[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT HEARING ON THE U.S.-MEXICO TRANSBOUNDARY HYDROCARBON
AGREEMENT AND STEPS NEEDED FOR IMPLEMENTATION; AND LEGISLATIVE HEARING
ON H.R. 1613, OUTER CONTINENTAL SHELF TRANSBOUNDARY HYDROCARBON
AGREEMENTS AUTHORIZATION ACT
=======================================================================
OVERSIGHT AND LEGISLATIVE HEARING
before the
SUBCOMMITTEE ON ENERGY AND
MINERAL RESOURCES
of the
COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
Thursday, April 25, 2013
__________
Serial No. 113-13
__________
Printed for the use of the Committee on Natural Resources
Available via the World Wide Web: http://www.fdsys.gov
or
Committee address: http://naturalresources.house.gov
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COMMITTEE ON NATURAL RESOURCES
DOC HASTINGS, WA, Chairman
EDWARD J. MARKEY, MA, Ranking Democratic Member
Don Young, AK 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 Holt, NJ
Paul C. Broun, GA Raul M. Grijalva, AZ
John Fleming, LA Madeleine Z. Bordallo, GU
Tom McClintock, CA Jim Costa, CA
Glenn Thompson, PA Gregorio Kilili Camacho Sablan,
Cynthia M. Lummis, WY CNMI
Dan Benishek, MI Niki Tsongas, MA
Jeff Duncan, SC Pedro R. Pierluisi, PR
Scott R. Tipton, CO Colleen W. Hanabusa, HI
Paul A. Gosar, AZ Tony Cardenas, CA
Raul R. Labrador, ID Steven A. Horsford, NV
Steve Southerland, II, FL Jared Huffman, CA
Bill Flores, TX Raul Ruiz, CA
Jon Runyan, NJ Carol Shea-Porter, NH
Mark E. Amodei, NV Alan S. Lowenthal, CA
Markwayne Mullin, OK Joe Garcia, FL
Chris Stewart, UT Matt Cartwright, PA
Steve Daines, MT
Kevin Cramer, ND
Doug LaMalfa, CA
Vacancy
Todd Young, Chief of Staff
Lisa Pittman, Chief Legislative Counsel
Jeffrey Duncan, Democratic Staff Director
David Watkins, Democratic Chief Counsel
------
SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES
DOUG LAMBORN, CO, Chairman
RUSH HOLT, NJ, Ranking Democratic Member
Louie Gohmert, TX Steven A. Horsford, NV
Rob Bishop, UT Matt Cartwright, PA
Rob Wittman, VA Jim Costa, CA
Paul C. Broun, GA Niki Tsongas, MA
John Fleming, LA Jared Huffman, CA
Glenn Thompson, PA Alan S. Lowenthal, CA
Cynthia M. Lummis, WY Peter A. DeFazio, OR
Dan Benishek, MI Tony Cardenas, CA
Jeff Duncan, SC Raul M. Grijalva, AZ
Paul A. Gosar, AZ Colleen W. Hanabusa, HI
Bill Flores, TX Joe Garcia, FL
Mark E. Amodei, NV Vacancy
Steve Daines, MT Vacancy
Kevin Cramer, ND Edward J. Markey, MA, ex officio
Doc Hastings, WA, ex officio
------
CONTENTS
----------
Page
Hearing held on Thursday, April 25, 2013......................... 1
Statement of Members:
Duncan, Hon. Jeff, a Representative in Congress from the
State of South Carolina.................................... 6
Prepared statement of.................................... 7
Chart submitted for the record........................... 9
Holt, Hon. Rush, a Representative in Congress from the State
of New Jersey.............................................. 3
Prepared statement of.................................... 5
Lamborn, Hon. Doug, a Representative in Congress from the
State of Colorado.......................................... 1
Prepared statement of.................................... 3
Statement of Witnesses:
Beaudreau, Hon. Tommy P., Acting Assistant Secretary for Land
and Minerals Management, U.S. Department of the Interior... 9
Prepared statement of.................................... 11
Response to questions submitted for the record........... 13
Groves, Steven, Bernard and Barbara Lomas Senior Research
Fellow, Margaret Thatcher Center for Freedom, The Heritage
Foundation................................................. 39
Prepared statement of.................................... 41
Manuel, Athan, Director, Lands Protection Program, Sierra
Club....................................................... 48
Prepared statement of.................................... 49
Milito, Erik, Group Director, Upstream and Industry
Operations, American Petroleum Institute................... 28
Prepared statement of.................................... 29
Pascual, Ambassador Carlos, Special Envoy and Coordinator for
International Energy Affairs, Bureau of Energy Resources,
U.S. Department of State................................... 14
Prepared statement of.................................... 15
Response to questions submitted for the record........... 17
Simmons, Daniel R., Director of Regulatory and State Affairs,
Institute for Energy Research.............................. 30
Prepared statement of.................................... 32
OVERSIGHT HEARING ON THE ``U.S.-MEXICO TRANSBOUNDARY HYDROCARBON
AGREEMENT AND STEPS NEEDED FOR IMPLEMENTATION''; AND LEGISLATIVE
HEARING ON H.R. 1613, ``OUTER CONTINENTAL SHELF TRANSBOUNDARY
HYDROCARBON AGREEMENTS AUTHORIZATION ACT''
----------
Thursday, April 25, 2013
U.S. House of Representatives
Subcommittee on Energy and Mineral Resources
Committee on Natural Resources
Washington, D.C.
----------
The Subcommittee met, pursuant to notice, at 10:04 a.m., in
Room 1324, Longworth House Office Building, Hon. Doug Lamborn
[Chairman of the Subcommittee] presiding.
Present: Representatives Lamborn, Wittman, Thompson,
Duncan, Daines; Holt, Horsford, Costa, Grijalva, and Garcia.
Mr. Lamborn. The Committee will come to order. The Chairman
notes the presence of a quorum, which, under Committee Rule
3(e), is two members. The Subcommittee on Energy and Mineral
Resources is meeting today to hear testimony on an oversight
and legislative hearing on, ``U.S.-Mexico Transboundary
Hydrocarbon Agreement and Steps Needed for Implementation.''
We also have a legislative hearing on H.R. 1613,
Representative Duncan of South Carolina and Hastings of
Washington, and Salmon of Arizona, ``Outer Continental Shelf
Transboundary Hydrocarbon Agreements Authorization Act.''
Under Committee Rule 4(f), opening statements are limited
to the Chairman and Ranking Member of the Subcommittee.
However, I ask unanimous consent to recognize the author of
H.R. 1613, Mr. Duncan of South Carolina, for 5 minutes to give
an opening statement.
[No response.]
Mr. Lamborn. Hearing no objections, so ordered.
I also ask unanimous consent to include any other Members'
opening statements in the hearing record, if submitted to the
Clerk by close of business today.
[No response.]
Mr. Lamborn. Hearing no objection, so ordered. I now
recognize myself for 5 minutes.
STATEMENT OF THE HON. DOUG LAMBORN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF COLORADO
Mr. Lamborn. I would like to thank everyone for attending
our hearing today. The Subcommittee is meeting to provide
oversight on issues surrounding the U.S.-Mexico maritime
boundary and the development of shared hydrocarbon reservoirs
in the Gulf of Mexico. We are also conducting a legislative
hearing to discuss the gentleman from South Carolina, Mr.
Duncan's bill, H.R. 1613, which enacts the U.S.-Mexico
Transboundary Hydrocarbon Agreement, and provides greater
guidance on how those agreements should be enacted in the
future.
The current absence of legal certainty around hydrocarbon
reservoirs that may overlie our maritime boundary with Mexico
in the Gulf has prevented the Administration from leasing, and
U.S. companies from exploring and developing these energy
opportunities to bring more energy to market. In addition, due
to the lack of an agreement with Mexico, there is currently a
moratorium on exploration and development for 1.4 miles on
either side of an area of the boundary known as the Western
Gap.
As you are aware, under the Obama Administration roughly 85
percent of our Nation's Outer Continental Shelf is closed to
exploration and development, at significant cost to our
Nation's energy and economic security. This Committee has long
supported opening far more substantial acreage to exploration,
yet the Administration has dragged its feet. This acreage along
our maritime boundary with Mexico seems to be one area where we
can agree that exploration and development can and will happen,
pending the approval of an agreement that clearly delineates
how any hydrocarbon resources that straddle our two Nations'
borders should be developed fairly and safely.
In 2012, after many years of discussion, then-Secretary of
State Hillary Clinton and her Mexican counterpart signed an
agreement on how to explore, develop, and share revenue from
transboundary hydrocarbons, lifting the ongoing moratorium in
the Gap area, and the de facto moratorium along the boundary.
This Agreement, if implemented correctly, is a rare opportunity
to expand U.S. energy production, create new American jobs, and
grow our economy by opening new areas to oil and natural
resources development.
I am deeply disappointed that it has taken the
Administration more than a year since the Agreement was signed
to finally transmit to Congress something for us to consider.
The full Committee Chairman and I have both been supportive of
enacting this Agreement, and we have been patient in waiting
for the Administration to send language up to the Hill.
Although we were harshly criticized by the then-Secretary
for not acting, we were and remain committed to acting on this
issue. This is made clear by the fact that it was less than 5
weeks ago when the Administration finally submitted some
information to Congress. And here we are, taking action today.
We must approach this hearing remembering that approval of
this Agreement sets an important precedent for other similar
transboundary hydrocarbon agreements that we may arrive at with
other nations. It is important that we get it right, so that we
may, along with our ally, Mexico, set an example on how
together we may foster the shared goal of developing our
Nation's Outer Continental Shelf for economic prosperity and
energy security.
[The prepared statement of Mr. Lamborn follows:]
Statement of The Honorable Doug Lamborn, Chairman,
Subcommittee on Energy and Mineral Resources
I'd like to thank everyone for attending our hearing today. The
Subcommittee is meeting to provide oversight on issues surrounding the
U.S.-Mexico maritime boundary and the development of shared hydrocarbon
reservoirs in the Gulf of Mexico. We are also conducting a legislative
hearing to discuss the gentleman from South Carolina, Mr. Duncan's
bill, H.R. 1613, which enacts the U.S.-Mexico Transboundary Hydrocarbon
Agreement and provides greater guidance on how these agreements shall
be enacted in the future.
