Mexico will bring my employees back
to a level of security to earn a good living, and produce an economic
environment with the potential to train and hire more workers. THAT is
economic stimulus.
IHS Global Insight and IHS CERA recently conducted a study that
described that a return to regular permitting would result in:
230,000 new or retained American jobs
$44+ billion in US Gross Domestic Product
About $12 billion in tax and royalty revenue
A reduction of $15 billion in America's bill for
imported oil in 2012 alone
One third of these jobs created would be outside of the Gulf
region, in states like California, Illinois and New York. These results
prove that the Gulf of Mexico's energy activity is a national economic
generator!
This country is more interwoven than what it is being given credit
for. Americans all over this country depend on each other for a variety
of different resources. Our leaders need to focus on that. This
administration, government, and the media need to stop separating the
American people by creating political boundaries to satisfy political
agendas. As one business man speaking to his Country's leaders, there
are more jobs, and additional and state revenues to be realized in the
offshore energy sector of the Gulf of Mexico. It is your duty, as
stewards of the people, to address this.
Thank you again for the opportunity to speak before you today.
______

Mr. Hastings. Thank you very much, Mr. Kief, for your
testimony. Next, we will recognize Mr. Captain Bob Zales. You
are recognized for five minutes, Captain.

STATEMENT OF CAPTAIN BOB ZALES, II, PRESIDENT, NATIONAL
ASSOCIATION OF CHARTERBOAT OPERATORS

Mr. Zales. Mr. Chairman and Members of the Committee, my
name is Robert F. Zales II, and I am appearing today on behalf
of the National Association of Charterboat Operators. NACO
thanks you and the Members of the Committee for your kind
invitation to present testimony on this issue today.
Congress faces many difficult choices, but also has many
opportunities. NACO is a non-profit 501[c][6] association
representing charterboat owners and operators across the United
States with a substantial number operating in the Gulf of
Mexico. Sadly, we are acutely aware of the devastating impact
of the Deepwater Horizon oil spill in the Gulf of Mexico and
how it has affected the charterboat and commercial fishing
industries.
Charter, commercial, and saltwater recreational fishing is
extremely important to the Gulf of Mexico, both economically
and socially. According to the recently released preliminary
report, ``The Gulf of Mexico Regional Ecosystem Restoration
Strategy,'' by the Gulf Coast Ecosystem Restoration Task Force,
the Gulf Coast and its natural resources are important to the
U.S. economy, producing 30 percent of the Nation's gross
domestic product in 2009.
The region provides more than 90 percent of the Nation's
offshore oil and gas, natural gas, production; 33 percent of
the Nation's seafood; and significant recreation and tourism
benefits. The five U.S. Gulf Coast States, if considered an
individual country, would rank seventh in global gross domestic
product. The Gulf Coast regional economy is highly intertwined
with its natural resource base, including oil and gas deposits,
commercial and recreational fisheries, and tourism.
Incomplete data presented in this report shows a
conservative number of 535,498 jobs either directly or
indirectly created by the fishing and charter, commercial, and
private recreational industries of the Gulf of Mexico, making a
significant economic input to the Gulf Coast communities and
the Nation. All of these industries depend on a healthy and
resilient Gulf.
In Florida alone, the commercial fishing industry ranks
seventh in total landings at $169 million annually, and
produces 10 percent of the Gulf's oyster catch, a $4.5 million
annual dockside value. Florida leads all States in economic
return for its marine recreational fisheries. Recreational
saltwater fishing generates over $5 billion. In 2008 and 2009,
more than 1 million people bought marine recreational fishing
licenses, a third from out of state. More than 3,400 for-hire
charter boat fishing licenses were purchases, generating more
than $1 million and giving Florida one of the largest charter
fishing fleets in the world.
The future health of our Gulf resources is unknown. The
impact on several key fish species, such as red snapper, vital
to all fishermen in the Gulf, will not be fully known for
several years. Little is known about the 2010 recruitment
class, and will not be fully known for at least three to five
years.
We live in fear of the future. Millions of gallons of oil
are still unaccounted for, and certainly is located somewhere.
The fish we see in harvest are from year classes prior to the
blowout. The timing and location of the blowout could not have
been worse, as the time of year and location of the oil and
chemicals used were in the bull's-eye to do the most harm.
BP, through Mr. Feinberg's Gulf Coast Claims Facility,
guaranteed funds to provided those affected by the impacts of
the spill, compensation for their economic losses. There is no
mechanism to provide any financial assistance after 2012, as
Mr. Feinberg and BP assert the Gulf will be back to normal next
year, contrary to a report produced from Mr. Feinberg released
on January 31st, 2011, that state of harvest levels will return
to normal by the end of 2012. Several renowned fishery
biologists say it will be a minimum of three years, and could
be five before we have any real knowledge of the impact of the
spill.
Too many of us, the GCCF has been a massive failure, as our
claims are either still in review or ridiculous offers have
been made. And now that the Federal court action will begin in
February 2012, GCCF is dramatically slowing down remaining
claims efforts.
In addition to fish species we see, the marine mammals,
total seabirds, natural and artificial reefs, sand and mud-
bottom and complete ecosystems have been affected. It has been
reported that the spill still has impacts on sea turtles and
marine mammals, which can ultimately negatively impact
fishermen as these protected species interact with various
fishing gears. So increased time and area closures are another
concern.
Another issue affecting our natural resources is the
increased efforts by the Bureau of Ocean and Energy Management
Regulation and Enforcement to remove deactivated oil and gas
platforms from the Gulf. The fishing and oil and gas industries
have coexisted in the Gulf since the first well was drilled.
These platforms provide artificial habitat for a wide array of
fish and coral species. Over time, they have become essential
fish habitat and house great numbers of fish. NMFS regulations
require species to have sustainable levels of biomass, and in
many cases species such as red snapper are now at biomass
levels never before seen.
Since January 2010, over 362 platforms have been removed
from the Gulf, with over 200 more scheduled for removal over
the next 12 months, just from Federal waters. The number
removed from state waters was not available, but assumed to be
over 150. Each platform is home to hundreds of various fish
species. In most cases, explosives are used to disengage the
platform from the bottom, which result in massive fish kills
and also the deaths of protected species such as turtles and
marine mammals.
Not only are these species killed and the resource wasted,
the habitat is permanently removed, reducing critical habitat
to sustain the resource. These platforms should be allowed to
remain or at least placed on the bottom to continue to provide
essential habitat for the resource.
In closing, I wish to state the charter and commercial
fleets were once viable, productive, and a sustainable group of
small business owners. We provide a necessary service to
individuals who want to fish, consume healthy seafood, enjoy
our natural resources. Over the last six years, fleets have
struggled, and yet continued to survive. The impact from
Deepwater Horizon was almost the last nail in the coffin.
It is imperative that the health and safety of our Gulf be
assured. The charter and commercial fleet owners and
operators----
Mr. Hastings. Captain Zales, if you could close up, I would
appreciate it.
Mr. Zales. OK. Just about five more seconds. The charter
and commercial fleet owner and operators and crews are the
first responders to any issue on the water. We are on the water
daily. We see the conditions of our resource and are first to
report any problem. We beg to provide information to fisheries,
to an agency, NMFS, who routinely tells us they know our
resource better. Thank you very much, Mr. Chairman. I will be
glad to answer any questions.
[The prepared statement of Mr. Zales follows:]

Statement of Capt. Robert F. Zales, Ii, President,
National Association of Charterboat Operators

Mr. Chairman and members of the committee, my name is Robert F.
Zales, II and I am appearing today on behalf of the National
Association of Charterboat Operators (NACO). NACO thanks you and the
Members of the Committee for your kind invitation to present testimony
on the impact of The Lifting of President Obama's Gulf of Mexico
Moratorium and to Examine the Lingering Impacts on Jobs, Energy
Production and Local Economies. Congress faces many difficult choices
but also has many opportunities.
NACO is a non-profit 501 (c) (6) association representing charter
boat owners and operators across the United States with a substantial
number operating in the Gulf of Mexico. Sadly, we are acutely aware of
the devastating impact of the Deepwater Horizon Oil Spill in the Gulf
of Mexico and how it has affected the charter boat and commercial
fishing industries. I am actively involved in working with Federal,
States, BP, and local representatives on the impacts to charter boat
and commercial fishing fleets and their involvement in cleanup,
economic recovery, and resource damage assessment efforts.
Charter, commercial, and saltwater recreational fishing is
extremely important to the Gulf of Mexico, both economically and
socially. According to the recently released preliminary report Gulf of
Mexico Regional Ecosystem Restoration Strategy by the Gulf Coast
Ecosystem Restoration Task Force the Gulf Coast and its natural
resources are important to the U.S. economy producing 30 percent of the
nation's gross domestic product in 2009. The region provides: more than
90 percent of the nation's offshore oil and natural gas production; 33
percent of the nation's seafood; 13 of the top 20 ports by tonnage in
the United States; and significant recreation and tourism benefits. The
five U.S. Gulf Coast states, if considered an individual country, would
rank 7th in global gross domestic product. The Gulf Coast region's
economy is highly intertwined with its natural resource base, including
oil and gas deposits, commercial and recreational fisheries, coastal
beaches, and waterways for ports, waterborne commerce, and tourism.
Incomplete data presented in this report shows a conservative number of
535,498 JOBS, either directly or indirectly created by the fishing
(charter, commercial, and private recreational) industries of the Gulf
of Mexico, making a significant economic input to Gulf communities and
the nation. All of these industries depend on a healthy and resilient
Gulf.
In Florida alone, the commercial fishing industry ranks 7th in
total landings at $169 Million annually and produces 10% of the Gulf's
oyster catch, a $4.5 Million annual dockside value. Florida also leads
all states in economic return for its marine recreational fisheries.
Recreational saltwater fishing generates over $5 Billion. In 2008-09,
more than 1 Million people bought marine recreational fishing licenses,
a third from out of state. More than 3,400 for-hire (charter boat)
fishing licenses were purchased, generating more than $1 Million and
giving Florida one of the largest charter fishing fleets in the world.
As a result of the oil spill, the National Marine Fisheries Service
(NMFS) closed up to 36.6% of all Gulf waters to fishing and harvest of
fish as of June 2, 2010 with varying degrees of percentage before and
after with the last reported closure of 0.4% as of November, 2010.
While these closures were activated to ensure the health to consumers
from eating possible tainted fish, the impact on the charter and
commercial fishing fleets and communities was enormous.
The future health of our Gulf resources is unknown. The impact on
several key fish species vital to all fishermen in the Gulf will not be
fully known for several years. Prior to the oil spill key species such
as red snapper, king mackerel, and many other reef and pelagic species
were dramatically improving and stock abundance was at levels never
before seen. Little is known about the 2010 recruitment class and will
not be fully known for several years.
We live in fear of the future. Millions of gallons of oil are still
unaccounted for and certainly is located somewhere. The fish we see and
harvest are from year classes prior to the blow out. The timing and
location of the blow out could not have been worse as the time of year
and location of the oil and chemicals used were in the bull's eye to do
the most harm.
BP, through Mr. Feinberg's Gulf Coast Claims Facility (GCCF),
guaranteed funds to provide those affected by the impacts of the spill
compensation for their economic losses. There is no mechanism to
provide any financial assistance after 2012 as Mr. Feinberg and BP
assert the Gulf will be back to normal next year. Contrary to a report
produced for Mr. Kenneth Fienberg (An expert opinion of when the Gulf
of Mexico will return to pre-spill harvest status following the BP
Deepwater Horizon MC 252 oil spill) released on January 31, 2011 that
states that harvest levels will return to normal by the end of 2012,
several renown fishery biologists, say it will be a minimum of 3 years
and could be 5 before we have any real knowledge of the impact of the
spill. To many of us, the GCCF has been a massive failure as our claims
are either still in review or ridiculous offers have been made and now
that the Federal Court action will begin in February 2012 GCCF is
dramatically slowing down remaining claims efforts.
From the beginning of this disaster, various Government (Federal
and State) agencies were active in obtaining information and working
with all parties to ensure that our marine resources were unaffected as
much as possible. Fish sampling by various federal, state, and higher
educational facilities, began shortly after the blow out. Critical
testing of fish tissues to determine any health issues was done and
according to reports by all agencies involved, no health issues were
determined and all fish from the Gulf were declared safe to consume.
Over the past several months, there are now reports from some
fishermen (commercial and recreational) of harvested fish being seen
with severe lesions, fin rot, damaged internal organs, and according to
the NMFS possibly infected with Vibrio vulnificus and Photobacterium
damselae, both very harmful to humans. More studies are now underway to
determine the extent of these issues and to attempt to discover the
cause. In some areas of the Gulf, state agencies have issued Special
Activity Permits to select charter and commercial boats to legally
harvest any fish that appear to have health issues. These fish are then
provided to the proper officials to be studied.
In addition to the fish species we seek, the marine mammals,
turtles, sea birds, natural and artificial reefs, sand and mud bottom,
and complete ecosystem has been affected. It has been reported that the
spill has impacts on sea turtles and marine mammals which can
ultimately negatively impact fishermen as these protected species
interact with various fishing gears so increased time and area closures
are another concern.
Another issue affecting our natural resources is the increased
efforts by the Bureau of Ocean Energy Management, Regulation and
Enforcement (BOEMRE) to remove deactivated oil and gas platforms from
the Gulf. The fishing and oil and gas industries have coexisted in the
Gulf since the first well was drilled. These platforms provide
artificial habitat for a wide array of fish and coral species. Over
time they become essential fish habitat and house great numbers of
fish. NMFS regulations require species to have sustainable levels of
biomass and in many cases species such as red snapper are now at
biomass levels never before seen. Since January 2010, over 362
platforms have been removed from the Gulf with over 200 more scheduled
for removal over the next 12 months just from Federal waters. The
number removed from state waters was not available but is assumed to be
over 150. Each platform is home to hundreds of various fish species. In
most cases explosives are used to disengage the platform from the
bottom which results in massive fish kills and also the deaths of
protected species such as turtles and marine mammals. Not only are
these species killed and the resource wasted, the habitat is
permanently removed reducing critical habitat to sustain the resources.
These platforms should be allowed to remain or at least placed on the
bottom to continue to provide the essential habitat for the resources.
While the impacts to the resources are extremely important, the
impact to humans will be substantial. There is currently a study (GuLF
Study conducted by the National Institute of Environmental Health
Sciences (NEIHS)) which will be done over a 10 year period and involve
over 55,000 people who worked in the cleanup process to determine any
health impact on humans. This includes psychological as well as
physical issues.