The current absence of legal certainty around hydrocarbon
reservoirs that may overlie our maritime boundary with Mexico in the
Gulf has prevented the Administration from leasing and U.S. companies
from exploring and developing these energy opportunities to bring more
energy to market. In addition, due to the lack of an Agreement with
Mexico, there is currently a moratorium on exploration and development
for 1.4 miles on either side of an area of the boundary known as the
`western gap'.
As you are aware, under the Obama Administration, roughly 85% of
our nation's Outer Continental Shelf is closed to exploration and
development, at significant cost to our nation's energy and economic
security. This Committee has long supported opening far more
substantial acreage to exploration, yet the Administration has dragged
its feet. This acreage along our maritime boundary with Mexico seems to
be one area where we can agree that exploration and development can and
will happen--pending the approval of an agreement that clearly
delineates how any hydrocarbon resources that straddle our two nation's
borders should be developed fairly and safely.
In 2012, after many years of discussion, then-Secretary of State
Clinton and her Mexican counterpart signed an Agreement on how to
explore, develop and share revenue from transboundary hydrocarbons,
lifting the ongoing moratorium in the Gap area and the defacto
moratorium along the boundary. This Agreement, if implemented
correctly, is a rare opportunity to expand U.S. energy production,
create new American jobs, and grow our economy by opening new areas to
oil and natural resources development.
I am deeply disappointed that it has taken that Administration more
than a year since the agreement was signed to finally transmit to
Congress something for us to consider. The Full Committee Chairman and
I have both been supportive of enacting this agreement and we have been
patient in waiting for the Administration to send language up to the
Hill. Although we were attacked by the Secretary for not acting, we
were and remain committed to acting on this issue. This is made clear
by the fact that it was less than 5 weeks ago when the Administration
finally submitted information to Congress, and here we are acting
today.
We must approach this hearing remembering that approval of this
Agreement sets an important precedent for other similar transboundary
hydrocarbon agreements that we may arrive at with other nations. It is
important that we get it right so that we may, along with our ally
Mexico, set an example on how together we may foster the shared goal of
developing our nation's outer continental shelf for economic prosperity
and energy security.
______
Mr. Lamborn. I would now like to recognize the gentleman
from New Jersey.
STATEMENT OF THE HON. RUSH HOLT, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEW JERSEY
Dr. Holt. I thank the Chair. I want to begin by saying
welcome to the witnesses. And I think it is a good thing that
the Majority is seeking to move legislation that would allow
the Department to go forward with implementing the Agreement
with Mexico that was brokered more than a year ago. We may have
some specific concerns with details in the legislation, but I
look forward to working with the Majority to address this bill
and the issues of this bill as it moves through the process. We
should seek to give the Department of the Interior the
authority needed and requested to move forward to implement the
Agreement.
However, I think it is important to put this bill in the
larger context, and to speak about what we are not doing. Last
Saturday was the third anniversary of the BP Deepwater Horizon
disaster. The BP spill, one of the worst environmental
disasters in American history, it cost 11 lives and more than 4
million barrels of oil spilled into the Gulf, costing the
livelihood of residents of the Gulf to the tune of many
billions of dollars. And what have we done in this Committee to
respond to that disaster and to ensure that nothing like it
ever happens again in the Gulf waters, which we will be talking
about today? Nothing.
Last Congress wasted countless hours investigating the
editing of the Administration's 30-Day Safety Report, which
recommended a temporary moratorium on the drilling, but we
failed to enact a single piece of legislative reform out of
this Committee to improve the safety of offshore drilling.
My friend, our Chair, the gentleman from Colorado, talks
about his impatience with what he calls the inaction by the
Administration. I would like to point out that we, Congress,
this Committee, have not raised the civil penalties that could
be levied by the Interior Department against oil companies that
violate the law. To put the absurdity of the current level of
fines in perspective, the most that BP could be fined by
Interior for its spill, the worst spill we have ever seen, is
$21 million. That is for a company that made $12 billion last
year. That hardly counts as even a slap on the wrist.
We have not raised the liability cap from $75 million to
ensure that oil companies are held accountable and that
taxpayers are not stuck with the bill for cleaning up spills.
That is why this week I will be reintroducing the Big Oil
Bailout Prevention Act, legislation that would remove the cap
on oil spill liability and protect taxpayers from being stuck
with the bill.
We have not provided a steady and direct funding stream for
the Interior Department and other offshore drilling regulators
to ensure that there is an effective cop on the beat.
We have not codified the important drilling safety reforms
that the Interior Department has put in place to ensure that
they won't be undone by a subsequent Administration.
We have not even brought in the chief executive officers of
the largest oil companies to tell Congress and the American
people what they have done to make offshore drilling safe, to
tell us what lessons they have learned. The heads of these
companies should appear before this Committee to answer
questions that most Americans have. But under this leadership,
the leadership of this Committee, if you are a top oil company
executive, evidently CEO stands for Consistently Evading
Oversight.
The only response Congress has taken to the BP oil spill
has been to pass the RESTORE Act to ensure that 80 percent of
the Clean Water Act fines and penalties will be sent to the
Gulf Coast. That is certainly valuable for Gulf Coast
communities, I support that, but it is not nearly enough.
The entity formed out of the BP Spill Commission recently
released another report card. So I want to make the point this
is not just this Member of Congress speaking here. The report
card assessed or assigned a grade to us and it gave Congress a
D+, barely passing. That is something we should be ashamed of.
And our response should be far more comprehensive than this
bill.
Representative Markey and I will be reintroducing
legislation to implement the reforms that were recommended by
the independent BP Commission, and it is well past time that
Congress act on that. We owe it to the families, we owe it to
the workers, we owe it to the taxpayers and everyone in this
country. I thank the Chair.
[The prepared statement of Dr. Holt follows:]
Statement of The Honorable Rush Holt, Ranking Member,
Subcommittee on Energy and Mineral Resources
Thank you.
Mr. Chairman, I want to begin by saying that I think it is a good
thing that the Majority is seeking to move legislation that would allow
the Department to move forward with implementing the agreement with
Mexico that was brokered more than a year ago. We may have some
specific concerns with pieces of this legislation that I would look
forward to working with the Majority to address as this bill moves
through the process but we should seek to give the Interior Department
the authority they have requested from the Congress to move forward on
implementing this agreement.
However, I think it is important to put this bill in a larger
context. Last Saturday was the third anniversary of the BP Deepwater
Horizon disaster. The BP spill was one of the worst environmental
disasters in American history. Eleven people lost their lives. More
than 4 million barrels of oil spilled into the gulf. The cost to the
livelihoods of the residents of the Gulf was in the tens of billions of
dollars.
Yet, what have we done in this Committee to respond to that
disaster and ensure nothing like it ever happens again? We have not
enacted a single legislative reform out of this Committee to improve
the safety of offshore drilling.
We have not raised the civil penalties that can be levied by the
Interior Department against oil companies that violate the law so that
they are a meaningful financial deterrent. To put the absurdity of the
current level of fines in perspective, the most that BP could be fined
by DOI for its spill--the worst spill we have ever seen--is $21
million. That is for a company that made $12 billion last year. That
isn't even a slap on the wrist for an oil giant like BP.
We have not raised the liability cap from $75 million to ensure
that oil companies are held accountable and taxpayers are not stuck
with the bill for cleaning up spills.
We have not provided a steady and direct funding stream for the
Interior Department and other offshore drilling regulators to ensure
that they have the resources they need to be an effective cop on the
beat.
We have not codified the important drilling safety reforms that the
Interior Department has put in place to ensure that they can't simply
be undone by future Administrations.
And we have not even brought in the Chief Executive Officers of the
largest oil companies to tell the Congress and the American people what
they have done to make offshore drilling safer; to tell us what lessons
they have learned. The heads of these companies should appear before
this Committee to answer questions for the American people. But under
this Republican Congress, if you're a top oil company executive, CEO
stands for Consistently Evading Oversight.
The only response the Congress has taken to the BP spill has been
to pass the RESTORE Act and ensure that 80 percent of the clean water
act fines and penalties will be sent to the Gulf Coast. That is
extremely important for the communities of the Gulf Coast but it is not
nearly enough.
The entity formed out of the BP Spill Commission recently released
another report card to assess the response to the spill. It gave
Congress a D-plus. That is something we should be ashamed of. And our
response should be far more comprehensive than this bill.
Representative Markey and I will shortly be reintroducing
legislation to implement the reforms that were recommended by the
independent BP Commission. It is well past time that this Congress
takes action on that legislation. We owe it to the families and the
workers and the economy of the Gulf.
I yield back the balance of my time.
______
Mr. Lamborn. I would like to now recognize the gentleman
from South Carolina for 5 minutes.
STATEMENT OF THE HON. JEFF DUNCAN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF SOUTH CAROLINA
Mr. Duncan. Thank you, Mr. Chairman, and thank you for
holding this hearing today on H.R. 1613, the Outer Continental
Shelf Transboundary Hydrocarbon Agreements Authorization Act. I
introduced this bill with my colleagues, Chairman Doc Hastings
of the Natural Resources Committee, and Chairman Matt Salmon of
the Foreign Affairs Subcommittee on the Western Hemisphere, and
I thank them for their leadership and teamwork as we move this
Agreement forward.
In fact, Chairman Salmon recently held a hearing where the
Transboundary Agreement was discussed at length.
Congress should pass this implementing language for the
U.S.-Mexico Transboundary Hydrocarbons Agreement to expand
energy production in the Gulf, strengthen our partnership with
our ally, Mexico, and provide the framework for similar future
agreements with other neighbors in the Western Hemisphere,
while also protecting United States sovereignty.
At a time when we continue to face national security
threats to our homeland, including potentially hostile and
growing Iranian presence in Latin America, strengthening
relations with countries in our hemisphere through expanded
energy productions is a lifeline.
H.R. 1613 also provides certainty to offshore operators
that only U.S. inspectors will be able to issue stop-work
orders. It will protect American companies from legal conflicts
which force them to choose between either breaking the law or
disclosing confidential information to their detriment. The
Obama Administration's Dodd-Frank Law contains exactly this
risk, in requiring that resource extraction companies disclose
payments to foreign countries, regardless of whether this
conflicts with the U.S.-Mexico Hydrocarbons Agreement and
Mexican law. We must ensure U.S. companies are protected and
not prevented from developing these important energy resources.
Because of the benefits of an all-American energy
production, this aspect of the bill is critical. Energy
production is a segue to job creation. We have seen the boom in
energy jobs because of expanded production in places like North
Dakota. In fact, Mr. Chairman, I would like to say that when
you get off an airplane in North Dakota, they give you a job
whether you need one or not.
When you drive down Route 90 in Louisiana from Lafayette
down to New Iberia, on down to Houma, and on down to Thibodaux
toward the coast, you see business after business after
business that is there to support the offshore industry. We are
not just talking about the offshore drilling activity, we are
talking everything that supports that.
That is the kind of business, when we expand production in
Federal waters to use our natural resources, we create
thousands of jobs on land, both in the industry and also in the
support industries. And when we talk about industry, those guys
go eat at local restaurants, they contribute to the United Way
and their Chamber of Commerce, and they go to church and they
tithe. It is a tremendous trickle-down economy.
When Americans are free to produce all-American energy,
everyone benefits. The Transboundary Agreement would further
lead to job creation and energy independence. That is why, for
a country that believes in all-American energy production, the
status quo just isn't acceptable.
I have a message from South Carolina. Our energy costs are
too high. Our home and business electricity costs are rising.
Our way of life is at stake, and the end result of stonewalling
energy production creates an even greater risk. It is the true
hockey stick in energy environment.
And, Mr. Chairman, I would like to submit for the record
the U.S. Energy Information Administration Annual Energy Review
of 2011. And it shows that from 1970 to 2010, that the energy
expenditures per capita truly goes up in a dramatic hockey
stick graph.
And I am going to submit that for the record.
Mr. Lamborn. If there is no objection, so ordered.
[NOTE: The chart submitted for the record by Mr. Duncan can
be found at the end of his prepared statement.]
Mr. Duncan. Thank you. While energy consumption per capita
has fallen nearly 10 percent since 1980, Americans are paying
well over twice as much per capita on energy costs as they were
that same year. Furthermore, when we prohibit Americans from
producing energy, we also strangle the ingenuity that defines
them. Free to dream and innovate, Americans will always find a
better, safer way of extracting, producing, and using our
natural resources to fuel the American Dream. Because the Outer
Continental Shelf Transboundary Hydrocarbon Agreements
Authorization Act will open a currently off-limits area of the
Gulf of Mexico, we will take a real step forward to increase
production and provide relief from rising energy costs.
It has been 13 years since the 2000 Treaty on the
Continental Shelf identified hydrocarbon reservoirs in the
Western Gap that should be developed. While we are finally
making progress on this front, this effort does not end here.
We will continue to create a true all-of-the-above free-market
energy strategy.
As a final note, our founders granted us the authority
under Article 4, Section 3, Clause 2 of the United States
Constitution to make all needful rules and regulations
respecting the territory or other property belonging to the
United States. As long as the Federal Government owns these
resources, we have an obligation to free them for use by the
Americans.
I look forward to the testimony today in working with all
of Congress to provide implementation language of this
Transboundary Agreement. And with that, Mr. Chairman, I will
yield back.
[The prepared statement of Mr. Duncan follows:]
Statement of The Honorable Jeff Duncan, a Representative
in Congress from the State of South Carolina
Mr. Chairman, thank you for holding this hearing today on H.R.
1613, the Outer Continental Shelf Transboundary Hydrocarbon Agreements
Authorization Act. I introduced this bill with my colleagues Chairman
Doc Hastings of the Natural Resources Committee and Chairman Matt
Salmon of the Foreign Affairs Subcommittee on the Western Hemisphere,
and I thank them for their leadership and teamwork as we move this
agreement forward.
Congress should pass this implementing language for the U.S.-Mexico
Transboundary Hydrocarbons Agreement to expand energy production in the
Gulf, strengthen our partnership with our ally Mexico, and provide the
framework for similar future agreements with other neighbors in the
Western Hemisphere while also protecting U.S. sovereignty. At a time
when we continue to face national security threats to our homeland,
including a potentially hostile and growing Iranian presence in Latin
America, strengthening relations with countries in our hemisphere
through expanded energy production is a lifeline.
H.R. 1613 also provides certainty to offshore operators that only
U.S. inspectors will be able to issue stop work orders. It will protect
American companies from legal conflicts which force them to choose
between either breaking the law or disclosing confidential information
to their detriment. The Obama Administration's Dodd-Frank law contains
exactly this risk, in requiring that resource extraction companies
disclose payments to foreign countries regardless of whether this
conflicts with the U.S. Mexican Hydrocarbons Agreement and Mexican law.
We must ensure U.S companies are protected and not prevented from
developing these important energy resources. Because of the benefits of
all-American energy production, this aspect of the bill is critical.
Energy production is a segue to job creation.
We've seen the boom in energy jobs because of expanded production
in North Dakota. When you get off a plane there, they give you a job
whether you need it or not.
When you drive down route 90 in Louisiana, from Lafayette to New
Iberia and on down towards the coast, you see business after business
there to support their offshore industry. When we expand production in
federal waters to utilize our national resources, we create thousands
of jobs on land, both in the industry and to support it. If we were
allowed to open up South Carolina's coast the way Louisiana and North
Dakota are open for business, we could create the same effect there.
But the oil companies aren't the only ones that would benefit. Because
when oil companies, large or small, make a profit, the quality of life
for everyone improves, through created jobs, lower energy costs, by-
products, investments in more energy production, and countless other
ways.
That's the irony of individuals pursuing their own way of life, as
they see fit, in a free market. When Americans are free to produce all-
American energy as individuals, everyone benefits.
And that's why, for a country that believes in all-American energy
production, the status quo just isn't acceptable. I have a message from
South Carolina: our fuel costs are too high, our home and business
electricity costs are rising, and our way of life is at stake. The end
result of the risk-averse mindset stonewalling energy production
creates an even greater risk. It is the true hockey stick in the energy
and environment debate. While energy consumption per capita has fallen
nearly ten percent since 1980, Americans are paying well over twice as
much per capita on energy costs as they were that same year.
Furthermore, when we prohibit Americans from producing energy, we also
strangle the ingenuity that defines them. Freed to dream and innovate,
Americans will always find better, safer ways of extracting, producing,
and using our natural resources to fuel the American Dream.
Because the Outer Continental Shelf Transboundary Hydrocarbon
Agreements Authorization Act will open a currently off-limits area of
the Gulf of Mexico, we will take a real step forward to increase
production and provide relief from rising energy costs. It has been
thirteen years since the 2000 Treaty on the Continental Shelf
identified hydrocarbon reservoirs in the Western Gap that should be
developed. While we are finally making progress on this front, this
effort does not end here. We will continue creating a true, all-of-the-
above, free market energy strategy.
As a final note, our founders granted us authority under Article
IV, Section 3, Clause 2 of the Constitution to ``make all needful rules
and regulations respecting the territory or other property belonging to
the United States''. As long as the federal government owns these
resources, we have an obligation to free them for use by Americans.
We have sworn to defend this Constitution. Our founding principles
outlined in it--which protect the rights of individuals--are still the
foundation for our government formed by the consent of the governed,
and for our way of life. America will remain the land of the free for
as long as the right to life, liberty, and the pursuit of happiness
remains our declaration.
[GRAPHIC] [TIFF OMITTED] T0979.010
Mr. Lamborn. Thank you. We will now hear from our first
panel of witnesses. I would like to invite forward our two
witnesses, The Honorable Tommy Beaudreau, Acting Assistant
Secretary for Land and Minerals Management of the U.S.
Department of the Interior, and Ambassador Carlos Pascual,
Special Envoy and Coordinator for International Energy Affairs
for the U.S. Department of State.
Like all of our witnesses, your written testimony will
appear in full in the hearing record, so I ask that you keep
your oral statements to 5 minutes, as outlined in our
invitation letter to you.
Our microphones are not automatic, so you have to press the
button when you begin speaking. The yellow light comes on after
4 minutes, and the red light at 5 minutes.
Thank you for being here. Mr. Beaudreau, you may begin.
STATEMENT OF HON. TOMMY P. BEAUDREAU, ACTING ASSISTANT
SECRETARY FOR LAND AND MINERALS MANAGEMENT, U.S. DEPARTMENT OF
THE INTERIOR
Mr. Beaudreau. Thank you, Chairman Lamborn, Ranking Member
Holt, and members of the Subcommittee. I am pleased to appear
before you today to discuss legislation to implement the
Agreement between the United States of America and the United
Mexican States concerning Transboundary Hydrocarbon Reservoirs
in the Gulf of Mexico.
I am Tommy Beaudreau, Acting Assistant Secretary for Land
and Minerals Management at the Department of the Interior, and
also Director of the Bureau of Ocean Energy Management, BOEM,
which oversees oil and gas-related resource evaluation,
environmental reviews, and leasing in Federal waters offshore
the United States. I am very pleased to appear before the
Subcommittee this morning, alongside Ambassador Pascual, who is
one of the United States' foremost diplomats concerned with our
relationship with Mexico, as well as global energy issues.
I would like to begin my testimony today by briefly
highlighting a few of the central points about the benefits to
the United States and to U.S. industry that implementation of
the U.S.-Mexico Transboundary Reservoir Agreement offers.
Offshore oil and gas development in the Gulf of Mexico has
been and will remain one of the cornerstones of the United
States' energy portfolio. The offshore oil and gas industry
continues to invest tremendous amounts of capital and technical
know-how into exploring and developing oil and gas resources in
the Gulf. This includes spurring the innovations necessary to
safely and responsibly develop emerging world-class prospects
in deep and ultra-deep water.
During BOEM's last three offshore oil and gas lease sales
in the Gulf of Mexico, held in a period of less than 12 months,
industry has invested approximately $3 billion in leases, the
bulk of which were directed toward promising emerging prospects
in the deep water. Despite industry's general enthusiasm for
exploration and development in the deep-water Gulf of Mexico,
leasing in the vicinity of the U.S.-Mexico maritime boundary
has been muted.
Areas in U.S. waters within 1.4 miles of the maritime
boundary currently are under moratorium and cannot be leased.
More broadly, the entire Western Gap boundary region is
currently subject to legal uncertainty about how potential
transboundary reservoirs would be handled. And, therefore, in
my view, industry has been reluctant to move forward
confidently with exploration in that area.
For example, there are currently 379 unleased blocks in the
western and central Gulf near the U.S.-Mexico maritime
boundary, and only 14 blocks that have been leased. I hope that
the Transboundary Agreement can be brought into effect soon, so
that, among other things, it can be factored into industry's
consideration of our next Western Gulf lease sale, which we
announced just yesterday will be held in August.