FUTURE NEEDS
I have attempted to provide the impacts of the blow out above. I
will try to provide the needs we have for the future. IT IS IMPARATIVE
THAT THE FINES THAT WILL BE ASSESSED AS PER THE CLEAN WATER ACT (CWA)
FOR THIS DISASTER IN THE GULF ARE DEDICATED TO THE GULF! The damage was
sustained in the Gulf so the resulting fines should remain in the Gulf.
You will hear from many organizations, communities, states, and others
all with their respective hands out for funding. Charter boat owners,
operators, and crews and other commercial and recreational fishermen do
not have organizations with the infrastructure to seek some of this
funding so we ask for your assistance to help us. We do not seek
individual economic help from the CWA fines, although should we find in
3 to 5 years that the fish species we seek are in dire straits we will
most certainly need financial assistance to survive.
Our needs are all resource oriented. We must have an ecosystem that
is capable of sustaining our fishery resources. We must have expanded
funding for cooperative independent research of our fisheries which
will utilize vessels from the charter and commercial fishing fleets.
Cooperative independent research is providing much needed real world
data on our fisheries and this effort needs to be expanded. The data
collected under cooperative research grants involves real fishermen in
areas where they have knowledge of their fisheries. This type data is
recommended by the NMFS and can be done through grants to non profits
in conjunction with Universities and state wildlife agencies.
As a result of the damage and uncertain future of fisheries due to
the blow out, funding for improved and yearly stock assessments should
be provided. In the Gulf, most fish stock assessments are conducted
only every 5 to 7 years. Under the current circumstances 5 to 7 years
is grossly inadequate as we must know the status of our stocks on a
more frequent basis to fully understand any impact from the spill.
We will need adequate funding to ensure our natural and artificial
reefs are clean and intact. Enhancing our artificial reef system is a
priority and can start with the immediate cease and desist by the
BOEMRE of their required removal of deactivated offshore oil platforms.
Economic and social impact studies of the Gulf charter fleet should
be fully funded so we know the real impact of the fleet to local
fishing communities and the Gulf. To date, these studies provide little
relevant information. This is one area where the GCCF claims issue
could be improved. There is little information that provides the type
of economics on the charter fleet that can be used to fully understand
the impact from lost business. Charter boat owners, operators, and
crews are unique in how they operate. The charter fleet is a seasonal
business where the majority of their income is derived in a few months
and then spread out over the year. When the season begins in April and
runs through September the money is made in 6 months and then utilized
over 12. Generally income is not collected per month or week although
expenses are year round.
Research funding to further study fish health must also be a
priority. Our prime interest is to ensure that the fish we harvest are
safe to handle and to consume. We must know, with reasonable certainty,
that any fish that appears to be unhealthy is properly handled and
tested so that consumers can have confidence they are catching and
eating quality Gulf seafood. Many of the fish health issues have never
been observed before the blow out so it is a must that the cause of any
health issues be identified as soon as possible.
Funding from the CWA should also be used to advertise that the
charter and commercial fishing fleets are alive, well, and ready to
serve the public. Funds must be provided to obtain new customers and to
notify those who left that we are still here and ready to fish in clean
water, catch quality fish, and provide a healthy product to the
consumer.
In closing I wish to state that the Gulf charter and commercial
fleets were once viable, productive, and a sustainable group of small
business owners. We provide a necessary service to individuals who want
to fish, consume healthy seafood, and enjoy our natural resources. Over
the last 6 years the fleets have struggled and yet continue to survive.
The impact from the Deepwater Horizon oil spill was almost the last
nail in the coffin. It is imperative that the health and safety of our
Gulf be assured. The charter and commercial fleet owners, operators,
and crews are the first responders to any issue on the water. We are on
the water daily, we see the condition of our resource and are first to
report any problem. We beg to provide information on fisheries to an
agency, NMFS, who routinely tells us they know our resource better. We
hold a wealth of information and want to be actively involved. We care
for our Gulf and all things within and around.
Mr. Chairman, this concludes my testimony. Again, I truly
appreciate the invitation and opportunity to provide you and the
committee with this information. I will be pleased to respond to any
questions.
______

Mr. Hastings. Thank you, Captain Zales. As I said, your
full statement will appear in the record. Mr. Bruce Craul, you
are recognized for five minutes.

STATEMENT OF BRUCE CRAUL, CHIEF OPERATING OFFICER, LEGENDARY
HOSPITALITY, INC., INCOMING CHAIRMAN OF THE BOARD, FLORIDA
RESTAURANT AND LODGING ASSOCIATION

Mr. Craul. Yes. Good morning, Mr. Chairman, and thank you
for the opportunity to speak before yourself and the Committee.
My name is Bruce Craul. I am the Chief Operating Officer of a
company called Legendary Hospitality, located in Destin,
Florida, which is in Northwest Florida, between Panama City and
Pensacola. I am also the Chairman-Elect of the Florida
Restaurant and Lodging Association.
Legendary Hospitality is the operations arm of a company
that designs, develops, sells, builds, owns, and operates
hospitality-related industries in Destin, Florida. Our
businesses include the Emerald Grande, a 780-bedroom resort
condominium hotel with four star amenities, two festival
shopping centers, and the Emerald Grande and these are all in
Destin and in other--Destin Commons is located in the town's
center.
We also own and operate Regatta Bay Golf and Country Club;
Legendary Marine and Marina, an indoor dry stack storage for
over 700 boats, and the Southeast's largest indoor boat
showroom; Harborwalk Marina, located on the mouth of the harbor
at Harborwalk Village, which has 75 wet boat slips for much of
Destin's charter fishing fleet; and of course, fuel and
supplies for much of the area's leisure boating community.
Harborwalk Charters, a booking service, together with three
charter fishing boats, with all of the ancillary businesses,
round out our presence in an area that is very dependent on
tourism in the Panhandle.
Our real estate development and sales arm has been
instrumental in progressing Destin's infrastructure and product
offering to what it is today by developing large parcels of
land and playing an important role, together with city, county,
and State in land development code and associated developmental
needs, rules and regs.
The Florida Restaurant and Lodging Association,
headquartered in our State capital in Tallahassee, has over
10,000 members whose industry employs over a million people in
the State of Florida, a business which is Florida's largest
employer. Tourism represents 20 percent of Florida's economy,
and is the largest industry in Florida with a $57 billion
economic impact. It also represents $3.4 billion that is paid
in sales tax revenue.
The Panhandle of Florida has a 100-day season representing
70 percent of the business. The rest of the business primarily
transpires during the spring and fall, which we affectionately
call our shoulder seasons. The Deepwater Horizon incident
devastated our businesses last year, and although this summer
much of our business has returned, thanks to millions of
dollars being spent on the promotion of tourism derived from
the BP funds, we are still affected by the lasting effects of
the Deepwater Horizon incident, including the offshore
moratorium, since much of our feeder market businesses come
from our drive markets, many of which are to the west of
Florida, including Louisiana, Mississippi, and Texas.
So when jobs are lost in our feeder states, then so is our
business. When people are thinking about how to pay for
groceries, a mortgage, or a car payment, going on vacation is
not even on their radar. While the Florida Restaurant and
Lodging Association has taken a position over the years not to
support offshore drilling in Florida, for numerous reasons, its
board members know that many of our tourists, visitors, and
convention and conference attendees come from energy-related
business in the States to our west.
Many of the condominium and second-home buyers also are
from Alabama, Mississippi, Louisiana, and Texas. In short,
while the moratorium cost some jobs, the moratorium was caused
by the BP Deepwater Horizon disaster. Given the magnitude of
the spill, it was appropriate to take some time out from
drilling. The Deepwater Horizon disaster has shown the
devastating impact that unsafe oil and gas drilling can have an
effect on coastal communities. The Florida Restaurant and
Lodging Association has long opposed drilling off Florida's
coast, and the spill last summer showed us that all of the Gulf
can be impacted by what happens off another State's coast.
We also see firsthand that it is slow to rebound,
considering all that had been affected. A healthy Gulf economy
needs a healthy Gulf ecosystem. Oil production has a long
history in the Gulf of Mexico, and so do the hundreds of
thousands of jobs in fisheries, tourism, and recreation
directly tied to the health of the coastal and marine
environment.
The lessons of the BP disaster must be fully understood and
remembered. If there is a place for oil drilling in the Gulf of
Mexico, then it should be governed by a set of rules that exist
because of, not in spite of, the BP oil disaster. That includes
a full assessment of the environment and economic damage.
[The prepared statement of Mr. Craul follows:]

Statement of Bruce W Craul, Chief Operating Officer, Legendary
Hospitality, and Chairman Elect, Florida Restaurant and Lodging
Association

Good Morning, my name is Bruce Craul, and I am the Chief Operating
Officer of a company called Legendary Hospitality, located in Destin,
Florida, which is in Northwest Florida between Panama City and
Pensacola. I am also the Chairman Elect of the Florida Restaurant and
Lodging Association.
Legendary Hospitality is the operations arm of a company that
designs, develops, sells, builds, owns and operates Hospitality related
industries in Destin, Florida. Our businesses include The Emerald
Grande; a 780 bedroom resort condominium hotel with four star hotel
amenities; two festival shopping centers; one called HarborWalk
Village, where the Emerald Grande is located on the Destin Harbor and
the other is Destin Commons located in the town's center.
We also own and operate Regatta Bay Golf and Country Club,
Legendary Marine and Marina; an indoor dry stack storage for over 700
boats, and the southeast's largest indoor boat showroom. HarborWalk
Marina located at the mouth of the harbor at HarborWalk Village which
has seventy five wet boat slips for much of Destin's Charter fishing
fleet, and of course fuel and supplies for much of the area's leisure
boating community. HarborWalk Charters, a booking service, together
with our three Charter fishing boats along with other ancillary
businesses round out our presence that is very dependent on tourism in
the Panhandle.
Our real estate development and sales arm has been instrumental in
progressing Destin's infrastructure and product offering to what it is
today by developing large parcels of land and playing an important role
together with the city, county and state with its land development code
and associated development codes, rules and regulations.
The Florida Restaurant and Lodging Association, headquartered in
our State Capital in Tallahassee, has over 10,000 members who employ
over a million people in the State of Florida, a business which is
Florida's largest employer. Tourism represents 20% of Florida's economy
and is the largest industry in Florida with a 57 billion dollar
economic impact.
The Panhandle of Florida has a 100 day season representing 70% of
the year's business. The rest of the business primarily transpires
during the spring and fall shoulder seasons. The Deepwater Horizon
incident devastated our businesses last year and although this summer
much of our business has returned, thanks to millions of dollars being
spent on the promotion of tourism derived from BP funds, we are still
affected by lasting effects of the Deepwater Horizon incident,
including the offshore moratorium, since much of our feeder market
business comes from our drive markets, many of which are to the west of
Florida. Louisiana for example is our number two feeder market barely
trailing the Atlanta metro area. So, when there are jobs lost or
affected in our feeder states, then our business is affected. When
people are thinking about how to pay for the groceries, the mortgage or
car payment, going on vacation is not even on their radar.
While the Florida Restaurant and Lodging Association has taken the
position over the years to not support offshore drilling in Florida,
for numerous reasons, its board members know that many of our tourists,
visitors, and convention and conference attendees are from energy
related businesses in the states to our west. Many of our condominium
second home buyers collectively are from Alabama, Mississippi,
Louisiana, and Texas. Since many of the energy related businesses
employees are not even vacationing, you can surmise that they are not
buying second homes either.
When the moratorium was put in place, one of our partner's sons,
Shane Guidry, the President and CEO of Harvey Gulf International in
Louisiana, one of the largest companies that move rigs, informed us
that they would be moving a lot of the rigs from the Gulf. They said
that the owners of the rigs could not afford to stay and wait out the
moratorium and that most certainly the same rigs could be used in other
parts of the world. Harvey Gulf International whose task is to tow and
or carry rigs from one place to another moved the following rigs; The
Clyde Boudreaux, a Shell rig to Brazil, the Transocean Armante an EL
rig to Africa, Shell's Paul Romano rig to Egypt, Noble Energy's Ensco
7500 to Israel, the Ocean Monarch to Vietnam, the Transocean Marianas
to Africa, two jack rigs, the Rowland Gorilla II and Rowland Gorilla
III to the Middle East, and Shell's Ensco 8501 to the Middle East. The
rigs are gone and of course no one really knows when or if they will be
coming back since rigs are in demand all over the world.
All of the jobs associated with these rigs left our Gulf area. The
electricians, the crew boat operators, painters, plumbers, caterers,
managers and supervisors, etc. are still unemployed or have left the
area to go to where they can find work. Harvey's CEO, Shane Guidry told
me this past Saturday that the permitting process still is lengthy so
it will be a long time before we see the economic benefits of returning
vessels and rigs to Louisiana which ultimately benefits Northwest
Florida and overall Florida tourism.
Federal Regulations are not all new when it comes to ``managing''
the Gulf and certainly not less impactful to the Gulf coast economies.
Permitting processes for maintaining our navigable water ways are long,
cumbersome, expensive and restrictive. Two additional examples that we
deal with every day involve the Army corps of engineers and the Gulf of
Mexico Fishing Management Council.
Tropical storms or even just sustained winds over the course of
several days can have a huge impact on the Destin's Pass connecting the
Destin Harbor to the Gulf of Mexico. One would think that the home of
Florida's largest charter fishing fleet would be at the top of the list
when it comes to maintaining our waterways. Our Gulf Coast economies
are very dependent on the Gulf and even more so this year since last
year our Charter and Commercial fishing fleet were out of business due
to the Deep Water Horizon incident.
The Gulf of Mexico Fishing Management Council which determines
which species of fish can be caught as well as how much can be caught
are restrictive to our economies since recreational fisherman want to
keep the fish that they catch instead of throwing them back because
they are out of season. Our local and state Charter Boat Associations
attend all of the Federal and State Hearings concerning the fisheries
management but it is rare that they don't compromise to the point that
it is detrimental to our economies.
According to estimates in a 2000 study by the University of West
Florida's Haas Center for Business Research and Economic Development,
Destin's charter fishing industry injects approximately $175 million in
direct spending to the local economy and supports 7,242 jobs either
directly or indirectly. These numbers represent a significant portion
of Florida's $5.5 billion fishing industry and the 75,000 jobs
statewide that the industry supports. According to the Haas study, the
majority of the economic impact of the charter fishing industry comes
from the spending of tourists who are attracted to the area by the
fishing industry. The study shows that tourist spending on lodging,
restaurants, transportation, retail merchandise, entertainment, and
other goods and services results in an overall economic activity
totaling approximately $317 million and supports approximately 6,775
jobs in the area. Tourism spending represents 90.8% of the total
economic activity that is generated by the fishing industry and 93.5%
of the jobs that the industry supports according to the Haas study.
In summary, I would like to thank the committee for providing me
the opportunity as a representative of many to come before you to
speak. I welcome any questions that you may have regarding the
aforementioned or any related questions regarding tourism, jobs, and
how the public and private sector can work more closely together to
create jobs and stimulate the economy along the Gulf Coast.
Thank you.
______