Implementation of the Transboundary Reservoir Agreement
would provide this much-needed legal certainty to the region,
and is in alignment with our goals to promote safe and
responsible development of the Nation's offshore oil and gas
resources. The Agreement also is, I believe, strongly supported
by industry. It is a pragmatic agreement designed to encourage
voluntary, commercial solutions between companies operating on
the U.S. side of the maritime boundary and their counterpart,
PEMEX, on the Mexican side. We worked with U.S. industry during
the negotiation of the Agreement, to ensure that the Agreement
not only provide the legal certainty necessary to justify
investment in this region, but also would be commercially
workable.
The central principle of the Agreement is to encourage
voluntary unitization agreements between U.S. side companies
and PEMEX to equitably allocate production from any reservoir
straddling the maritime boundary. Unitization is a very
familiar concept that is routinely applied by companies working
in the U.S. Gulf of Mexico. Ultimately, if no voluntary
unitization agreement can be reached, the company would be able
to move forward with development unilaterally.
Finally, the Transboundary Reservoir Agreement represents
an important step in promoting safe and responsible development
in a technically challenging operating environment on both
sides of the boundary. Under the heightened standards that
followed from Deepwater Horizon, U.S. industry is working more
safely and responsibly than ever before. The Agreement would
not change the laws or regulations that industry works under in
the U.S. Gulf of Mexico, but does provide further opportunity
for cooperation between the United States, Mexico, and the
offshore industry to promote high standards for safety and
environmental protection.
I appreciate very much H.R. 1613, the bill introduced last
week by this Committee to implement the Transboundary
Agreement. I also appreciate the strong vocal and bipartisan
support for implementing the Agreement that I have heard from
the Subcommittee. Thank you, and I will be happy to answer your
questions.
[The prepared statement of Mr. Beaudreau follows:]
Statement of The Honorable Tommy P. Beaudreau, Acting Assistant
Secretary, Land and Minerals Management, United States Department of
the Interior
Chairman Lamborn, Ranking Member Holt, and members of the
Subcommittee, I am pleased to appear before you today to discuss
legislation to implement the Agreement between the United States of
America and the United Mexican States Concerning Transboundary
Hydrocarbon Reservoirs in the Gulf of Mexico.
Background
On February 20, 2012, the United States and Mexico signed an
Agreement concerning the development of oil and gas reservoirs that
cross the international maritime boundary between the two countries in
the Gulf of Mexico (excluding submerged lands under Texas
jurisdiction). This Agreement would establish a framework for the
cooperative exploration and development of these hydrocarbon resources.
The Mexican Senate overwhelmingly approved the Agreement in April 2012.
The Congress likewise should pass implementing legislation approving
the Agreement and providing the necessary authority to bring it into
force. The administration has proposed such legislation, and this
proposed legislation has been shared with the Subcommittee.
The Agreement would allow, for the first time, leaseholders on the
U.S. side of the maritime boundary to cooperate with the Mexican
national oil company, Petroleos Mexicanos (PEMEX), in the joint
exploration and development of hydrocarbon resources. This agreement
will make nearly 1.5 million acres of the Outer Continental Shelf,
currently subject to a moratorium under the Western Gap Treaty,
immediately available for leasing and also make the entire
transboundary region, which is currently subject to legal uncertainty
in the absence of an agreement, more attractive to U.S.-qualified
operators. For example, the Department of the Interior's Bureau of
Ocean Energy Management estimates that transboundary area currently
under moratorium contains as much as 172 million barrels of oil and 304
billion cubic feet of natural gas.
Benefits of Implementing the Agreement
The Agreement provides a legal framework for cooperative offshore
oil and gas development along the maritime boundary, sets clear
guidelines and provides legal certainty for those operations, supports
the President's goal of ensuring domestic energy security and
demonstrates our shared duty to exercise responsible stewardship of the
natural resources in the Gulf of Mexico. It is built on a commitment to
the safe, efficient, environmentally sound, and equitable development
of transboundary reservoirs. The Agreement also offers the potential
for generating additional revenue for the United States and Gulf States
from the lease blocks located along the delimited U.S.-Mexico maritime
boundary in the Gulf of Mexico.
The Mexican market has long been closed to participation by U.S.
companies, but a 2008 energy reform law in Mexico opened a window for
joint hydrocarbon exploration and development with foreign entities as
long as it would take place pursuant to an international agreement on
transboundary reservoirs. The Agreement would take advantage of that
opening. It would also end the moratorium on development along the
boundary in the Western Gap and provide U.S.-qualified leaseholders
with legal certainty regarding the development of transboundary
reservoirs along the entire boundary so as to encourage investment. The
Agreement would remove legal and structural barriers that currently
impede exploration and development along our maritime boundary with
Mexico. A significant portion of the U.S. maritime boundary with
Mexico--the full length of the boundary in the Western Gap--is subject
to a moratorium on drilling and exploration pursuant to the Western Gap
Treaty. Upon entry into force the Agreement would lift the moratorium
and open up this area--nearly ten percent of the U.S. portion of the
Gap--to hydrocarbon development. Finally, having the Agreement in place
will mitigate the safety and environmental risks that would result from
unilateral exploration and development along the boundary.
Implementing Legislation
The implementing legislation would provide the necessary domestic
legal authority to implement certain key terms of the Agreement,
including:
To authorize the Secretary of the Interior to approve
unitization agreements and other arrangements necessary for the
management of the transboundary reservoirs and geologic
structures subject to the Agreement;
To make available, in certain narrow circumstances
necessary for the functioning of the Agreement, information
related to the exploration, development, and production of a
transboundary reservoir that may be considered confidential,
privileged, or proprietary under law; and
To participate in those dispute resolution processes.
One of the fundamental components of the Agreement would allow
leaseholders on the U.S. side of the boundary and Pemex to explore and
develop jointly as a ``unit'' a transboundary reservoir or geologic
structure, as leaseholders frequently do on the U.S. side of the
boundary. The Agreement is designed to provide incentives for PEMEX and
U.S.-qualified operators to enter into voluntary unitization agreements
governing the development of transboundary reservoirs. Unitization--
where two or more leaseholders manage the exploration and development
of a resource as a unit through a single operator--promotes the
rational, efficient production of a resource, reduces waste, and
minimizes the number of wells that must be drilled. Existing leases are
not covered by the Agreement; however, existing lessees may voluntarily
opt-in to the framework if they so choose.
In cases where a unitization agreement is not initially reached
between a U.S.-qualified operator and Pemex, the Agreement provides a
process to determine whether the reservoir in question is, in fact, a
transboundary reservoir that should come under the Agreement, and a
carefully-calibrated process to determine the allocation of the
resource between the two countries and provide the U.S. operator and
Pemex another opportunity to form a unitization agreement. If they
cannot reach an agreement, the Agreement would ultimately allow for
unilateral production by each side, up to the amount of hydrocarbons
that exist on its side of the boundary. In other words, in these
circumstances U.S.-qualified operators and PEMEX would individually
develop the resources on each side of the border while protecting each
nation's interests, resources and sovereignty. We anticipate, however,
that the same economic incentives that currently drive voluntary
unitization in the U.S. Outer Continental Shelf will similarly drive
voluntary unitization under the Agreement, and that this mechanism will
be rarely if ever used.
The Agreement encourages the United States and Mexico to promote
common safety and environmental standards. However, the U.S. is under
no obligation to alter its existing environmental laws or standards.
Mexico's standards will apply to operations under Mexican jurisdiction
and U.S. standards will apply to operations under U.S. jurisdiction.
The Agreement would also establish a system of joint inspections,
which would allow U.S. safety personnel to inspect PEMEX facilities
involved in a transboundary operation. Again, however, each
jurisdiction retains its authority and responsibility to regulate
activity on its side of the boundary. The DOI's Bureau of Safety and
Environmental Enforcement and the United States Coast Guard already
maintain a strong working relationship with the Mexican offshore
regulatory authority, the Comision Nacional Hidrocarburos (CNH), and
this Agreement promotes further cooperation between the U.S. and Mexico
with respect to drilling safety and oil spill response standards and
practices.
H.R. 1613
H.R. 1613, The Outer Continental Shelf Transboundary Hydrocarbon
Agreements Authorization Act, was introduced late last week. We
appreciate the opportunity to provide the following preliminary views
at this time.
Generally, the bill would amend the Outer Continental Shelf Lands
Act to provide Congressional approval of the underlying Agreement
(Title II); enact implementing legislation authorizing the Secretary of
the Interior to take actions necessary to implement the terms of the
Agreement; and give the Secretary the authority to implement the terms
of any future transboundary hydrocarbon agreement and establish a
process for the approval of such agreements.
We support the goal of this legislation to grant the Secretary of
the Interior general authority to implement the Agreement and to
provide Congressional approval of the Agreement. The Administration
welcomes the opportunity to work with Congress to approve this
important agreement.
Conclusion
In sum, the Agreement provides a much needed mechanism to
facilitate the responsible and efficient exploration and development of
hydrocarbon resources along the U.S. Mexico maritime boundary and
provides new opportunities for U.S. companies. The Agreement provides
incentives for PEMEX and U.S.-qualified operators to enter into
voluntary commercial agreements to unitize transboundary reservoirs and
does not change the application of existing laws or alter existing
standards. Once the Agreement is in force, both the Bureau of Ocean
Energy Management and the Bureau of Safety and Environmental
Enforcement will assume their respective regulatory responsibilities to
implement the Agreement as authorized.
Mr. Chairman, we look forward to working with the subcommittee to
enact legislation implementing this important Agreement with our
Mexican partners in Gulf of Mexico energy development.
______
Response to Questions Submitted for the Record by Tommy P. Beaudreau,
Acting Assistant Secretary, Land and Minerals Management, U.S.
Department of the Interior
Questions from Representative Jeff Duncan:
1. Will there be any regulatory changes to U.S. leaseholders as a
result of the approval of this agreement?
Response: The Agreement does not change the application of existing
U.S. laws or alter existing environmental, safety, or conservation
regulations governing the activities of U.S. lessees. Further, leases
in existence at the time the Agreement enters into force would be
unaffected by the provisions of the Agreement. (Holders of such leases
may, however, voluntarily decide to avail themselves of the contractual
options provided for in the agreement once it enters into force.) It
will be necessary to promulgate regulations to put into operation the
new authority granted by the implementing legislation and to implement
U.S. obligations under the Agreement. For example, current statutory
authority and regulations do not permit the Secretary to approve
activities that involve operations outside U.S. jurisdiction.
Consequently, current regulations, such as those governing unitization,
will need to be updated in order to allow the Department to approve
activities that take place within the jurisdiction of Mexico.
2. How does the Administration currently plan to address inequities
between U.S. laws (i.e., Dodd Frank) and their potential
conflict with Mexican laws?
Response: Mexico's laws and regulations will apply to operations
under Mexican jurisdiction; U.S. laws and regulations will apply to
operations under U.S. jurisdiction. However, the Agreement encourages
both jurisdictions to adopt--only if they each judge it appropriate--
common safety and environmental standards and requirements for
activities carried out under the Agreement. The U.S. is under no
obligation to alter its existing laws or regulations. We anticipate
that the collaborative review and consideration of laws, regulations,
and standards may help to promote the independence, and increase the
capacity, of Mexico's nascent regulator, the National Hydrocarbons
Commission.
3. Do you foresee any obstacles to adjudicating disagreements through
the joint commission?
Response: We do not foresee any obstacles to implementing the
dispute resolution provisions of the Agreement. The Joint Commission
would assist in resolving disputes under the Agreement. The Joint
Commission must be established no later than 90 days after the
Agreement enters into force. Each Government must appoint one
representative and one alternate to the Joint Commission. Under the
terms of the Agreement, the Joint Commission is responsible for
examining ``any dispute or other matter referred to it by either
Executive Agency relating to the interpretation and implementation of
the Agreement, or any unforeseen issues arising under the Agreement''.
In the event the Joint Commission cannot resolve a dispute, the dispute
could be referred to: (1) an expert for binding arbitration on matters
involving the existence of a transboundary reservoir, the allocation of
production, and the reallocation of production; and (2) the governments
for consultation, non-binding mediation, or arbitration (which will not
be binding) for matters involving the interpretation and implementation
of the Agreement.
______
Mr. Lamborn. Thank you for your testimony.
Ambassador Pascual, you may begin.
STATEMENT OF AMBASSADOR CARLOS PASCUAL, SPECIAL ENVOY AND
COORDINATOR FOR INTERNATIONAL ENERGY AFFAIRS, U.S. DEPARTMENT
OF STATE
Mr. Pascual. Thank you very much, Chairman Lamborn, Ranking
Member Holt, other members of the Subcommittee on Energy and
Mineral Resources. I appreciate the opportunity to appear
before you today, together with my colleague, Assistant
Secretary Tommy Beaudreau. It is a great honor.
I know that each and every member of the Committee is
concerned about our Nation's energy security. I can assure you
that Secretary Kerry and the Department of State share that
concern. The legislation this Committee has introduced could
provide an important vehicle to accelerate safe and effective
development of hydrocarbon resources that cross the U.S.-Mexico
maritime boundary.
The Administration supports the swift passage of
legislation to allow for the implementation of the
Transboundary Agreement signed by Mexico and the United States
in February 2012. As indicated earlier, Mexico ratified the
Agreement in April 2012. With passage of the authorizing
legislation you have introduced, the United States and Mexico
can move immediately to seek private investment in conjunction
with Mexico's national petroleum company, PEMEX, to develop
resources that would strengthen North America's potential role
as a hub for energy security.
Let me stress the importance the State Department assigns
to fostering a stable energy partnership with Mexico. Our
energy trading relationship with Mexico is essential to
stability in American energy markets. It is essential to
assuring adequate supplies to sustain American economic growth.
Mexico has huge reserves, 10.2 billion barrels in proven
resources, but its production fell by 23 percent from 2004 to
2011.
Still, a more positive future for Mexican production is
very much within reach. Mexican President Enrique Pena Nieto
has made energy reform a priority. His party has agreed to
submit legislation for comprehensive energy reform, once the
landmark telecommunications reform has been passed. With the
passage of the reform, Mexico could attract international
investment to develop its hydrocarbon resources and reverse the
decline in oil production. The implementation of the
Transboundary Agreement could provide a down payment on those
prospects for investment.
Most fundamentally, the Agreement would enable meaningful
energy sector collaboration between the United States and
Mexico. With congressional approval, we anticipate that this
collaboration would provide U.S. operators with the ability to
demonstrate the benefits of their participation in the Mexican
energy market.
The reasons are simple. The Agreement, as you so clearly
stated at the outset, Mr. Chairman, will provide legal
certainty companies need to invest. That legal certainty would
establish incentives to develop resources in U.S. territory,
but were too close to the boundary to have been considered
previously. In approving each transboundary contract, the
United States would ensure that safety provisions comply with
appropriate safety requirements. This is a business-friendly
arrangement. It will potentially increase revenues and energy
security with strong safety and environmental payoffs.
Specifically on H.R. 1613, let me underscore that the
Administration welcomes the Outer Continental Shelf
Transboundary Hydrocarbon Agreements Authorization Act that was
introduced late last week. It is a promising step forward to
implement the U.S.-Mexico Transboundary Agreement. We support
the goal of this legislation to grant the Secretary of the
Interior general authority to implement the agreement and to
provide congressional approval of the agreement. We look
forward to working further with the Department of the Interior
and the Committee on some of the specific provisions of the
bill, as well as to secure expeditious approval of this
legislation.
In conclusion, we are encouraged by the accelerating pace
of movement on finalizing this Agreement. As many House
Members, and as has been stated indeed today, it is a win-win
for the United States and Mexico. I appreciate the time you are
devoting to this issue, and hope that we addressed your request
for information on the potential benefits for both the United
States and Mexico. I look forward to answering your questions.
[The prepared statement of Mr. Pascual follows:]
Statement of Special Envoy, Ambassador Carlos Pascual,
Bureau of Energy Resources, U.S. Department of State
Chairman Lamborn, Ranking Member Holt, and other Members of the
Subcommittee on Energy and Mineral Resources. I appreciate the
opportunity to appear before you today.
I know that each and every Member of this Committee is concerned
about our nation`s energy security, and I can assure you that Secretary
Kerry and the Department of State share that concern. For that reason,
I am happy to be here today to discuss the Transboundary Agreement
between Mexico and the United States. The Administration supports the
swift passage of legislation to allow for the implementation of the
Transboundary Agreement signed by Mexico and the United States on
February 20, 2012. We look forward to working with you on the
legislation introduced last week to accelerate the safe and effective
development of hydrocarbon resources that cross the maritime border
between Mexico and the United States.
Let me begin by stressing the importance that the State Department
assigns to fostering a stable energy partnership with Mexico. Our
energy trading relationship with Mexico is an important component of
North American energy security as evidenced by the fact that Mexico is
our third largest supplier of imported crude oil and the largest export
market for U.S. refined petroleum products. It is also a growing market
for U.S. natural gas exports. The Transboundary Agreement, by
establishing greater legal clarity for the development of reserves that
traverse the U.S.-Mexico border, would bring significant benefits to
the United States and Mexico.
The United States and Canada have experienced an increase in energy
production as a result of private investment, entrepreneurial
ingenuity, technological innovation and strong commodity prices. U.S.
oil production has increased by about 35% in the past five years. In
contrast, Mexico has 10.2 billion barrels in proven reserves, but its
production fell by 23 percent from 2004 to 2011, and projections
forecast Mexican production will continue to decline in the short-term.
This significant trend is often attributed to the maturation of major
fields and the challenges for the national oil company, Petroleos
Mexicanos (PEMEX), to maintain the necessary levels of investment in
the sector. Mexican President Pena Nieto has made energy reform a
priority, and if it is successful, Mexico could attract international
investment and expertise to develop its hydrocarbon resources and
reverse the decline in oil production. The Transboundary Agreement
could be a down payment on the promise of more fundamental reform.
Private investors would have a framework to develop cooperatively
resources crossing the U.S. maritime border with Mexico. Such
commercial engagement could capture resources that are currently not
being developed because of legal uncertainty, and demonstrate that
private investment produces resources and revenues that benefit the
Mexican people and economy.
Despite the challenges facing Mexico in the near term, the exciting
story here is that North American energy production as a whole could
boost our respective national and global energy security. In North
America, our energy resources give us the prospect to assure our energy
supply. Just as important, North American resources will contribute to
global market supplies, help balance global markets, and help promote
the kind of stability in global energy markets that we need to support
our domestic economic growth. Such opportunities, including the
Transboundary Agreement between the United States and Mexico could
support increased Mexican and North American production capacity and
could be critical to world supplies and economic growth.
Background
The Transboundary Agreement between the United States and Mexico
addresses the development of oil and gas reservoirs that cross the
international maritime boundary between our two countries in the Gulf
of Mexico (excluding submerged lands under Texas jurisdiction). The
Mexican Senate overwhelmingly approved the Agreement in April 2012. The
Administration has proposed legislative language that would provide the
Secretary of the Interior the necessary authority to implement the
Agreement, and this proposed language has been shared with the
Subcommittee.
Role of the Agreement
The Transboundary Agreement is an important step in our national
efforts to better secure our energy future and at the same time promote
a stronger and long-term cooperative relationship with Mexico in
meeting each country's energy security goals. We believe the agreement
would help facilitate the safe and responsible management of offshore
petroleum reservoirs that straddle our maritime boundary and strengthen
overall our bilateral relations.
The Agreement would enable meaningful energy sector collaboration
between the U.S. and Mexico (and in particular between U.S. operators
and PEMEX). We anticipate that this collaboration under the Agreement
would provide U.S. operators with the ability to demonstrate the
benefits of their participation in the Mexican energy market,
potentially leading to deeper and more meaningful collaboration over
time.
This Agreement will make nearly 1.5 million acres of the Outer
Continental Shelf more attractive to U.S. operators by unlocking areas
for exploration and development along our maritime boundary within U.S.
jurisdiction. The Agreement would eliminate the moratorium on drilling
along the boundary in the Western Gap, and provide legal certainty
needed for investment in the boundary region outside of the Western
Gap. It would allow American companies to enter into agreements--
unitization agreements--with PEMEX for the joint exploration and
development of resources in specific areas. The development of a
reservoir as a single deposit generally reduces the amount of drilling.
Activities under unitization agreements would be required to comply
with appropriate safety standards. As a package, these arrangements
will potentially increase revenues and provide greater energy security,
while mitigating safety and environmental risks that could result from
unilateral development by each country along the boundary.
We are pleased that the Agreement would advance safety and
environmental protection in the Gulf and provide significant safety and
environmental benefits that would not occur without it. First, it
provides for a system of joint inspections for all activity that takes
place under the Agreement. Though Mexican law would apply to operations
under Mexican jurisdiction and U.S. law would apply to operations under
U.S. jurisdiction, each side would have the ability to work with the
other to ensure that all activity that takes place under the
Agreement--wherever it occurs--meets all applicable laws and standards.