Mr. Hastings. Thank you very much for your testimony, and
Dr. Galvez, you are recognized--before you are recognized, Dr.
Galvez, I understand that your oral testimony will include ten
slides instead of the two that you submitted prior to. Would
you commit to seeing that all ten slides are available to all
the Committee Members ASAP
Dr. Galvez. Yes, I will. Thank you.
Mr. Hastings. OK. You are recognized for five minutes.

STATEMENT OF FERNANDO GALVEZ, ASSISTANT PROFESSOR, DEPARTMENT
OF BIOLOGICAL SCIENCES, LOUISIANA STATE UNIVERSITY

Dr. Galvez. Good morning, Mr. Chairman, Mr. Ranking Member,
and the distinguished Members of the House Committee on Natural
Resources. My name is Fernando Galvez. I am an Assistant
Professor in the Department of Biological Sciences at Louisiana
State University. My team, in collaboration with Dr. Andrew
Whitehead at LSU, is leading a collaborative research endeavor
to study the effects of the BP Deepwater Horizon oil spill on
marsh fish in the northern Gulf of Mexico.
I would like to discuss some of the recent findings of our
research published on August 26, 2011, in the proceedings of
the National Academy of Sciences. To my knowledge, this is the
first report in the scientific literature on the biological
effects of the Deepwater Horizon oil spill in fish. The close
proximity of Louisiana State University to the northern Gulf of
Mexico, and our capacity to mobilize quickly in the first few
days following the explosion of the Deepwater Horizon oil
platform provide us the unique opportunity to study the
biological effects of this unprecedented and tragic event.
We chose the Gulf killifish as our test organism because it
is the most abundant fish in the coastal marsh of the Gulf of
Mexico, and thus an excellent environmental sentinel. Indeed,
it is our canary in the coal mine. Tissues were collected from
fish at six different sites from Louisiana to Alabama, and
sampling was performed in early May 2010, before oil made its
landfall in September 2010, when much of the oil had
disappeared from the water surface.
We also sampled the water and sediments from each site for
hydrocarbon analyses, and satellite imaging provided an
estimate of proximity of the oil spill to each site. Now,
without going into too many specifics, we found dramatic
cellular effects in fish collected from coastal Louisiana,
coinciding with the timing and location of oil contamination.
Cellular effects were predictive of adverse health
consequences, including developmental and reproductive
impairment, toxicity, and even death.
Fish scale cells, which are important for maintaining
critical fish body function, appear damaged and showed cellular
changes, diagnostic exposure to the toxic components of
hydrocarbons. What was equally striking was that these
biological effects persisted, even though chemical testing
found only low to non-detectable concentrations of hydrocarbons
in fish tissues.
In other words, although chemistry suggested that these
fish were safe for human consumption, it was unable to detect
any of the sublethal, biological effects in Louisiana fish we
observed. The magnitude of tissue, cellular, and genetic
effects seen in fish from our oil site in Louisiana suggests
impacts on fish growth, reproduction, development, and
performance, all highlighting the potential ecological
consequences of exposure.
We also found that most of the oil in the marsh is not in
the water, but rather tied up in the sediment, where it is
found in extremely high concentrations. A big lesson from the
Exxon Valdez is that sediments can act as a long-term reservoir
of oil that can persist to expose animals to toxic
concentrations over long periods of time.
In current studies, we are finding that embryos exposed to
these oil sediments are hatching at lower frequencies and are
showing developmental abnormalities in that embryos that do not
go on to hatch successfully are smaller and listless.
Additionally, sediments from oil sites appear to be almost as
toxic today as they were during the peak of oil in the summer
of 2010.
What our data describe are the early warning signs that
have been shown in the past to correlate well with population
level declines, as seen with Pacific herring, pink salmon, and
the sea otter in the years that followed the Exxon Valdez oil
spill. What we don't know is how widespread these effects are
going to be over space in time, and whether the responses we
see in killifish also exist in other ecologic and important
species or in fish of commercial importance. We need to be
measuring these endpoints in many species to know the full
extent of the problem. We can wave our hands all we want, but
unless we collect these biological data, it will be difficult
to link the oil spill to future population declines.
Another important point is that we need to be making these
measurements over the long-term to get a better handle on
multigenerational effects, which although time-consuming are
the most predictive of population and community-level effects.
I would like to conclude by making one brief statement
regarding research funding. Emergency funding for scientific
research was virtually nonexistent for several months following
the Deepwater Horizon oil spill. In fact, Dr. Whitehead and I
paid for the initial funding of this research with our own
credit cards before our Dean of Science graciously pitched in
for expenditures.
With time, we were able to secure funding through the
invaluable NSF rapid program and through the Gulf of Mexico
research initiative. However, in my opinion, the Federal
Government needs to do a better job of providing a reliable
source of emergency funding to support transparent, cutting
edge, and unbiased academic research following natural and
manmade environmental disasters, especially since early event
data are the most critical to obtain.
Thank you for your attention, and I would be pleased to
answer your questions.
[The prepared statement of Dr. Galvez follows:]

Statement of Fernando Galvez, Ph.D., Assistant Professor,
Department of Biological Sciences, Louisiana State University

Good morning Mr. Chairman, Mr. Ranking Member, and the
distinguished members of the House Committee on Natural Resources. I
thank you for the opportunity to testify today. My name is Fernando
Galvez. I am an Assistant Professor in the Department of Biological
Sciences at Louisiana State University. My team, in collaboration with
Dr. Andrew Whitehead at LSU, is leading a collaborative research
endeavor to study the effects of the BP Deepwater Horizon oil spill on
marsh fish in the northern Gulf of Mexico. I would like to discuss some
of the recent findings of our research published on August 26, 2011 in
The Proceedings of the National Academy of Sciences (www.pnas.org/cgi/
doi/10.1073/pnas.1109545108; see Abstract of publication below). To my
knowledge, this is the first report in the scientific literature on the
biological effects of the DWH oil spill in fish. In my written
testimony, I will also discuss some of the difficulties we encountered
in doing this research, and some of the remaining issues that impede
the ability of academic institutions to conduct similar work.
Following the Deepwater Horizon (DWH) drilling disaster on April
20, 2010, in the Gulf of Mexico, acute oiling and the resulting
mortality of marine wildlife were evident. The close proximity of
Louisiana State University to the northern Gulf of Mexico and our
capacity to mobilize quickly in the first few days following the
explosion of the DWH oil platform, provided us the unique opportunity
to study the biological effects of this unprecedented and tragic event.
In contrast, the sublethal effects, critically important for predicting
long-term population-level impacts of oil pollution have not been well
described following the DWH disaster. Here we report effects of oil
exposure on fish resident in Gulf of Mexico coastal habitats.
We chose the gulf killifish as our test organism because it is the
most abundant fish in the coastal marsh of the Gulf of Mexico and thus
an excellent environmental sentinel. Indeed, we are using it as our
canary in the coal mine. Unlike other fish species in the Gulf, we
understand a lot about their ecology, physiology, biochemistry, and
genetics, and have excellent experimental tools at our disposal to use.
Tissues were collected from fish at six different sites from Louisiana
to Alabama (Figure 1), and sampling was performed in early May 2010,
before oil made its landfall, in July 2010, during the peak of oil
landfall, and in early September 2010, when much of the oil had
disappeared from the water surface. We also sampled the water and
sediments from each site for hydrocarbon analyses, and satellite
imaging provided an estimate of the proximity of surface oil to each
site. An important and unique feature of this study is that we have
data collected from fish before oiling. These pre-event data are
extremely rare in toxicological studies, and add to the strength of our
conclusions. To collect these early-event data required the ability to
mobilize our research programs quickly.
Without going into too much detail, we found dramatic cellular
effects in fish collected from coastal Louisiana coincident with the
timing and location of oil contamination. Cellular effects were
predictive of adverse health consequences, including developmental and
reproductive impairment, toxicity, and death. Fish gill tissues, which
are important for maintaining critical fish body functions, appeared
damaged and showed cellular changes diagnostic of exposure to the toxic
components of hydrocarbons (Figure 2). What was equally striking was
that these biological effects persisted even though chemical testing
found only low to non-detectable concentrations of hydrocarbons in fish
tissues. In other words, although chemistry suggested these fish were
safe for human consumption, it was insufficient to predict or detect
any of the sublethal biological effects in Louisiana killifish we
observed. The magnitude of tissue, cellular, and genetic effects seen
in fish from our oiled site in Louisiana suggest impacts on fish
growth, reproduction, development, and performance, all highlighting
the potential ecological consequences of exposure.
We also found that most of the oil in the marsh is not in the
water, but rather tied up in sediment, where it is found in extremely
high concentrations. A big lesson from the Exxon Valdez is that
sediments can act as a long-term reservoir of oil that can persist to
expose animals to toxic concentrations over long periods of time. In
current studies, we are finding that embryos exposed to oiled Louisiana
sediments are hatching at lower frequencies and are showing
developmental abnormalities, and that embryos that do go on to hatch
successfully are smaller and listless. Additionally, sediments from
oiled sites appear to be almost as toxic today as they were during the
peak of oiling in the summer of 2010.
What our data describe are the early-warning signs that have been
shown in the past to correlate well with population-level declines as
seen with Pacific herring, pink salmon, and the sea otter, in the years
that followed the Exxon Valdez oil spill. What we don't know is how
wide spread these effects are going to be over space and time, nor
whether the responses we see in killifish also exist in other
ecologically-important species, or in fish of commercial importance. We
need to be measuring these end points in many species to know the full
extent of the problem. We can wave our hands all we want, but unless we
collect these biological data, it will be difficult to link the oil
spill to future population declines. Another important point is, that
we need to be making these measurements over the long-term to get a
better handle on multi-generational effects, which although time-
consuming and resource-intensive, are the most predictive of population
and community level effects.
Research on the DWH oil spill has provided several important
insights I would like to conclude by making brief statements regarding
research funding, access to sample sites during the peak of oiling, and
access to Mississippi Canyon 252 oil.

Reliable Sources of Federal Funding Are Required to Promote Early-
Response Research Following Natural and Man-Made Natural
Disasters.
Emergency funding for scientific research was virtually non-
existent for several months following the DWH spill. In fact, Dr.
Whitehead and I paid for the initial funding of this research with our
own credit cards before our Dean of Science graciously pitched in for
expenditures. With time, we were able to secure funding through the
invaluable, NSF RAPID program and through the Gulf of Mexico Research
Initiative (GRI). Unfortunately, the National Science Foundation was
faced with budgetary constraints at the end of the fiscal year that
limited their ability to provide extensive funding. Furthermore, GRI
money took up to 4 months to disseminate, making it difficult to pay
for early time point sampling. Although these funds were well received,
they consisted of small amounts of funding over short durations. Both
factors precluded hiring additional staff to conduct the work. Instead,
we were forced to divert existing students and postdoctoral fellows
from existing projects due to the time-sensitive nature of the DWH
work. In my opinion, the federal government needs to do a better job of
providing a reliable source of emergency funding to support
transparent, cutting-edge, and unbiased academic research following
natural and man-made environmental disasters--especially since early-
event data are the most important.
For the past 20 years the Department of Interior has directed funds
through the BOEM (formerly MMS) to LSU for the purpose of conducting
environmental research that is directly relevant to oil and gas
exploration in the Gulf of Mexico. The funding has been administered
through LSU's Coastal Marine Institute (CMI). Ironically, at a time
when the importance of such ongoing research has never been more
apparent, this funding is at risk of being eliminated or significantly
reduced. We urge congress to take action to insure that this important
funding is at least maintained and hopefully increased. This funding
has allowed for sustained long-term environmental research and could be
a good vehicle for providing rapid-response funding that was so
desperately needed in the early stages of the Macondo disaster.
Further, it would also be helpful to urge BOEM to modify its long-
standing policy of requiring 1:1 institutional match. Especially during
this period of dramatically reduced funding for higher education, this
matching requirement is a substantial impediment for innovative
research.