In addition, under the Agreement our two countries would continue to
work together to ensure that their respective standards and
requirements are compatible where appropriate for the safe, effective,
and environmentally responsible implementation of the Agreement.
In all aspects, the Transboundary Agreement offers the United
States and Mexico significant benefits. It would, for the first time,
establish a framework that would facilitate the development of
hydrocarbon reservoirs that cross our maritime boundary with Mexico.
This is a business friendly arrangement with strong safety and
environmental payoffs.
H.R. 1613
We welcome H.R. 1613, The Outer Continental Shelf Transboundary
Hydrocarbon Agreements Authorization Act that was introduced late last
week. It is a promising step forward to implement the U.S.-Mexico
Transboundary Agreement. We support the goal of this legislation to
grant the Secretary of the Interior general authority to implement the
Agreement and to provide Congressional approval of the Agreement. We
look forward to working with the Department of the Interior and the
Committee on this important piece of legislation for expeditious
approval.
Conclusion
In conclusion, we are encouraged by the accelerating pace of
interest and movement on implementing this agreement. It is one that
provides a much needed mechanism to facilitate the responsible and
efficient exploration and development of hydrocarbon resources along
the U.S.-Mexico maritime boundary. As many House Members have stated,
it is a ``win-win'' for the United States and Mexico and also a winner
for North American energy security because it fosters stronger
relationships in the development of our shared energy resources.
I appreciate the time you and your staff are devoting to this issue
and hope that we addressed to your satisfaction your requests for
information on the many potential benefits for both the United States
and Mexico, should the Agreement be brought into force.
Thank you again for this opportunity to testify before this
Subcommittee and I would be pleased to answer any questions the
subcommittee might have.
______
Response to Questions Submitted for the Record by
Ambassador Carlos Pascual
Question 1: Will there be any regulatory changes to U.S. leaseholders
as a result of the approval of this agreement?
Answer: Approval of this Agreement would not change the application
of existing standards. That is, Mexico's standards will apply to
operations under Mexican jurisdiction and U.S. standards will apply to
operations under U.S. jurisdiction. The Agreement has an Article that
specifically addresses ``Safety and Environmental Protection.'' Under
this Article, the Governments shall adopt, where appropriate, common
safety and environmental standards and shall strive to ensure that
their respective standards and requirements are compatible where
necessary for the safe, effective, and environmentally responsible
implementation of the Agreement. In addition, the U.S. government
exercises significant control over the terms of production and
applicable controls through the approval of the agreements governing
the unit. Before any unitization request will be approved, the Unit
Agreement will specify provisions to address safety, environmental and
other issues to the satisfaction of the U.S. (and Mexico). This is the
way to ensure that operations within the unitized area meet robust
standards. Existing leases are not covered by the Agreement; however,
existing lessees may voluntarily opt-in to the framework if they so
choose.
Question 2: How does the Administration currently plan to address the
inequities between U.S. laws (i.e. Dodd Frank) and their
potential conflict with Mexican laws?
Answer: Nothing in the terms of the U.S.-Mexico Transboundary
Agreement conflicts with the provisions of Dodd-Frank Section 1504, and
data confidentiality protection in the Transboundary Agreement is not
affected by Dodd-Frank section 1504. The Mexico Agreement does not
touch on the issue of financial reporting or otherwise impact the
reporting required by the SEC's rule implementing Section 1504. The
Administration would favor a bill focused exclusively on the language
necessary to implement the U.S.-Mexico Agreement, and which does not
create a reporting exception under Section 1504 that differs from
requirements in the rest to the world.
Question 3: Do you foresee any obstacles to adjudicating disagreements
through the joint commission?
Answer: With the Agreement's channels of dispute resolution we do
not foresee obstacles to adjudicating disagreements through the joint
commission. There are two channels of dispute resolution in the
Agreement--one for technical issues for which there must be an outcome
for the agreement to work, and one for all others. A third party expert
appointed by the governments would resolve disputes over technical
issues. In order to access this dispute resolution channel, each side
must have invested in a prospective reservoir by drilling a well on its
side of the maritime boundary.
Resolution of all other disputes is conducted through mediation or
arbitration. The arbitration mechanism has yet to be established, and
cannot be established unless both the U.S. and Mexico agrees. During
negotiations, the U.S. advised Mexico that it would not agree to a
binding arbitration mechanism for such disputes. Indeed, both countries
recognize that such a mechanism would not be viable and would interfere
with the economic incentives of operators built into the agreement.
Though the agreement does not explicitly state that arbitration would
be non-binding, this understanding is clear in the text of the
Agreement. In particular, Article 14 paragraph 7 of the Agreement notes
that the product of any arbitration would be a ``recommendation,'' not
a decision, and if an agency-level determination on how to implement
the recommendation could not be reached, it would be referred to
political consultation.
______
Mr. Lamborn. OK. Thank you both for being here and for your
testimony. We are now going to begin Members' questions for the
witnesses. I would like to begin by asking Assistant Secretary
Beaudreau.
As you know, this Committee has wanted this legislation for
more than a year. I want to circle back to a hearing that we
had here in Committee last year on this very issue. At that
time, then-Secretary Salazar had called on this Committee to
act on legislation to implement the Transboundary Agreement,
even though the Administration had not yet sent any language to
us on how they wanted us to go forward.
And at the end of a hearing last May, almost a year ago,
Chairman Hastings asked you about this in a hearing, and we are
going to watch a short clip, just to refresh everyone's memory
of about a minute or so. Please begin the clip.
[Video shown.]
Mr. Lamborn. OK. And thanks for showing that. You said that
a year ago, next month a year ago. I am just concerned on why
it took so long to get the language to us. We got it just 5
weeks ago or so. And yet, during this time, the then-Secretary
Salazar was harshly criticizing us and, by extension, Congress
for just sitting around, doing nothing, when it was the
Administration that had failed, until 5 weeks ago, to give us
the guidance that we needed to implement the language. And you
were going to ``send that shortly,'' according to the clip we
just heard. And yet here it is, almost a year later.
Now, we are doing our job. But we don't appreciate harsh
criticism that has no basis in fact. And so I would like to get
your response to that.
Mr. Beaudreau. Yes. Thank you, and I appreciate the
question and the playback from the testimony. That was a true
statement last year, when I testified that Secretary Salazar
was extremely anxious to get moving on legislation to implement
the agreement. That was true then, it was true throughout his
tenure.
He was not only perhaps impatient with Congress, he was
impatient with us, as well, in terms of getting proposed
legislation finalized, through review, and to Congress for
consideration. Believe me, he is and always was during his
tenure, extremely interested in bringing this agreement to life
for all the reasons we have talked about, and all the potential
benefits to the United States, to industry, and to Mexico, as
well.
And so, I think the time it took to get the legislation is
a reflection of the care and the legal scrutiny, frankly, that
went into crafting the proposed legislation that we submitted
to this Committee. We wanted to have, as we did then, a boiled-
down piece of proposed legislation that could be easily
implemented and a vehicle could be found for. That took some
time. It took some time to work through the Interior
Department, it took some time to work through the State
Department, it took some time to work through the
Administration.
I am extremely pleased that we are where we are now, which
is actually the most important thing, which is to get the
Agreement implemented.
Mr. Lamborn. OK. Well, we do need to have a good working
relationship. And I think you were doing your job. I just am
still astounded that the Secretary would say those kinds of
harsh things about us, when we didn't even have the language to
go by that they knew we wanted, and that we needed as the
starting point. And once we got that language, we have acted.
Here we are, just weeks after getting the language. We are
having an oversight hearing on the issue, we are having a
legislative hearing on a very good piece of proposed
legislation.
So, I do have trust in our regulatory agencies, and we need
to be able to stand on that trust. I know the Ranking Member
was saying a few minutes ago that Congress needs to micro-
manage every aspect and codify into law every detail of
offshore drilling, when I realize it is a fast-moving,
technologically advanced area in our economy and we don't want
to set into concrete things that may have to change 12 months
later.
So, we have to be able to rely on the regulatory agencies
to do their oversight job. And so I trust that you can do that.
I am not going to criticize your performance on that, as the
Ranking Member was, because I think you can do a good job. But
we do have to have the timely working together in order to make
that happen.
OK. Thank you for that answer. I would now like to
recognize Representative Horsford for 5 minutes.
Mr. Horsford. Thank you very much, Mr. Chairman. I would
note that the Administration did send similar language to what
we are considering today to Congress on the Transboundary
Agreement last December, and that the Senate sought to pass
that legislation at the end of the last Congress, based on that
request. So, I think we are here now, and that is probably the
most important thing.
It is kind of interesting. On my flight back from the
district, Mr. Chairman, Secretary Salazar was on my flight. And
I had an opportunity to see him flying through Denver. And I
said what a difference a day makes. I guess since he is not the
Secretary, I don't think he would have been flying Frontier
before.
[Laughter.]
Mr. Horsford. But we miss his leadership and wish the best
to the new Secretary and to those of you who are here.
Let me ask my question specifically to this panel. In April
of this year, the Oil Spill Commission action reported that
many improvements by both the government and the oil industry
have been made since the BP Deepwater Horizon oil spill 3 years
ago. But the same report also states that these risks will
continue to increase as drilling moves into deeper water with
harsher, less-familiar conditions, and delays in taking the
necessary precautions threaten new disasters.
Can you address this assertion and explain what steps the
oil industry has taken to address these challenges of drilling
safety?
Mr. Beaudreau. One of the key aspects of, and one of the
key benefits, I believe, of the Transboundary Reservoir
Agreement is to allow us to continue our relationship with
Mexico's regulators, CNH, which oversees PEMEX, to work
together to continue implementing heightened standards, both
regulatory standards and practices by industry, and essentially
help support CNH and PEMEX in implementing those heightened
standards with respect to, as you described, these challenging
areas in deep water.
Let me give some examples of that. The Agreement
specifically provides for continued work between the United
States and Mexico on a common set of drilling practices and
standards to be used on both sides of the border. If there is
an accident in the vicinity of the transboundary area, that
accident is not going to respect the shores of the authorizing
nation. It is truly, as Secretary Salazar frequently said,
``one pond.''
And so, it is in our interest to support CNH and support
PEMEX in raising standards. One example of that is following
Deepwater Horizon we implemented requirements that every deep
water operation be capable of providing access to systems to
cap a well, the same type of technology that had to be
engineered and brought to bear on the fly during the oil spill.