Access to Sample Sites Should be Available to University Researchers.
It is understandable the need to regulate the movement in and out
of coastal habitats following oiling, however far too many researchers
found it difficult or impossible to gain access to critical sample
sites along the northern Gulf of Mexico. Private security companies and
local police were used to keep people at bay, while citizens became
increasingly cynical of BP and federal agencies for the complete lack
of transparency. University researchers who did manage to obtain
funding were finding it difficult to complete projects due to the
inability to gain access to field sites. Fortunately, our research
group managed to obtain a BP Access Pass, which allowed us
uninterrupted access to sample sites. Ironically, had we not obtained
this permission, we likely may never have had the opportunity to sample
the Grande Terre, Louisiana site during the height of oiling when
sublethal biological effects were most pronounced.

Access to South Louisiana Sweet Crude from Mississippi Canyon 252
It has been exceedingly difficult for researchers to obtain
Louisiana sweet crude from Mississippi Canyon 252 (MC252), or even
comparable surrogate oil, for toxicity testing under controlled,
laboratory conditions. Early on, researchers were provided with
standard letters from BP stating that oil was not available for
distribution. Some laboratories did manage to obtain limited quantities
of MC252 oil, but its distribution was once again disrupted when a
federal judge issued a preservation order requiring its storage. With
that said, a formal request process to obtain small quantities of MC252
does exist, although researchers need to complete an application
process ensuring that the oil is absolutely necessary. Regardless, BP
does not appear to have made any significant shipments of the oil to
academic researchers capable of conducting independent and transparent
research. Recently, a surrogate well was drilled capable of producing
oil of similar chemical composition to that of MC252. Like the case for
MC252, its distribution has been slow to transpire and subject to the
same application process. As an example, my colleague, Dr. Andrew
Whitehead, received a letter from BP confirming that shipment of a
surrogate crude had been approved, and would be arriving soon. Seven
months later, his group still has no oil, putting this federally-funded
research in serious jeopardy.

Importance of Basic Science Research Funding:
It should be clearly noted that much of the tools, techniques, and
paradigms applied in our oil spill research was facilitated by advances
in basic sciences research (as distinguished from applied science
research). For example, incredible recent advances in comparative
physiology, cell biology, molecular biology, and genome biology,
facilitated through basic science sources of support such as the
National Science Foundation, were critically important for enabling the
discoveries that we have made about the effects of this oil spill.
Basic science has been, and will remain, the foundation upon which
applied science discovers solutions to immediately practical problems
for example in health and environmental sciences. However, funding for
basic science in the United States, for example through the National
Science Foundation, has remained flat or declined in recent years,
whereas support for applied sciences, such as through the National
Institutes of Health, has remained relatively robust. We think that
this is short-sighted. Funding for basic sciences in the United States
must be considerably increased as an investment for remaining
internationally competitive.
Thank-you for your attention. I would be pleased to answer your
questions.

Abstract from Recent PNAS publication:
The biological consequences of the Deepwater Horizon oil spill are
unknown, especially for resident organisms. Here, we report results
from a field study tracking the effects of contaminating oil across
space and time in resident killifish during the first 4 months of the
spill event. Remote sensing and analytical chemistry identified
exposures, which were linked to effects in fish characterized by genome
expression and associated gill immunohistochemistry, despite very low
concentrations of hydrocarbons remaining in water and tissues.
Divergence in genome expression coincides with contaminating oil and is
consistent with genome responses that are predictive of exposure to
hydrocarbon-like chemicals and indicative of physiological and
reproductive impairment. Oil-contaminated waters are also associated
with aberrant protein expression in gill tissues of larval and adult
fish. These data suggest that heavily weathered crude oil from the
spill imparts significant biological impacts in sensitive Louisiana
marshes, some of which remain for over 2 months following initial
exposures.