CNH, PEMEX, are working with a U.S. company to bring that same
capability to Mexican operations on their side of the maritime
boundary, as well.
Mr. Pascual. Congressman, if I could add just briefly to
that, I was the U.S. Ambassador in Mexico at the time when the
National Committee of Hydrocarbons was essentially formed. The
Department of the Interior was very fast in there to begin a
relationship with them to share best practices to increase
their capabilities.
The importance of that investment is only going to become
more important in the future. If Mexico does move forward with
its energy reform, it will create an environment that will
attract more investment, more possibilities for development.
The strong kind of communication and cooperation that is being
developed with the Department of the Interior is extremely
important to actually create the kind of best practices and
professional and technical cooperation that is necessary for
future safeguards.
I would only finally add that in the kind of contracts and
agreements that are envisaged under this Agreement, each of
those contracts would have to have safety provisions, and it
would give us an opportunity to review and approve those safety
provisions to ensure that they meet appropriate safety
requirements.
So, I think that this agreement can't fix everything, but
it is done in a way that is very sensible and sound and is very
attuned to safety requirements.
Mr. Garcia. Mr. Chairman? If I might, I have to go to
another hearing, I just wanted to say something real quick for
the record.
Mr. Lamborn. If there is no objection, you may have a few
seconds.
Mr. Garcia. Thank you, Mr. Chairman. I obviously think that
we should move forward on this legislation. I wanted to say
hello to my good friend, Ambassador Pascual. We have worked
together for years.
And I would also point out to the Chairman that I can
understand the Department of the Interior trying to be very
careful when they present anything to this Committee, because
we tend to bat things out here for a while. So I can understand
you wanting to perfect the document before you got it to us, so
I appreciate your being careful with it.
Thank you, Mr. Chairman, I yield back the balance of time.
Mr. Lamborn. OK, thank you. Now I would like to recognize
Representative Duncan.
Mr. Duncan. Thank you, Mr. Chairman. And, first off, I want
to thank you for pointing out some of the frustrations we had
with Secretary Salazar blaming Congress for its inaction, but
yet failing, as an agency, to provide us the implementation
language. And so, I think this is the right step.
I want to note that the Obama Administration has decided to
enact this Agreement with Mexico as a congressional executive
agreement, rather than a treaty, which requires a simple
majority in both Houses of Congress, rather than a two-thirds
majority in the Senate. This agreement has the same status
under international law as Mexico's ratification.
And I am glad to see us moving forward with implementation
language, instead of the way it was attempted in the 112th
Congress, where the Obama Administration attempted to insert a
single paragraph in a last-minute non-germane Senate bill back
in December of 2012. That was the wrong way to do it. This is
the right way to do it. And I applaud both sides for showing
some interest in moving the implementation forward.
I serve on the Natural Resources Committee, but I also
serve on the Homeland Security Committee and I serve on the
Foreign Affairs Committee, which all have interest in this
legislation and interest in the Transboundary Agreement.
In Secretary Beaudreau's comments, he said that, ``The
DOI's Bureau of Safety and Environmental Enforcement and the
United States Coast Guard already maintain a strong working
relationship with the Mexican offshore regulatory authority.''
I don't speak Spanish, but the Commission on National
Hydrocarbons is what it stands for, I am assuming ``and this
Agreement promotes further cooperation between the U.S. and
Mexico with respect to drilling safety and oil spill response
standards and practices.'' So we already have an agreement in
place where our Coast Guard is doing some inspections, and it
seems to be working where there are current overlaps.
So I am going to ask Secretary Beaudreau, if you will just
highlight some of the concerns the other side may have about
safety in relation to your comments in page three of your
testimony.
Mr. Beaudreau. Thank you, Congressman. Again, what the
Agreement does is provide further opportunity for engagement
between U.S. regulators, Mexican regulators, U.S.-qualified
companies, and PEMEX around technical issues related to safety
and environmental performance. Extremely important issues.
The Agreement does not change in any way the safety or
regulatory regime applicable to U.S. operators. Frankly, what
it provides for is reinforcement of the engagement that is
already occurring to help support CNH and help support PEMEX as
they raise their game moving into these areas.
And so, again, it provides for mechanisms as described by
the Ambassador and by me to have an opportunity to review what
the safety and environmental protections would be in the
context of any operation under one of these unitization
agreements. It also provides an opportunity, which we currently
don't have formally, for joint inspections of operations on the
Mexican side of the maritime boundary.
Mr. Duncan. Yes. I appreciate that. Ambassador, would you
like to chime in on that?
Mr. Pascual. I think one of the things that we just have to
consistently underscore is that the combination of adding
greater security about the safety provisions, addressing the
legal certainty, as you and the Chairman provided early on,
together begin to give us the potential for this strip in the
transboundary area to address one of the most fundamental
concerns about production and exploration that has existed in
the past. And you have stated that very well.
And when we look at taking away that uncertainty on the
legal side, while at the same time providing a mechanism that
allows us to ensure that any provisions forward meet our safety
requirements, and if we are doing this in a way where we are
responding to private-sector proposals and contracts, we have a
mechanism that is, I think, one of those win-wins all around,
not just between governments, but between government and the
private sector.
And so, I just wanted to express my appreciation for your
willingness to move the legislation forward at this point of
time to underscore that it is the kind of collaboration between
public sector and private sector that could produce real
benefits and wins, both on commercial development, as well as
honoring our commitments to safety and environmental quality.
Mr. Duncan. Thank you, Mr. Chairman.
Mr. Lamborn. Thank you. Representative Grijalva.
Mr. Grijalva. Thank you, Mr. Chairman. Gentlemen, earlier
this month the entity that was formed out of the independent BP
Oil Spill Commission issued a report on, ``The Progress on
Responding to the Spill: Three Years Later.'' The report
found--well, gave Congress a D+ in response, and found that
Congress did nothing about the many other critical issues the
Commission identified to improve safety and environmental
protection beyond the RESTORE Act, which was to have civil and
administrative penalties directed toward restoration issues on
the coast.
The report found that Congress had not acted on any of the
recommendations made to ensure there are adequate resources for
offshore drilling, drilling regulators, and to respond to any
spill. Ranking Member and other House Democrats introduced
legislation on the last Congress to implement the Commission's
recommendations.
Secretary, Ambassador, do you agree with the Commission's
recommendations that Congress should take action to provide
additional direct funding to offshore regulators as we move
into this part of the legislation to authorize the
transboundary?
Mr. Beaudreau. The Administration has, ever since the
spill, has supported a number of legislative initiatives with
respect to improving safety and oversight offshore. A couple of
those were mentioned by Ranking Member Holt, including raising
liability limit and codifying many of the reforms that we have
implemented, administratively.
One of the central lessons coming out of Deepwater Horizon
was that the Minerals Management Service, MMS, was woefully
under-resourced. I actually think Congress has taken a number
of very positive steps in that regard. BSEE, in particular, has
received a substantial influx of resources, which they are
putting to good use.
Mr. Grijalva. Ambassador, any comment on that?
Mr. Pascual. It would probably be inappropriate for me to
comment on U.S. domestic legislation. So I will pass on the
opportunity.
Mr. Grijalva. Thank you. Mr. Beaudreau, Secretary, this
legislation includes a rather curious provision that would
exempt oil companies operating in the area under discussion
from the extraction reporting requirements of Section 13(g) of
the Securities Exchange Act. The Dodd-Frank Act mandated a rule
under that law to require disclosure of certain payments to
foreign nations. Do you believe that exception from the
requirement is necessary or good?
Mr. Beaudreau. We received the proposed bill late last
week. I think there are a number of positive aspects to it,
including implementation language that is very similar to what
the Administration has proposed. There are also a number of
provisions, including that one, that I look forward to engaging
with this Committee on to better understand the intention
behind the proposal, and work with the Committee on that
language.
And so, I don't have a view at this point. I am looking
forward, however, to engaging on those issues.
Mr. Grijalva. Thank you. Again, Mr. Secretary, the Interior
Department has said the delays in offshore oil and gas
permitting in the Gulf of Mexico from the sequester could
affect more than 500 exploration plans and development
documents that are anticipated for review this year. You think
the sequester would slow energy development offshore, and
potentially making offshore drilling less safe and longer
delays in the area that we are talking about right now?
Mr. Beaudreau. I am concerned about the potential impacts
of sequester. I will say that none of the budget constraints
will affect our approach on safety and on applying the
heightened standards.
I am concerned, however, that the budgetary constraints
imposed by sequester may affect timelines. We have been
extremely successful, in my view, on not only requiring
compliance with heightened standards----
Mr. Grijalva. OK.
Mr. Beaudreau [continuing]. But making our process more
efficient. I am concerned that there may be some back----
Mr. Grijalva. Given that timeline response, Secretary, and
the budget concerns that you mention, will your agency have the
resources to inspect PEMEX operations in this transboundary
zone the way that has been required up to this point?
Mr. Beaudreau. Yes. We----
Mr. Grijalva. Are we talking about delays again?
Mr. Beaudreau. We intend to fully implement the agreement
and to apply our resources as they are available at that time
in order to implement the agreement. We are always concerned
about resources, but safety is our highest priority. And so, if
we have----
Mr. Grijalva. It is the highest priority. Do you anticipate
delays because it is the highest priority and that must be
given the focus, and there are fewer resources than you had
prior to that?
Mr. Beaudreau. It is hard to say without a specific
operation in front of us. But safety is the highest priority.
If delay is a consequence, so be it.
Mr. Lamborn. OK, thank you. And I would like to----
Mr. Duncan. Mr. Chairman, the gentleman mentioned a report
at the beginning of his statement. Could he repeat who issued
that report, the gentleman from Arizona?
Mr. Grijalva. The entity of the committee of the
Commission, and we would be glad to provide that information to
you.
Mr. Duncan. Could we get a copy of that for----
Mr. Grijalva. Be glad to.
Mr. Lamborn. Thank you. Thank you. OK, Representative
Thompson.
Mr. Thompson. Chairman, thank you. Assistant Secretary,
Ambassador, welcome. Thank you for your service. and thank you
for being here today to talk about something I think that is
important. As we look forward, we are talking about this piece
of legislation, which would codify basically a collaborative
approach. It provides certainty, I think, involving the public-
private sectors. And so it has got all the right elements, it
seems, in place.
And a lot of it, as you reflected in your testimonies, was
about encouraging Mexican production of hydrocarbon resources.
I personally see that as a good thing. My perception is that as
we do that, and that progresses, I look at North America as a
whole in terms of energy production. That is good for security
for all of us. It is good for the economies. And I have to
assume it is good for jobs on both sides of the international
border.