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Mr. Hastings. Thank you very much for your testimony, and I
thank all of you for your testimony. I very much appreciate
your being here today. As I mentioned at the outset, this was
one year since the moratorium was lifted, and we wanted to hear
from you. I should note that the Committee did have a hearing
down in Houma, Louisiana, to hear firsthand from people on the
ground.
I have a question for Mr. Reese. I am sure that you have
noticed that this Committee has gone back and forth with
Director Bromwich as to whether permitting and plan approvals
are returning to the pre-moratorium pace. And I am not asking
you to comment on that because you are here to present your
findings and so forth.
That said, one area that I think we could all benefit from
a little bit more clarification is something that I alluded to
in my opening statement that is represented in this slide, and
that is the ``deemed submitted'' issue which shows up on this
bar graph as the red bars. In the data that we see of the
exploration plans that have been approved so far this year,
some took hundreds of days just to be ``deemed submitted.''
We all know that you need an approved plan to even get to
the permit stage. And I am not sure if you have direct
experience with this process. But if you could walk us through
the difference between when a company first sends their
exploration plan and how that is different from being ``deemed
submitted.''
Before the Macondo exploration, I guess really the
underlying question, if you could address that, did it take
nearly a year, as some of these ``deemed submitted'' plans do,
to get the exploration plan? I mean, it seems to me that seems
to be a long time frame. So if you could elaborate on that, I
would appreciate it.
Mr. Reese. Thank you, Mr. Chairman. I will do my best. I
think our Chairman and President, our CEO, Paul Bulmahn, at our
annual meeting used an object, and I think it begins to explain
what you are seeing with your lines up here. Prior to the
Macondo incident, a typical application, permit application,
would be somewhere between 30 and 40 pages long.
The most recent permit application that we submitted--and
my numbers are a little vague, but in the neighborhood of about
3,600 pages. So we went from having a 30- to 40-page document
for submittal to 3,600 pages. And I can assure you, someone at
the BOEM, MMS, whichever organization it was, was responsible
for reading all of that.
Prior to the incident, there was a very good relationship
between the application process, and it was interactive. It was
not cozy, as it has been said before. I can assure you of that.
We have nothing but the greatest things to say about the people
in the field at the BOEM.
So at that particular point, when you are dealing with
3,600 pages, you automatically have a lot more time
constraints, versus in the past, there was a normal process in
working back and forth, and you ultimately got a ``deemed
submitted.'' A company couldn't just hand something to the
former MMS, today the BOEM, and have them say, OK, you now have
30 days. No. There was a process, but everyone knew what that
process was.
Today, there are still unknowns as to what is in the
process. Part of it is nothing more than new rules and
regulations. So what is happening, and I appreciate this slide.
If there is a way I could get a copy of this slide, I would
love to be able to use this. Intuitively, we knew this was
going on. I have never seen it presented, and I compliment you
and your staff for putting this together.
But, yes, today what you have is ``deemed submitted''
starts the time running. And if the BOEM does not have to start
their clock running until it is, quote, ``deemed submitted,''
there is an initiative on their part to get it ``deemed
submitted.''
Mr. Hastings. And so what you are saying is that prior to
this, before the Macondo incident, while the 30 or 40 pages,
there may be some give and take, like you said, it wasn't cozy,
I mean, not to say----
Mr. Reese. No, it was not.
Mr. Hastings. It wasn't necessarily adversarial, but it was
at least working together to try to get an outcome. The mere
fact that that is 3,000 pages--I think that is what you said.
Mr. Reese. 3,600 is the number I remember.
Mr. Hastings. Is bound to slow the whole process down, and
that--to oversimplify, is that the reason why that red bar is
probably much higher, simply because of that mere fact of the
quantity?
Mr. Reese. I think there are two things here. One, I will
stick with the facts, and that is the fact, if you have a
3,600-page document, it is going to take a longer period of
time. The other is, is it a tone coming from the top? What is
causing the delay? If there is a desire to get something
approved, and approved safely, to get it approved now, you will
have the tone at the top say this is what we want to do, and
the people that are in charge of that will get it done.
On the other hand, if the tone at the top is we want to
slow-walk this, we don't want to encourage drilling in the Gulf
of Mexico, we want to have a longer period of time for this to
happen, then you are going to have that. That is editorial, I
will admit. The facts are you are dealing with a lot more
pages. The editorial part is what is the tone at the top to get
the new energy out of the ground.
Mr. Hastings. Well, that is one of the reasons we are
having this hearing, to try to ascertain that, and we will make
sure that you get a copy of that slide.
Mr. Reese. Thank you very much.
Mr. Hastings. And with that, I recognize the gentleman from
Massachusetts, Mr. Markey.
Mr. Markey. I thank the Chair very much. First of all, I
just want to say that the Majority's Interior Appropriations
bill has cut $35 million of the Administration's request, which
will lead to 20 fewer engineers to review these applications.
So you can't have it both ways. You can't kill the program that
the Administration wants in order to expedite the handling of
it, and then complain that it is not being handled fast enough,
OK? And that is again the duality of everything that is
happening here.
You have another thing happening on the House Floor on an
ongoing basis that makes it very difficult to in any way square
up with the Republicans say they want to have happen, and then
what the Administration says they are willing to do in order to
speed up the process, and then the Republicans kill that, OK?
So that $35 million, I hope, is going to be restored. But I
think the chances of that are zero, OK, because they do want to
dramatically underfund what Director Bromwich can do.
Dr. Galvez, over 6,100 birds, 600 sea turtles, and 150
mammals, including dolphins, were collected dead in the Gulf of
Mexico region during the Deepwater Horizon disaster. But your
study is one of the first to examine the sublethal impacts of
the spill on fish in the Gulf. Your research has found that
there are cellular changes in the most abundant species of fish
in the marshes of the Gulf that are the same types of early
warning signs we saw following the Exxon Valdez spill.
Could we potentially be headed for a similar population
decline in fish or other species in the Gulf as we saw
following the Exxon Valdez?
Dr. Galvez. Well, it is certainly a little early to tell.
But some of the warning signs are clearly there. In the Exxon
Valdez, it took several years, approximately four years, before
some of the true population level effects were really seen. And
in those cases, some of the same things that we are starting to
pick up were also happening in those animals.
Interestingly, in some of the work that is not published,
we are finding that when we are exposing animals to the
sediments, that these animals are essentially not doing very
well in the sediments, and they continue not to do well. These
animals are dying. They are not absorbing their yolk, which is
normally what an embryo before it hatches, become a larva, what
it would do in order to grow. These animals are smaller, and so
these animals will not do well in the environment.
And so potentially, any organism that spends a good portion
of its time, especially during early development, in the marsh,
which is where we are finding the vast majority of the oil,
potentially will be affected.
Mr. Markey. Thank you, Dr. Galvez. And last week, by the
way, in this Committee, the Majority was so concerned about sea
lions eating salmon--they ate 3,000 salmon last year off the
entire West Coast--that they put a license to kill sea lions if
any of them would get caught eating fish. So here we have the
entire Gulf of Mexico and all these species down there----
Dr. Galvez. Yes.
Mr. Markey.--and just tremendous impacts that they can
have, not upon 3,000, but almost uncountable numbers of fish,
and we are not seeing the same attention being paid to that as
we saw to the sea lion issue with 3,000 salmon total on the
West Coast.
Dr. Galvez, in your study, you noted the chronic, sublethal
impacts of the oil spill continued to be detected 22 years
after the Exxon Valdez. Following the BP spill, do you expect
that we could see negative impacts to fish and other species in
the Gulf for many years, as we did in Alaska?
Dr. Galvez. Well, certainly there is the potential. They
are vastly different spills in terms of geology, in terms of
climate. However, what is of most concern is that the oil is in
the sediment, and if you dig down into the sediment, you see
that this oil is still relatively fresh. We still have oil
coming into these marshes. And the concern is that marsh is
habitat for so many organisms. It is really the fertile
crescent. So much of the fisheries rely at some point in their
life on that marsh environment to collect their prey.
And so there is the potential--as I said in my testimony,
we need to be doing the research to really monitor the
recovery.
Mr. Markey. Well, let me ask you this again, Doctor. In
your testimony, you explained that BP is not providing
researchers like yourself similar Louisiana sweet crude to what
spilled from the nearby wells for controlled toxicity testing
so that we can better understand how this oil might impact the
Gulf ecosystem. Can you talk about why it is so important for
researchers like yourself to be able to test similar oil?
Dr. Galvez. Well, every crude oil is vastly different in
terms of its molecular characterizations and the types of
compounds that make up that crude oil. And each of these
compounds is vastly different toxicities. And so we want to be
able to match as closely as possible, preferably with the MC252
oil, so that we can study how those specific components are
acting on there because some components are going to act in
different biological pathways. And so it is important to do
those studies.
Mr. Markey. So again, what we have learned over and over
again is that BP has been more concerned with its own bottom
line than it has been with what is going on in the bottom of
the ocean. And their unwillingness to provide you and other
scientists with the information you need in order to do these
kinds of studies is just a further indication of BP's
unwillingness to cooperate in what should be an historic
investigation to find out what is going on right now in the
Gulf of Mexico. I thank you, Doctor.
Dr. Fleming [presiding]. I thank the gentleman, and I now
recognize myself for five minutes for questions. I listened
very carefully to a lot of the comments made today. By the way,
I am from Louisiana, as is my good friend, Mr. Landry, and
obviously we have been following this whole issue very closely.
We appreciate the work from LSU also on these studies, but we
hear discussions about oil sheens that have been observed. Of
course, we know most of the oil in the ocean today leaks
organically from its bottom so that is not an unusual
occurrence to see oil sheens.
Fish mutations, we know fish mutate constantly, as do most
of the lower species. Cellular-level changes, I don't know,
that all seems a bit of a stretch to most of us in Louisiana.
Commissioner Mike Strain of Agriculture tells us that the
sampling of our fish, particularly those that we are using for
consumption, shows virtually no hydrocarbon evidence. In fact,
he assures us that we have the most tested and the safest
seafood that is being consumed today.
And I think even, Mr. Galvez, or Dr. Galvez, I am not sure,
that you said that there was little or no hydrocarbon evidence
in the tissues that you are seeing. I will get to you in a
moment. I will give you a chance. Just we are pressed for time
here.
But the point is that what really, in the view of the
people of Louisiana, the problem has been with this incident
has been, number one, the perception that there has been damage
to the fish population and to the beaches, and this has been
true of Florida, where people are not coming when in fact
everything is pristine. So there has been a perception problem
that we have had to overcome, not an actual ecological
disaster.
Number two, perception problem about the safety of the
seafood, and we are able to prove that we have the safest
seafood in the world. But third, and most importantly, is what
is happening offshore with drilling. And if you look again, if
you will glance up to the slide, you see that the red bar is by
far the largest portion in terms of days, which adds perhaps on
average of 200 days to the process. The Obama Administration
gives us a similar graph, except that their days are compressed
to something in the average of 25 to 30.
So the difference that we see here, and what we are
observing, what the industry is observing, is around 200 days
of slow-walking permits before we actually get to the real
activity that is going on. That is what I would like to focus
on, and I will open this up to the gentlemen who are in the
industry. Is this in fact what you are seeing, that it is sort
of the pre-permit process, where you are actually filling out
forms, and nothing is happening for a number of weeks and
months before you actually get to it, something that is very
difficult for us to bear down on and really change?
I will open that up and be happy to hear different
impressions on that.
Mr. Reese. Yes. I am from the E&P industry, and I will
continue to answer that question. Yes, it has been very
difficult, and I think the most frustrating aspect has been
what rules and regulations are being imposed to get to the
``deemed submitted'' point. We have submitted applications.
Time goes by. We ask, and we are very active, I do not want to
say that we are just sitting back waiting for the phone to
ring. We are constantly in BOEM's office working with them to
try to understand, and many times it is just a level of
frustration.
Dr. Fleming. I think what I am understanding is that there
is no certainty in the process.
Mr. Reese. Exactly.
Dr. Fleming. That somehow something out of your control,
somebody could be shuffling papers deliberately. Somebody could
be ignoring applications deliberately, or it could be there is
just not enough staff. It could be that somebody from above is
given orders to sit on something for a minimum of three months
before you send it on. You really don't know what is going on.
Mr. Reese. That is the real, real issue. It is the level of
uncertainty associated with getting to the ``deemed submitted''
process. There are certain items of permits that I will
compliment BOEM on. Typically, the completion element, you need
a--normally, you will need anywhere from four to six permits
for every well that you drill, but a completion permit is
normally obtained within a few days. That they seem to be
pretty good on. But trying to get to the exploration plan, the
DOCD, or the ultimate drilling permit to allow you to start
drilling, that has been very frustrating.
We have already taken two permits that we had hoped to do
in early 2012, and we recognize at this point those will in all
probability be late 2012 or early 2013 permits.
Dr. Fleming. OK. Well, thank you for that because that is
really what I am hearing, is uncertainty. I am also
understanding that there is a certain cycle, and there are
certain times of the year that you can go out and take rigs
down, plug the drilling sites, or perhaps start them back up
again. And so if you don't get that permit approved within a
certain window, then you may have to wait another six months or
a year before you can go back again. Is that also the case?
Mr. Reese. That is correct. Essentially what you have--and
these are rules that have come in since Katrina and Rita--you
are not allowed to moor up, put a rig in place within, I
believe, five miles of another fixed structure or floating
structure in the Gulf of Mexico during hurricane season,
recognizing that most deepwater wells will take you 45 days, if
it is a side track, and it could easily be over 100 days if it
is a brand new well. Do the math, from June 1st to roughly the
middle of October, and what you find, unless you are on
location, moored up and ready to go, by sometime in the March
to April, maybe as late as May, standpoint, if you don't make
that window, you might as well forget any new deepwater
drilling that is within five miles of a fixed or floating
structure until some time in October-November.
Dr. Fleming. OK. Thank you. And I apologize to my
colleagues. I went a little further over than I intended to. So
next, I will recognize Mr. Holt for five minutes. Mr. Holt?
Mr. Holt. Yes.
Dr. Fleming. You are recognized, sir, for five minutes.
Mr. Holt. Thank you, Mr. Chairman. I would like to follow
up on one point. And first of all, thanks to all the witnesses.
Mr. Galvez, we were talking about the effects on the fisheries
and the ecological balance of the Gulf. When someone mentioned
recently that, well, fish mutate, it just happens, are the
changes that you have detected, the cellular changes in the
fish, is this abnormal, or is this normal mutation?
Dr. Galvez. Well, the mutation--yes, it happens over the
course of thousands of years, many, many generations. You will
get evolution. But some of the changes that we are observing,
some of the cellular changes in the gill are completely
abnormal. I am a fish physiologist by training, and I will tell
you firsthand that the level of damage that we are seeing on
those gills are going to impair the ability of those organisms
to take up the oxygen from the environment.
Mr. Holt. And let me go back now to the oil spill. Is the
oil still in the environment?
Dr. Galvez. Yes, it is.
Mr. Holt. Now, in the marshes and areas, some of it I guess
is still in the sediment, and probably will be for some time.
Dr. Galvez. Yes, it is.
Mr. Holt. Is that sediment important to the fisheries, or
is it only the open waters that are important to the fisheries?
Dr. Galvez. Well, certainly in that environment where
killifish and other organisms, they use that environment, that
habitat as safety, so they hide amongst the marsh grasses. Some
organisms, some flat fish, for instance, utilize that sediment.
Other organisms bury within the sediment. Killifish is in such
shallow water that it is exposed continually to that sediment.
Mr. Holt. So obviously what we are trying to get at is
whether it is important to stop and think or whether we should
be charging full speed ahead. Do you think we have done all the
thinking that should be done to understand the effects of what
we have experienced and what the fishermen have experienced and
what the other people who depend on the life of the Gulf have
experienced?
Dr. Galvez. If history is a lesson, and it should be, I
think that the potential ecological effects are yet to become
apparent, my concern. I would like to add that Louisiana
seafood, in my opinion, is still safe to eat because we are not
seeing the accumulation of the hydrocarbons in those animals.
But what we are seeing are these subtle cellular effects
that are going to make it more difficult for organisms to
survive in an ever-changing environment.
Mr. Holt. OK. Mr. Kief, you in your testimony, and a number
of my colleagues and others, have talked about delays in this
issuing of permits. Now, the Majority of the House here in the
Appropriations bill for the Interior has underfunded the agency
that is responsible for issuing the permits, to the tune of
about $35 million. The Director of BOEMRE has told this
Committee it could mean a shortfall of perhaps 20 permitting
engineers, which means that permits will not be issued as
quickly as the department would otherwise issue them.
Do you think this underfunding is wise in light of the
concern you have raised? Or what would 20 additional permitting
engineers do to help expedite the permitting?
Mr. Kief. Well, either that, or how about a permitting
process that was less than 50 pages turning to 3,600. That is
part of the problem.
Mr. Holt. OK. So you are happy with fewer permitting
engineers?
Mr. Kief. Oh, no. I wish the permitting process was----
Mr. Holt. Mr. Auer, what do you think about that?
Mr. Auer. Can we afford to lose----
Mr. Holt. Should we be laying off permitting engineers?
Would that make it better for permitting?
Mr. Auer. The engineers that would help for my permits, if
I have one guy, and he is taking 120 days, give me another one,
and maybe it is cut in half, OK? I don't need $35 million to
get my permits approved. They need some help.
Mr. Holt. Are you the only person out there seeking
permits?
Mr. Auer. No, I am not. But we all seek the standard form.
Mr. Holt. Mr. Reese, do you think it is wise to cut back on
those who would issue the permits?
Mr. Reese. I think if we are looking for a reason to not
issue permits, and the determination is the reason we are not
issuing them is there are not enough people, then no, that is
not a wise decision. However, if the fault is the fact that the
process is flawed, and you can throw 35 people or 135 people,
but you are still going to have a flawed process, I think the
focus has to be on the process, not the number of people.
Mr. Holt. OK. So one well-intentioned permitter with a good
process will do it, I suppose. Mr. Chairman, my time has
expired. Thanks.
Dr. Fleming. Mr. Holt yields his time back, and I now
recognize the gentleman from South Carolina.
Mr. Duncan of SC. Thank you, Mr. Chairman. As important as
this issue is to me, I am in markup in Homeland Security, so I
would like to yield my entire five minutes to the gentleman
that understands drilling equals jobs, Mr. Landry from
Louisiana.
Mr. Landry. Thank you, Mr. Duncan. I certainly appreciate
the time, and the people from South Louisiana appreciate that
as well.
Chris, your area of expertise is primarily in the plugging
abandonment consulting business. Is that correct?
Mr. Auer. That is correct.
Mr. Landry. OK. And so you are the guy who is responsible
for obtaining the permits that help oil and gas companies
properly abandon and seal off wells and reserves that have been
depleted.
Mr. Auer. That is correct.
Mr. Landry. And then you also aid in the removing of idle
iron.
Mr. Auer. I do.
Mr. Landry. OK. And I would suspect that you work for
multiple operators.
Mr. Auer. I do.
Mr. Landry. OK. And again, you are the person who is
responsible for getting those permits.
Mr. Auer. I am, yes.
Mr. Landry. Are you sitting on any of those permits?
Mr. Auer. I absolutely don't sit on any of the permits.
They are written and submitted as fast as possible.
Mr. Landry. And so as soon as you get them, you get to
work.
Mr. Auer. Absolutely.
Mr. Landry. Are you having any problems once you get your
permit, are you having any problems procuring the equipment and
the services necessary to do that work?
Mr. Auer. Absolutely not. And where we are at right now is
the permitting is so slow, and it has pushed so much work,
there are dye boats and heavy-lift vessels stacked at the
beach. The rates we are seeing, I don't know how the companies
are making any money. The assets are there.
Mr. Landry. So, if I asked you if you thought that there
are operators out there who actually have a PNA permit at their
office that they are not acting upon, would you believe me?
Mr. Auer. Actually, I would. And the only reason I think
that they would not act on it is if it ran into a bad weather
window. And there is a safety issue then, if we run further
into the year. That would be the only reason to not act on a
PNA permit.
Mr. Landry. Mr. Reese?
Mr. Reese. Yes, sir.
Mr. Landry. Are you sitting on any PNA permits?
Mr. Reese. I am sorry. Say again?
Mr. Landry. Do you all have any PNA permits at ATP that you
all are not acting upon?
Mr. Reese. Not other than because of a weather window or
scheduling equipment and things of that nature, no. We would be
acting on everything that we would have.
Mr. Landry. On the PNA side, do you know if there is a lack
of equipment or services available for you to do your work?
Mr. Reese. I am not aware of that. It is not my area of
expertise, but I am not aware of there being lack of ability to
get equipment for that.
Mr. Landry. Mr. Shafer.
Mr. Shafer. Relative to PNA and really any types of
permits, I think what we are seeing right now is historically
in the Gulf of Mexico, there has always been a small backlog, I
guess you would say, of permits, which once you finish one job
and move on to the next job, and not have your assets, whether
it be PNA, equipment, and heavy-lift barges, drilling rigs, you
know, normally you would like to move them immediately. A lot
of this equipment is very expensive. The crews are very
expensive. And so historically, you have always had a small
backlog of permits, just enough to move the equipment around.
And right now, it is quite the opposite.
As Chris had mentioned, what we are seeing now is equipment
on the beach, in the ports, sitting there, not working, and
available for work.
Mr. Landry. Now, Chris, let me ask you, you have had some
difficulty, as everyone else, but on the PNA permitting side
and removing idle iron that the Administration, Secretary
Salazar, Director Bromwich have gone on record as early as two
months after the Macondo incident, saying that it is something
that they want to see happen in the Gulf of Mexico. What do you
think the biggest obstacle is? If you said to this Committee, I
would suggest that BOEMRE or BSEE does this now, what would it
be that you would suggest?
Mr. Auer. They need to staff appropriately. They need to
standardize the forms. We don't have standardized forms for
abandonment. Everybody does it a different way. And they need
to automate it, just the same way they do with wells. And there
needs to be more focus. The fish are important, and I
appreciate Dr. Galvez's research and everything. But the most
important animal that is affected by this is the human animal.
And we need to turn our focus to that, and that needs to be
their focus as well. Keep seeing what the effect is on the
environment, but we are the environment. And nobody seems to
understand that.
Mr. Landry. Well, and so, let me ask you this. It was my
understanding that each well is different in the PNA permitting
process. So how would you standardize that?
Mr. Auer. Well, the wells have a standard form called an
APM form. That is real simple. That has been in play forever.
Any time you want to modify a well bore, you file an APM form.
The platform removal application, 30 CFR 250, has a list of
questions that you answer, as most government regulations do.
Build a form where you can fill in the blank because when you
hire new people at BOEM, this is kind of specialized. But when
you hire new people, it is easier to train them. Same thing we
did in the Army when we were all in the Army. Easy forms, learn
how to use it. Automate it so that I can get online and see,
just like I can with the well permits, and see where it is at,
what questions have been asked.
Currently, I have to pick the phone up, and I have to call
the one or two approving personnel at BSEE and ask them, hey,
where is this permit at. What is the status? That takes time
from them. It takes time from me. We shouldn't be there, not in
today's world. Real simple.
Mr. Landry. Thank you.
Mr. Hastings [presiding]. Thank you very much. Next we will
recognize the gentleman from Florida, Mr. Southerland.
Mr. Southerland. Thank you, Mr. Chairman. First of all, I
would like to thank everyone for coming to testify. And I know
I have a constituent here, Captain Bob Zales. Thank you for
making the 1,000-mile trip up to Washington. And also Mr.
Craul. Thank you for coming.
I want to ask Mr. Craul, I am familiar with your company,
even though Destin is not in my district, but I am familiar
with your company. You kind of outlined your business
interests, which are varied along the Gulf Coast. You have a
reputation of being a class organization, and you invest in the
communities that you are in.
With all the holdings you have, you create jobs, OK? We do
a lot of things up here. A lot of proposals come forth by
individuals who have never created a job in their life. And I
am just asking, though, what is the single greatest factor that
Legendary Hospitality looks at in making a business investment?
Mr. Craul. Supply and demand. As demand goes up, meaning
the increase in business to our area, is what creates jobs. So
if there is more people coming, more people buying, more people
renting, more people purchasing fuel, so on and so forth, then
we are ready to build more, which creates jobs to take care of
that demand.
Mr. Southerland. I know that some of the questioning is
trying to get us off of the topic that we actually asked you to
come 1,000 miles to participate in. Does the moratorium that we
have been dealing with, does it help or hurt demand?
Mr. Craul. Well, it is difficult to determine exactly how
much of our business was affected by the moratorium because it
is a part of our business. Not all of our business is from
Louisiana and so forth, but certainly if you have a reduction
in jobs and a feeder market, there is going to be an effect to
the businesses in Florida.
Mr. Southerland. You know, I noticed some of the other
witnesses, Mr. Reese, you had made a very good presentation,
and you talked about being in other countries as well. How
challenging is it for this moratorium, compared to other
countries, in the permitting process that you go through in
other markets?
Mr. Reese. The uncertainty that we have been dealing with
for the past year is unprecedented anywhere else. You do not
have this uncertainty associated with it. We are in the UK. We
are in the Netherlands. We are also in offshore Israel. In each
of those, the permitting is challenging. But the rules and
regulations have far more clarity, and the time frames there
are much more definitive.
Mr. Southerland. So certainty, obviously, kind of off of
what Mr. Craul was mentioning, I know that investors do want
certainty. And so the moratorium has injected more uncertainty
for you. And I would expect it has done so for any other
business interest.
One of the things I would like to ask, Doctor, I know it
has been touted on the other side of the aisle that we are not
interested in research. I am very proud to be a co-sponsor of
the Restore Act that deals with research. And so I just want to
go ahead and put that claim to rest. Inside that bill, it deals
with a lot of research because we do want to know.
I will say this, though, that if BOEMRE doesn't want to
issue permits, budgeting them $35 million more is not going to
change that, OK? This thing that you just throw money at
departments, and all of a sudden they just start changing their
view of the world is kind of looking through glass houses.
But, Dr. Galvez, I want to thank you for the research that
you are doing. I do believe in research. I do believe we need
to know, especially in the area of our fisheries. Mr. Zales
knows the importance of good research and not making fisheries
decisions based on ten-year old data that is inconclusive.
In your own testimony, you stated that it is too early to
tell. You mentioned the words ``speculation'' and ``unknown.''
There are things that are yet to become apparent. You know, I
think that does validate the need for more research. But one of
the things I wanted to state, you talked about not having the
sweet crude that you needed to do your investigation. You said
that you sent a letter, and that you still haven't received it,
seven months in. That has got to be aggravating, to need
something and not be able to get it for months in and months
out.
Dr. Galvez. Well, what is particularly aggravating is that
the approval for the oil was obtained over seven months ago. So
you----
Mr. Southerland. Here is what I want you to do, though,
because my time is running out. I want you to welcome you to
the world that these guys all live in, needing something badly
and never, ever getting it. Welcome to the wonderful world of
small business and private enterprise. I wish you didn't have
to deal with that. But I am glad that other people see the
aggravation that industry has to deal with on a day-in, day-out
basis.
Dr. Galvez. If I can comment briefly.
Mr. Hastings. Briefly.
Dr. Galvez. The university is like a small business in that
I have 14 staff that I feed by them the dollars.
Mr. Southerland. I hear you, man.
Dr. Galvez.--my research dollars. And in this uncertainty,
it is difficult.
Mr. Southerland. Absolutely. We all agree.
Mr. Hastings. The time of the gentleman has expired. And
the Chair recognizes the gentleman from Louisiana, Mr. Landry.
Mr. Landry. Thank you, Mr. Chairman. Mr. Reese.
Mr. Reese. Yes, sir.
Mr. Landry. You have been with ATP since its inception,
correct?
Mr. Reese. 1991, yes, sir.
Mr. Landry. When ATP started out, were you all a deepwater
player or a shallow-water player?
Mr. Reese. We were exclusively a shallow-water player. It
was formed by Paul Bulmahn, as he says, on the floor of his
living room, and I helped him along with a couple of other
gentlemen, and we basically took two projects in 1993-94, put
them on production. It cost about $7 million or $8 million for
our first two projects. And January of 1995, we were on
production.
Mr. Landry. So two projects, living room, a couple of guys.
It is the American dream.
Mr. Reese. Absolutely, it is.
Mr. Landry. Taking a risk. You could have drilled some dry
holes.
Mr. Reese. Yes, sir, we could have, and we did.
Mr. Landry. And then today, you are--
Mr. Reese. We are the fourth most active operator in the
Deepwater Gulf of Mexico, behind BP, Shell, and Anadarko.
Mr. Landry. Amazing, amazing. Now, here is the question. If
you all had to go back in that living room today, under the
current regulatory environment, in 11 years, could you be what
you are today?
Mr. Reese. No.
Mr. Landry. One more time.
Mr. Reese. No. I can give you a longer answer, but the
answer----
Mr. Landry. No, no. I know. Look, I believe you. I am
sitting here because I believed that last year when I ran. See,
in 1995, I started a business with a friend of mine, $10,000. I
didn't have $7 million. I wish I had had it.
Mr. Reese. We didn't have $7 million. We had to go find it.
Mr. Landry. But you see, that is what I did. And then I
sold some of those businesses, and we employed a lot of people,
a lot of people who have gone on to do a lot better things.
Some of them make more money than me now, guys that worked for
me. And I recognize that this Federal Government is destroying
that American dream. It is destroying the ability for guys like
you all to get back in that living room 11 years ago and do
what they are doing today.
Mr. Reese. To have a group of true entrepreneurs like Paul
was, like I was, and joining him, and doing what we did, I hate
to say it. I think that is a thing of the past. The rules, the
regulations, the costs associated, whether it is shallow-water
drilling or deepwater or the like. Our first deepwater project,
we took a project from Texaco. Unocal was our partner. That was
about an $80 million project. And our most recent project,
Telemark, is about $1.5 billion.
Mr. Landry. And in those 11 years----
Mr. Reese. It has been 20 years.
Mr. Landry. Did you have any Macondo-like accidents in the
Gulf of Mexico?
Mr. Reese. No. There has been 58,000 wells drilled in the
Gulf of Mexico, more than 58,000. One had a real problem, one
out of 58,000.
Mr. Landry. All right. And I am guessing that your safety
record is a great record. I mean, I think you care about your
employees.
Mr. Reese. Yes. I mean, no one has a totally unblemished
record in this industry, I will admit that. You can't be in
this industry and have total----
Mr. Landry. Well, my driving record is not unblemished. I
want you to know that.
Mr. Reese. You shoot par every time you go out to play
golf? No. That is not going to happen.
Mr. Landry. And a lot of it is my fault.
Mr. Reese. I know. Sometimes things happen. But no. We have
an impeccable safety record. When we designed the Titan, we put
a blowout preventer on the surface of the Titan. We also have a
shut-in device--it is called a SID--on the mudline.
Effectively, we have two blowout preventers on a deepwater
platform, one at the surface and one in the mudline.
Mr. Landry. And I would imagine that if the government had
not done a thing but check its own self in what caused the
Macondo well and investigated BP for the accident on that rig,
is it safe to say that the industry--would you have been
looking at that accident and trying to determine what you could
do to ensure that you company wouldn't have that same type of
accident?
Mr. Reese. Two quick things. The first answer is absolutely
yes. Any time there is an accident, you want to know what
happened. What should have happened, and what would have kept
us all from being here today, is when the incident occurred--we
have seen airplanes fall out of the sky. Toyota had problems,
things of that nature. What should have happened was an
immediate cease for anyone using the equipment that the Macondo
well was using, to find out was the problem with the equipment,
was it operator error, or what, immediately shut that down, and
you would not have heard a peep out of the Gulf of Mexico,
independents or majors, because that is what we would have done
to find out--we are using--I am not saying we did. We are using
the same piece of equipment they did. Is that a problem?
Unfortunately, it was a let us punish and let us put this
entire industry out of business for awhile. And that is the
reason we are sitting here today. It was an inappropriate
response to an accident.
Mr. Landry. Thank you.
Mr. Hastings. The time of the gentleman has expired. The
Chair recognizes the gentleman from California, Mr. McClintock.
Mr. McClintock. Well, to follow up on that, the blowout in
the Gulf was basically a mechanical failure of a blowout
preventer stack. Is that correct?
Mr. Reese. I am not going to answer that directly because I
am not informed, and I think that gets into litigation. If you
don't mind, I think, yes, that was clearly part of the problem.
Was that the cause of the problem? Was it operator error? Was
it something else? I am going to let other people----
Mr. McClintock. Well, it seems to me when there is an
airplane crash, the NTSB goes to work to determine what was the
cause of that crash, and then adds additional protections to
assure that that doesn't occur again.
Mr. Reese. That is correct.
Mr. McClintock. In the case of a mechanical malfunction,
you identify what was the mechanism that malfunctioned, and how
do we build them in the future so that that doesn't happen
again. The government didn't do that as far as I can tell, at
least didn't give priority to that. Instead, as you point out,
it vastly expanded the bureaucracy that oversees this activity
without any kind of focused attention on the actual problem.
Mr. Reese. I would agree with that.
Mr. McClintock. And what we are being told by the Minority
is, well, we have to add more bureaucrats. But as you pointed
out, you have gone from permits that were 40 pages to permits
that are now 3,600 pages.
Mr. Reese. The typical permit was about 30 to 40 pages. The
one that Paul used at our annual meeting was 3,600.
Mr. McClintock. So that is roughly a 9,000 percent increase
in bureaucracy. Maybe instead of more bureaucrats, what we need
is a little less bureaucracy. That is obviously rhetorical. I
am trying to get a handle on the economic damage that was done
by the blowout itself, and the economic damage that was done by
the government in its response to the blowout. Do you have
figures that would help me on either, anyone on the panel?
Mr. Shafer. The one figure that I quoted in my testimony
was 11,500 jobs. And that is actually a very conservative
figure. That figure is really related only to the Deepwater
drilling rigs that have left the Gulf of Mexico. And so that
figure would include the actual crews of the rigs, the people
working on the vessels that supply the rigs with various things
like fuel, food. I am sure you can imagine the logistical
difficulties of basically a floating city in 10,000 feet of
water very high, lots of people onshore working--engineers
designing wells, designing that kind of stuff, and just extreme
logistical difficulties of operating offshore.
So that is a very conservative figure, 11,500 direct jobs.
Mr. McClintock. Those are direct----
Mr. Shafer. Those are direct jobs, absolutely.
Mr. McClintock. That doesn't include the spinoff
activities. Has there been any economic assessment of the
damage done by the moratorium.
Mr. Shafer. Absolutely. My company did a study, and I think
it was somewhere around 100,000 jobs--I'm trying to include
those direct jobs, indirect, and induced jobs. I don't have the
exact figure in front of me. There is also the effect going
forward, which I think----
Mr. McClintock. Any dollar figure in any of the studies
that has been undertaken so far?
Mr. Shafer. I don't have it in front of me, but again, it
is in the tens of billions of dollars. Like I said, just from
those rigs, $6.3 billion is the figure we have estimated.
Mr. McClintock. So 100,000 direct and indirect unemployed,
and obviously billions of dollars of economic damage done by
the government in response to the blowout. What was the damage
of the blowout itself? Do we have estimates on that?
Mr. Shafer. I don't, sir.
Mr. McClintock. Anyone on the panel?
Mr. Reese. I think the only number that has really been
used is the $20 billion that BP had to basically put into the
fund. I think they are trying to say that was the total
economic damage. But clearly, it is not. That was the direct
damage. As for indirect damage, we had to let a rig go. That
rig is now over in Africa. Those are untold numbers at this
point.
Mr. McClintock. It would be interesting to get that figure.
From what I have seen, it appears that the government may have
done as much damage to the economy as the accidental blowout
did.
Mr. Shafer. Sir, and I think the $20 billion figure, which
was the amount that BP had to set aside to deal with the
ongoing effects of the spill, I am not sure if that has
actually all been paid out. I think that was more an estimate
that was made by the Administration, rather than an actual
figure.
Mr. McClintock. And that was compensated. That is
compensation for the damage. So that was compensated damage as
opposed to the economic damage done by the government's
policies, which has been uncompensated to the people affected.
One other quick question. Can you give me a picture of the
number of rigs that have left the Gulf as a result of the
government's policies, and any chance of getting them back any
time soon?
Mr. Shafer. Yes, sir. As I said in my testimony, the number
of rigs that have left the Gulf of Mexico is 11. Relative to
them returning, there is currently two of those rigs that are
planned to return. One of them is off French Guinea, so it is
off South America. And actually, the company that is the
operator of that rig, Coldwell Energy, still does not have a
permit to drill, which definitely opens up the question of if
they will bring the rig back when they don't have a permit to
drill.
And the other company is Murphy Oil and Gas, who actually
is talking about divesting out of some of their Gulf of Mexico
properties. So, again, the possibility of that rig returning
seems to be declining rapidly every day for both those rigs.
And of the rest of the rigs, there is no plans for them to
return.
Mr. Lamborn [presiding]. OK. We will go to our next
questioner, which happens to be myself. So I will just jump
right in. Thank you all for being here. At this point, I think
we are beyond the fact that the length of the shutdown and
slowdown in the Gulf was both unwarranted and unnecessary. We
are at the point where we are trying to find out the lasting
and ongoing impacts on job creation in the Gulf, and how to
help revive the Gulf.
One of the problems we hear so often that affects business
in uncertainty. With offshore rigs costing as much as half a
million dollars per day to lease, uncertainty can be especially
lethal for small businesses. As they scale down offshore
operations and employees, all of the secondary and tertiary
businesses follow suit. And the same is true of the mom and pop
businesses in the local port cities, and even beyond the Gulf.
Al Reese in his testimony noted the vendors and contractors in
42 States that rely on offshore operations.
So my first question for those of you on the panel who
helped run a business, how many people do you employ now,
roughly, and how many have you had to let go?
Mr. Auer. I have got--I don't know. I am at 22, and I don't
think it is how many I have let go. It is what would be my
capacity to expand. And I could probably double that, if we had
some permitting stuff going the way it should be.
Mr. Lamborn. Thanks.
Mr. Kief. We have approximately 110 employees, and capacity
to employ 125. And once again, my question is that there are
companies like us that are avoiding layoffs by using capital
and lines of credit to maintain our workforce. And that
threshold is about to be met to where we are going to have to
discharge more people, and we are trying to avoid that, hoping
that this system gets straightened in a quick fashion.
Mr. Lamborn. OK.
Mr. Kief. If not, we are going to have to do that.
Mr. Lamborn. OK. Anyone else?
Mr. Reese. We have less than 100 people in our company, but
we make use of suppliers, contractors, and people of that
nature. Any time we drill a well, we estimate somewhere around
1,000 people are going to be impacted, whether it is the
caterers, the boat owners, the people of that nature. Clearly,
in the past year and a half, we pushed off three wells that I
can think of sometime into 2013 or beyond. As I said, one of
those rigs has left and gone over to Africa, and we are just
waiting to get permits on two wells. So well over 3,000 just in
three particular wells.
Mr. Lamborn. OK, thanks. I will go on to my next question,
and this is for Mr. Reese. The exodus of American manufacturing
jobs is a story no one likes to be reminded about, but the
reality is that our Nation is competing every day with the
growing economies like those of China and India to keep jobs
here. So when I hear about your company investing nearly a
billion dollars building the ATP Titan, the first multi-column,
deep-draft, floating, drilling, and production platform built
in the USA, this is truly an American success story.
The Titan is on the cutting edge of technological
innovation. From what I understand, it utilizes two blowout
preventers, increasing safety through redundancy. Can you tell
us more about what went into building the Titan, and things
Congress might be able to do to promote more rigs being
constructed right here in the United States?
Mr. Reese. Certainly. And I think part of it has to do with
specifics to the industry, and part of it is just an overall
working with more employment nationwide. We wanted to build the
Titan, and we wanted it to be homegrown. It was built in
Louisiana, and it was built in Texas. Those are the two ports.
As I said, over 30 countries were involved in it. We sent
checks to over 31 different States from employers for that, and
that was all told about a billion dollars just for the Titan,
the mooring, and the pipelines associated with that.
I think the main thing that we would like to see that would
encourage us to continue to be here would be more general, and
that is getting people back to work. How can we reduce payroll
taxes? How can we give encouragement to companies that would
hire people. ATP will use and utilize many of the contractors
that are sitting here as we get more wells, more production,
and the like. The main thing we need is the permits to be able
to say, we are going to drill another well. We are going to
build another Titan.
We have another one in construction right now that will
ultimately be another billionish dollar unit. We are looking
offshore Israel. And as a result of looking offshore Israel, we
have already been to the groups here in Washington that can
help fund that, Ex-Im Bank, and we believe there is a
possibility that they may be able to contribute partially to
that construction for the American component.
So these are the things that are going to be necessary. The
other thing--and please don't take this wrong--I think a lot of
things that the government can do is to, I will use the term,
get out of our way. We don't necessarily need help. Every time
there is a problem, we don't need government to solve it for
us. If government can say this is a problem that belongs to the
industry, this is something that we will be able to handle. The
independents and the majors have been doing that for quite some
time.
Mr. Lamborn. Well, thank you for that answer. And I have to
agree with you on that last point. It is just amazing that some
people turn to government first, when I want to turn to the
American people--the ingenuity, creativity, the hard work that
we have seen in the hundreds of years of our Nation's history.
It has been proven time and time again. So I love that answer.
Thank you for being here, and thank you all for being here and
for your answers.
And now we will go to our last questioner, Representative
Thompson of Pennsylvania.
Mr. Thompson. I thank the gentleman. Gentlemen, thanks for
your testimony. Mr. Reese, I want to follow up on the Titan
that you just talked about. In your testimony, you noted that
the blowout preventer was installed. Was that required by
regulation?
Mr. Reese. The blowout preventer, yes. One blowout
preventer is required. A second blowout preventer----
Mr. Thompson. You have two, right?
Mr. Reese.--is not required. We designed that into the
system in 2007. Why? Because we felt it was necessary for a
permanently moored rig to have two types of blowout preventers.
It was not required, costs literally tens of millions of
dollars extra to do that.
Mr. Thompson. Well, you anticipated my second question. I
was going to ask why the second one, if only one was required.
Thank you.
Mr. Craul, thanks for being here on behalf of the
hospitality industry. We are going to a fair amount of natural
resource extraction in landlocked Pennsylvania, and our
hospitality services is booming as a result of it. We can't
build hotels fast enough, and so which has been really good. I
also understand that the hotel industry can be seasonal. I grew
up in a small family sporting goods store, and we had a marina
on a lake. Trust me, our window of opportunity was a lot less
than 100 days, and I know how vulnerable that can be.
The losses that were realized, they were compensated with
the vendors that were in the industry?
Mr. Craul. The answer was--they were compensated?
Mr. Thompson. Yes, were they compensated?
Mr. Craul. You mean from BP?
Mr. Thompson. Correct.
Mr. Craul. Well, that isn't over yet.
Mr. Thompson. OK. But progress.
Mr. Craul. There is plenty of litigation and so forth.
There were some checks in the mail, but there were some
businesses----
Mr. Thompson. That is how progress is put in place.
Mr. Craul. It was slow.
Mr. Thompson. Right.
Mr. Craul. But there is progress.
Mr. Thompson. Well, that defines government, slow,
sometimes. I understand that, no matter what. Mr. Craul, there
was some conversation to that, it is slow and it is ongoing.
But since that time, frankly, with the moratorium, if the oil
and gas industry is reduced by 25 percent permanently, not just
slowed down now, but permanently due to a slowdown in
permitting, I was wondering what the impact would have on your
industry going forward in the long term, given we are talking
about higher unemployment. We are talking about under-
employment for some folks. We are talking about less wages,
less disposable income, and loss of jobs.
The one job I just heard about was a toll pusher for over
$200,000 a year. Does that have an impact on your industry
long-term?
Mr. Craul. Absolutely. Yes, as I said in my testimony, we
have a lot of States to our west where the people drive in to
our market in Florida, and not just the Panhandle. They go down
to Orlando. They go to Miami. They go all over the State. And
so if there is a reduction in jobs anywhere within our drive
market, it is going to have an effect.
Mr. Thompson. Right. And I don't think there is anybody
going to come with any kind of compensation for that, and that
will be a permanent pretty negative impact on our hospitality
services.
Just a question for all the panel. Again, back in
landlocked Pennsylvania, the Forest Service stopped issuing
permits for drilling natural gas in my congressional district,
and it was the National Forest. But that was over a year it
lasted, and I got to tell you, it drove unemployment up
significantly, and we lost not just the direct industry jobs,
but the indirect jobs.
And I have heard a number of you gentlemen talk about the
indirect jobs in pretty general terms. I was wondering, what
are the specific jobs that would be considered indirect jobs?
What are the kinds of jobs that have been driven out, that have
been lost in these local communities and economies that your
suppliers or resources, obviously the hospitality jobs? Any
thoughts?
Mr. Reese. From the E&P side, I guess we kind of are at the
top, meaning that we are the ones that do most of the
employment here. Whether it is a drilling operation or a
production operation, we have operators that are onsite. We
have catering. We have boats. We have helicopters. All of that
goes into what we do. And I will let these gentlemen that we
would employ speak.
Mr. Kief. We are in that category. We are in the towing
business, and we move drilling rigs for the folks like Mr.
Reese, and so we are being affected by that. Then the trickle-
down happens to go into our suppliers, the people that supply
goods like cable and rope and consumables and insurance and
stuff like that. They are being affected further down the road.
Mr. Thompson. Yes, sir.
Mr. Zales. And I would like to add just one thing, and I
don't know how you calculate this. But when you get into our
businesses, into the charter business--and clearly
Representative Landry's guys in Louisiana, because, I mean,
these oil workers are there. His for-hire guys have lost
business, and I don't know how many there are that have left
the business entirely. It trickles all the way down into that,
and then it goes further than that into the people that supply
me, the support businesses, the fuel people, the tackle shops,
the marinas. If I am hurting, they are hurting. So, it trickles
all the way down.
Mr. Kief. One more thing to add, we had a couple of guide
fishermen, charter fishermen that used to work for us that got
let go because we had to make some cutbacks, and that was one
of the places where we had to start.
Mr. Thompson. OK. Thank you, Chairman.
Mr. Lamborn. OK. Thank you. With the indulgence of the
Committee, we will have a very, very brief second round. There
is one Member in particular burning to ask some more questions,
and then maybe one or two others. But I would like to recognize
Mr. Landry of Louisiana.
Mr. Landry. Thank you, Mr. Chairman. I will be brief. I
want to tell you, Captain Zales, that I remember last year when
I was running for this office and coming up here to Washington,
and sitting down with the head of the Realtors Association in
the middle of the BP oil spill, and she just didn't know what
she was going to do. Oil was on the beach in Florida, and I
told her that the bigger problem was going to be the
moratorium. I did tell her that, and she looked at me like she
couldn't understand. I said, ``I am telling you that oil is
going to be cleaned up.'' You are not going to have anybody
going back to the beach in Louisiana and Mississippi and those
areas if you don't get people to work.
And so it is all a hand-in-glove industry. It just trickles
down into every facet of our life, and it shows up at the pump
for people in the northern part of this country.
Real quick, Cory, Mr. Kief, I would like to just ask you a
few questions on SEMS compliance, safety environmental
management system. Are you familiar with that?
Mr. Kief. Yes, sir.
Mr. Landry. I had a discussion with Director Bromwich a
couple of weeks ago in this Committee, where I talked to him
about my concern about the scheduled implementation of SEMS,
and he told me that he has not heard a word about the
implementation of SEMS being a problem for the industry. Do you
believe that?
Mr. Kief. No.
Mr. Landry. OK. Well, my concern is that BP had a SEMS in
place when the accident occurred. So, it is not something that
is going to prevent another Macondo incident. But who do you
think the implementation of the SEMS impacts more, the major
oil and gas companies, or the small operators?
Mr. Kief. The smaller operators.
Mr. Landry. Mr. Reese, are you familiar with SEMS?
Mr. Reese. I am very, very familiar with the concept of it.
I do not deal with it on a daily basis. But we are going
through that right now.
Mr. Landry. Do you feel like what Mr. Kief said is
accurate?
Mr. Reese. Yes. It reminds me of Sarbanes-Oxley to a great
extent. When we had Sarbanes-Oxley come in place, we came
through a review that was impeccable. But the one thing we
didn't have, we didn't have a whole lot of documentation. We
needed to buy hundreds of three-ring notebook binders to make
sure we did everything correctly.
Mr. Landry. Now, my suggestion, after talking to the
industry, because the industry doesn't--is not opposed to SEMS.
Mr. Reese. No.
Mr. Landry. But my suggestion to the Director, which I
would like to just ask all of your opinions--Mr. Shafer, you as
well--whether you oppose it. And it is OK. You can, believe you
me, I have no problem if you tell me it is bad and that BOEMRE
go ahead and implement the audits of SEMS, but work with the
industry before we start penalizing the industry, so everyone
understands that they are getting into, both them and us. That
is one idea. Do you all have a----
Mr. Kief. Well, we instituted a SEMS plan starting in 2005,
and it took us until 2010 to complete it. It took five years,
and they are trying to compress it into one year, and that is
the problem. In a nutshell, that is it.
Mr. Landry. You see, he can tell me no because he is a
voter as well. Mr. Kief, how could we implement SEMS in a
manner that allows the industry who has embraced it to get it
implemented in the Gulf Coast without harming smaller
operators?
Mr. Kief. I think maybe some of the larger companies have
the resources to do it, and then the smaller companies may not,
not in as much time as they are being mandated to do it in. It
is all about time.
Mr. Landry. It is a time issue.
Mr. Kief. Yeah. I believe it is necessary, and it really
does have its benefits, except that the transition pieces are
wrong.
Mr. Landry. So long it took you five years instead of one
year.
Mr. Kief. Five years.
Mr. Landry. OK. Thank you, Mr. Chairman. I yield back.
Mr. Lamborn. Thank you. I will recognize myself for one
question. Captain Zales, could you fill us in on what your
opinion is of the program that Mr. Feinberg is operating?
Mr. Zales. It is a failure. For some people, it has been
great. For the majority of them, it has been a time-consuming
process. The fishing industry, whether it is charter or
commercial, is very unique, and it depends on the area. There
is no standard one-size-fits-all. And the program that was
developed has kind of been a typical government-type thing
that, here it is, and this is the way it works. And a lot of
people fall through the cracks, and those people are
struggling.
And it is like when they are talking about a small tugboat
operation. When you are looking at a charter fishing or a
commercial operation, my business is a family business. I am an
only child. We have been in business 46 years and are
struggling today to try to maintain that business because of
the regulatory impacts that we have had from the Fisheries
Service and everybody else.
And in this process, we don't have the resources to go out
and hire attorneys and do everything that needs to be done to
properly dot all the Is and cross the Ts. And it is a struggle
to try to do that. And in that respect, it is a massive
failure, and it is where they are putting time constraints on
the process. Like I say, I mean, this GCCF thing is supposed to
go through 2012, and they are claiming everything is going to
be perfect after that, where clearly it may not be. And I hope
it is, but it may not be.
And now that the trial is coming into play in February
because the Federal judge said he is going to trial, now BP is
looking back and saying, well, we will roll the dice here. We
may or may not do this. So there is big fear within the fishing
sector that this whole process may go away. And if we are not
part of a lawsuit, then everybody loses out.
Mr. Lamborn. OK. Thank you. That concludes our questioning.
I want to thank all the witnesses for being----
Mr. Markey. Mr. Chairman, if I may.
Mr. Lamborn. Certainly. I would like to recognize, just in
the nick of time, the Ranking Member of the Committee,
Representative Markey of Massachusetts.
Mr. Markey. Thank you very, very much. Again, a few notes
here. There were 116 rigs in the Gulf right now, and there were
122 before the spill. So we are getting back to normal. The
Wall Street Journal has reported last month that drilling has
returned to near normal levels. There are 23 rigs currently
drilling wells in water deeper than 3,000 feet, the same number
as two years ago. So this is a hearing on where are we today.
So that is where we are today, and that is good news.
The Gulf of Mexico production, in 2008, when President Bush
was President in his last year, 2008, there were 1.16 million
barrels per day drilled in the Gulf of Mexico. And in 2011,
right now the estimate is 1.40 million barrels. So right now,
under Obama's leadership, and notwithstanding all the problems
that we have had down there, we are now ahead of what happened
in Bush's last year.
So that is good news, and I think everyone should really be
praising President Obama for dramatically surpassing President
Bush in his last year, notwithstanding all of the problems that
occurred in the Horizon spill. So that is good news for
everyone out there as well. And that is 250,000 barrels per day
greater than Bush in his last year.
And I might also add that in the crocodile complaints which
we hear about the delay in the processing of any of these
applications, again I urge the Majority to remove their block
on adding the 20 additional engineers. OK. If you tie someone's
hands behind their back who is asking for the help, which they
need in order to get the work done, you can't then really with
all sincerity then point the finger back at this person and
say, you are not getting the work done. Bromwich is telling the
Majority, I need 20 more engineers. You give me the 20 more
engineers, and I will be processing stuff like it was
chocolates on Lucy Ricardo's chocolate factory--what was that?
Conveyor belt in the most famous ``I Love Lucy'' episode, OK?
So they are ready to go and start to process these
applications, but they need 20 more people. It just can't be
Lucy Ricardo and Ethel Mertz. They need a few more people to
help them out. And I think that whole chocolate conveyor belt
which is the oil of the Gulf of Mexico will basically move a
lot more quickly in terms of the applications process.
So again, I beg the Majority, give Mr. Bromwich the help
that he needs in order to process these applications. And
please let us not continue to have this false accusatory
environment, where the very agency which has brought us to a
point where it is 250,000 barrels per day in the Gulf of Mexico
higher than Bush's best efforts up to his day in 2008, and then
say that you are going to deny the success of Obama on the
basis of how quickly the applications are processed, even as
they are saying if you give us 20 more people, we will get it
done for you, and at a pace that is consistent with what the
oil industry wants.
So I guess I would ask each one of you down there, yes or
no, would you want the 20 additional engineers to go on the
payroll who could process these applications more quickly? Yes
or no, right down the line.
Mr. Shafer. I mean, I think----
Mr. Markey. No. Yes or no.
Mr. Shafer. Yes.
Mr. Markey. Yes, yes. Thank you.
Mr. Reese. Twenty people at $35 million? That is $1.7 or
$1.8 million per person?
Mr. Markey. Do you want the 20 additional engineers?
Mr. Reese. Not at that amount of money.
Mr. Markey. OK, good.
Mr. Reese. There is the problem.
Mr. Markey. Yes or no, do you want the additional
engineers. Let us keep going down there.
Mr. Auer. I am going to hold my comments.
Mr. Markey. You don't have a view on it? OK.
Mr. Auer. No, not for you.
Mr. Kief. Under those pretenses, no.
Mr. Markey. Oh, no. Interesting.
Mr. Zales. And I am going to relay the National Marine
Fisheries Service, absolutely not.
Mr. Markey. OK, great. OK, next?
Mr. Craul. No.
Mr. Markey. No? Yes, sir.
Dr. Galvez. Yes.
Mr. Markey. Yes. OK, thank you. Well, that is interesting
to me. OK. And it helps to answer a lot of what is going on.
You want to persecute the agency that is asking for help, and
then claim that you are persecuted because they are not moving
more quickly. And so that is kind of the interesting
paradoxical situation that you put yourself in as witnesses.
But I appreciate the difficulty of your dilemma. I yield back
the balance of my time.
Mr. Lamborn. OK. Thank you, Mr. Ranking Member. I would
like to remind him that it takes five to ten years to bring a
complicated, especially deep well, online. So when you count
back five or ten years, I think we see where the credit really
goes.
That will conclude our hearing. I want to thank the
witnesses for being here. Members of the Committee----
Mr. Markey. If the gentleman would yield, I think you aimed
at me. I think that you have to give President Obama some
credit for degree of credibility, and having the worst
environmental disaster of all time, and trying to give credit
for President Bush for the success which President Obama has
had after the worst environmental accident of all time, caused
in fact by the dereliction of duty by the personnel named by
President Bush to the MMS----
Mr. Lamborn. OK. Reclaiming my time----
Mr. Markey. It is a very difficult line of logic to follow.
Mr. Lamborn. OK. Reclaiming my time, I would also like to
submit for the record testimony of Joseph R. Mason of Louisiana
State University, dated October 12th. Without objection.
[The statement of Joseph R. Mason submitted for the record
follows:]

Statement submitted for the record by Joseph R. Mason,
Louisiana State University

Thank you for this opportunity today to submit a written statement
on the lingering impacts of the Obama administration's six-month
moratorium on offshore drilling for oil and natural gas. It has been
one full year since this moratorium was officially lifted. Yet, U.S.
federal energy policy today remains woefully out of balance.
These policies, or quite frankly lack thereof, have had severe
consequences for U.S. domestic oil production since the moratorium was
lifted. According to the U.S. Energy Information Administration (EIA),
U.S. domestic production will decrease by 250,000 barrels per day (bpd)
each year going forward under the current production policy regime. In
particular, EIA estimates that, in the Gulf of Mexico (GOM) alone, oil
production will decline approximately 14 percent both in 2011 and 2012
due to the administration's unwillingness to grant expedient and
sufficient access to U.S. reserves.
In sum, not very much has changed in the Gulf region--and the
country at-large--since my initial study on this topic in July of last
year, ``The Economic Cost of a Moratorium on Offshore Oil and Gas
Exploration to the Gulf Region.''
I. Continued Regulatory Burdens
The current regulatory framework charged with overseeing the U.S.
oil and natural gas industry has continued to hamper economic growth
generally and the oil and natural gas sector specifically. Since the
offshore moratorium has been lifted, executive agencies such as the
Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE)
have worked tirelessly to prove their worth and flex their muscles. As
such, new agencies like these regularly undergo dramatic power shifts
before settling into anything that could be considered a stable role in
the U.S. regulatory framework. And these types of power struggles and
yearning for approval inevitably lead to rampant inefficiencies.
Jim Noe, senior vice president, general counsel and chief
compliance officer of Hercules Offshore Inc., the largest shallow-water
drilling company in the Gulf of Mexico, recently noted that, ``the
backlog of permits awaiting decisions within the Department of the
Interior just reached its highest level since the Gulf spill 1 1/2
years ago.''
The pace at which new permits for new wells are issued has come to
an almost complete crawl. The current average is 5.2 per month; this
level has not been evidenced since energy demand plummeted in 2009.
But laborious regulations and continued delays are not the only
costs threatening U.S. oil and natural gas operations. The
administration's continued advocacy of repealing Section 199 of the
American Jobs Creation Act and Section 1.901-2 of the U.S. Department
of the Treasury Regulations (``dual capacity'') presents the industry
with additional challlenges. Those changes would eliminate domestic and
international tax credits for the U.S. energy sector. Although
regulators are hoping to raise substantial revenues from the repeals,
the fully-scored economic cost of the regressive legislation could
further debilitate the oil and natural gas sector and most likely
result in decreased tax revenues from the industry.
The Peterson Institute for International Economics detailed the
harmful effects of the administration's new proposed taxation schemes.
In a new policy brief, US Tax Discrimination Against Large Corporations
Should Be Discarded, authors Gary Clyde Hufbauer and Martin Vieiro
argue that, ``If the targets of discrimination are the nation's largest
firms, the country will find it harder to compete on a global scale in
industries that require dedicated research, industries that exhibit
huge scale economies, and industries that network across national
borders.'' U.S. oil and natural gas firms are, by and large, some of
the nation's largest and most internationalized of companies.
In looking at the political economy of new regulatory arrangements
like BOEMRE, therefore, we must look with skepticism and concern upon
both the political motivations of the regulatory officials charged with
enforcing the rules, and the economic power that will be concentrated
in those regulatory officials as a result of their influence over the
implementation costs and economic redistribution. Without restraint, a
toxic mix of politics and power may damage both the industry and the
environment.
II. Painful Consequences of Administration's Negligent Energy Policies
Using my July 2010 report's results--but also accounting for delays
following the official end of the six-month moratorium--is it evident
that regional economic losses continue to grow.

[GRAPHIC] [TIFF OMITTED] T0719.009

.epsTable 1 shows that output losses continue to mount with stalled
development in the GOM, rising from $2.1 billion regionally and $2.8
billion nationally to $3.3 billion and $4.4 billion, respectively. Job
losses are estimated to have increased from 8,000 regionally and 12,000
nationally to 13,000 regionally and 19,000 nationally. Lost wages
previously estimated to amount to $500 million regionally and $700
million nationally are now $800 million regionally and $1.1 billion
nationally. Finally, lost tax revenues estimated to be $100 million on
the state and local level and $200 million on the national level now
amount to $155 million and $350 million, respectively.
With the latest jobs figures released last week from the U.S.
Bureau of Labor Statistics (BLS) showing national unemployment remains
at 9.1 percent, we simply cannot afford to give up any more economic
activity.
III. Conclusion
IHS Global Insight recently published a study that puts the impacts
on jobs, energy production and local economies of the Obama's
administration's precarious attitude toward conventional energy into
clear context. The report states that, next year, releasing
restrictions on ``the [Gulf oil and gas] industry could create 230,000
American jobs, generate more than $44 billion of U.S. [gross domestic
product], contribute $12 billion in tax and royalty revenues, produce
150 million barrels of domestic oil, and reduce by $15 billion the
amount the U.S. sends to foreign governments for imported oil.''
Nonetheless, oil and natural gas production is set to decline in
response to higher taxes, onerous government regulation and greater
political uncertainty. That means less jobs, lower wages, and lower
gross domestic product (GDP) growth than would otherwise occur. Those
are indisputable laws of economics, regardless if policymakers agree
with them or not. In the spirit of hope, I look forward to the day the
administration realizes the very real pain that its energy policies are
having on U.S. job creation, capital allocation and broader economic
recovery, as well as the environmental threats, political instability,
and market volatility that come from meeting U.S. energy needs from
foreign supplies.
______

Mr. Lamborn. And Members of the Committee may have
additional questions for each of you possibly, and if so, they
will submit them to you in writing. We would ask that you
respond to those in writing as well. If there is no further
business, without objection, the Committee stands adjourned.
[Whereupon, at 12:14 p.m., the Committee was adjourned.]