And so, Mr. Ambassador, I was kind of curious. It may or
may not be an unintended consequence of this, of what we are
talking about today, but I wanted to get your opinion, given
the fact you have been Ambassador to Mexico. Thank you for your
current role within the State Department, specifically on
energy. I think that is important.
Has the State Department, I have to assume you have, but
you get in trouble when you assume in this town, examined how
this might deter motivations for illegal immigration to the
United States as greater opportunities, all those things we
talked about, security, stronger economy, and jobs, do the
citizens of Mexico benefit in whatever big way or small way
from this? Has the State Department examined that? It seems
like it could be a consequence.
Mr. Pascual. I am sorry, Congressman. I missed the key
word, ``examined.'' What, specifically?
Mr. Thompson. I am sorry. The motivation to come here
illegally. And, obviously, on the other side of the Capitol, in
particular, illegal immigration is a huge discussion right now.
And we have to look at ways, reasons why folks choose to
put their life at risk and go through breaking our laws and
coming here. And one of the things it seems to be that I
believe is they come here in search of greater opportunity.
Will this grow greater opportunity for our Mexican neighbors
that could reduce, perhaps in some small way, part of the
illegal immigration that we experience every day?
Mr. Pascual. Congressman, thank you. I think that what you
point at is a very important and central question, and the
discussions that arise on the debate about migration, and it
has to do with economic growth and job opportunity. And I think
there is no doubt that the Mexican political leadership has
consistently looked at the importance of creating greater job
opportunities internally within their country, and stimulating
economic growth.
The energy sector is one of those areas where growth is
certainly a potential. If one looks at a map of the Gulf of
Mexico, one will see on the U.S. side of the border a
consistent pattern of development and virtually a blank on the
Mexican side on the Gulf of Mexico, and that has essentially
been because of the provisions that exist currently right now
that do not effectively track private investment.
On other parts of the border, the land border between
Mexico and the United States, there is huge potential that
exists, particularly with the development of shale gas and
unconventional gas, where essentially the Eagle Ford shale play
extends into the Mexican side of the border. The Mexican
leadership is aware of that, and it is one of the reasons why
they have come to recognize that they need to consider what
kind of legislation they need to put in place in order to
attract private investment.
Mr. Thompson. Can you----
Mr. Pascual. Specifically on this question of the
Transboundary Agreement, one of the issues that they raised
with me from the very first discussions we had about it in
September of 2009 was the importance of creating an environment
where both Mexico and the United States can understand the
legal foundation for cooperation with one another, something
which previously has not existed between our two countries in
the energy sector. And in that sense, it is quite a landmark
movement.
Mr. Thompson. Now, and I am familiar that the State
Department has been involved in the export of hydrofracking
technology, I had the pleasure of having a State Department-
sponsored forum in Washington. They brought them by bus up to
my congressional district in Lycoming County to visit some of
our Marcellus shale. Briefly, is that effort still continuing
to push out that state-of-the-art technology, in terms of
hydrofracking, to other countries?
Mr. Pascual. Sir, indeed. What we have consistently tried
to do is to share best practices with other countries around
the world. We have learned a lot in the United States about our
experience on everything from dealing with gas issues, water
issues, hydraulic fracking fluids, how to monitor seismic
activity, how to maintain baseline data, how to do this in a
way that consults with local communities and balances their
interest and the private sector interests at the same time.
And so, we continue programs that have brought
representatives from, to name a few, Poland, Ukraine, Jordan,
China, Colombia, Chile, to the United States, where we have had
an opportunity to share both our government experience at a
Federal level, at a State level, and with private companies,
the kind of best practices that have been used so that if
others decide to go ahead with the development of their----
Mr. Lamborn. Mr. Ambassador, I am going to have to ask you
to----
Mr. Pascual [continuing]. They can do it in the best way.
Mr. Thompson. Thank you. Thank you, Mr. Chairman.
Mr. Lamborn. Thank you. Representative Wittman.
Dr. Wittman. Thank you, Mr. Chairman. I want to thank the
witnesses for joining us today. I appreciate the efforts that
you are putting forth to get our energy policy on track,
especially as it relates to the Outer Continental Shelf. And I
know the Transboundary Agreement is critical for that.
One of the things that I am concerned about, though, is
looking at not just the Transboundary Agreement, but also the
development or expansion and opening areas in the Atlantic. As
you know, the Virginia Lease 220 has a significant amount of
potential energy to be developed there, about 130 billion
barrels of oil, and 1.14 trillion cubic feet of natural gas. So
it is significant. There is agreement across Virginia, across
our congressional delegation and within the State, to make sure
that this happens.
The Virginia lease sale was part of the Department's 5-year
plan from 2007 through 2012. However, on May 27th the President
and Secretary Salazar canceled the Virginia scheduled lease
sale. And I am just wondering why the Administration continues
to oppose efforts to move forward with an oil and gas lease
sale off of Virginia?
I think we have understood what happened with the accident
down there in the Gulf, and currently no lease sale could take
place off of Virginia until 2017. So in canceling this lease
sale, the Administration has cited safety concerns. And, as I
said, if it is truly safety concerns, I think we have certainly
learned from the accident in the Gulf and can apply those
lessons learned to any permits that would be issued there in
Lease 220.
So, I just wanted to know why should it take nearly a
decade, if we are going to wait until 2017, why should it take
over a decade for us to learn the lessons from the Gulf, many
of which have already been pointed out to us in the issuance of
a permit or going forward with putting Lease 220 into the
Department of the Interior's plan? And I just want to know,
bottom line, what is the cause for delay on allowing Virginia
to go forward?
As I said, the State is in full agreement with this. We
want to do it. Our legislature, our entire congressional
delegation. So we are awaiting the opportunity to be able to do
that. And, as you know, for Virginia and for the East Coast,
this means jobs, it means energy independence, and especially
with the potential opportunities there for natural gas and oil.
And, by the way, I do know there is a provision in there to
say that the exploration can begin. But, as you know, there is
not going to be a company that is going to invest in going out
there and doing seismic studies and the significant money that
it takes to do that without the opportunity to say that they
could apply to actually develop those resources.
Mr. Beaudreau. The Administration under our 5-year plan has
a very specific strategy with respect to the Mid- and South
Atlantic, and that does involve acquiring modern geologic
information through seismic study. I am actually quite
confident that we will be able to acquire that information.
I am also confident that, as we collect, again, modern
seismic information about the resource potential along the
Atlantic, that we will have a substantial basis to make
informed decisions about potential leasing in the future in
that area.
With respect to this Sale 220 area, as I think you are
aware, that triangle area presented substantial concern and
conflicts with the Defense Department. And I believe they made
a submission to us that essentially redacted out over 80
percent of that area as posing significant concerns for their
operations. The military is obviously extremely important to
our national defense, as well as the economy of the Tidewater
Area in Virginia.
Dr. Wittman. Yes.
Mr. Beaudreau. We are taking the time to engage with DOD
and others to get it right as we consider future leasing on the
East Coast.
Dr. Wittman. Well, and before my time expires, let me ask
you. How do you believe that the seismic information is going
to be gathered? Do you believe that there is going to be an
energy company out there that is going to invest in gathering
that seismic data without the possibility of actually
developing the energy there? Is it the Department of the
Interior that is going to pursue getting that data? Tell me how
that data is going to be collected.
Mr. Beaudreau. I have actually engaged very specifically,
both with the G&G contracting industry through the IAGC and
individuals companies, as well as with individual oil and gas
companies who are interested in that area. Given the potential
here, and the seriousness with which we are moving forward with
this strategy, I am actually quite confident that seismic
studies, assuming our EIS process completes and those studies
are able to go forward in a responsible way, I am actually
quite confident that industry will be interested in doing so.
Dr. Wittman. Well, I hope your confidence is the reality.
The conversations I have had with energy companies have been
the opposite. They are a little reticent to say that they are
going to make those kinds of investments without knowing with
any certainty that they will be able to develop. Because, as
you know, there is nothing in the plan that said that would
ever develop, only the opportunity to say in 2017 that the
Department of the Interior would consider at that particular
point leasing those areas in Lease 220 going forward. So, I
hope that your optimism is realistic.
Thanks again, Mr. Chairman. I yield back.
Mr. Lamborn. OK. And I want to thank the witnesses for
appearing today, and for your testimony. Members of the
Committee may have additional questions for the record, and I
would ask that you respond to those in writing if you are given
those questions.
I would like to now invite the second panel to come
forward: Mr. Erik Milito, Group Director, Upstream and Industry
Operations for the American Petroleum Institute; Mr. Daniel
Simmons, Director of Regulatory and State Affairs for the
Institute of Energy Research; Mr. Steven Groves; and Mr. Athan
Manuel, Director of Lands Protection Program for the Sierra
Club.
Like all our witnesses, your written testimony will appear
in full in the hearing record, so I ask that you keep your oral
statements to 5 minutes, as outlined in our invitation letter
to you.
Our microphones are not automatic, so you have to press the
button to begin. After 4 minutes the yellow light comes on.
After 5 minutes the red light comes on.
We thank you for being here. And we will start with Mr.
Milito. Thank you for your testimony.
STATEMENT OF ERIK MILITO, GROUP DIRECTOR, UPSTREAM AND INDUSTRY
OPERATIONS, AMERICAN PETROLEUM INSTITUTE
Mr. Milito. Thank you, Chairman. Good morning, Chairman
Lamborn, Ranking Member Holt, and members of the Committee. I
am Erik Milito, Upstream Director at the American Petroleum
Institute. API has more than 500 member companies which
represent all sectors of America's oil and natural gas
industry. Our industry supports 9.2 million American jobs, and
7.7 percent of the U.S. economy. The industry also provides
most of the energy we need to power our economy and way of
life, and delivers more than $85 million a day in revenue to
the Federal Government.
Our Nation can and should be producing more of the oil and
natural gas Americans need here at home. This would strengthen
our energy security, and help put downward pressure on prices,
while also providing many thousands of new jobs for Americans
and billions of dollars in additional revenue for our
government.
According to Energy Information Administration statistics,
we produced a little more than 5 million barrels of oil a day
in 2009, and we are now projected to produce 8 million barrels
a day by the end of 2014. But we can and should do more.
The Transboundary Hydrocarbon Agreement with Mexico is
important, as it could help create additional resource
opportunities for U.S. oil and natural gas companies in the
Gulf of Mexico and, in turn, create more jobs and enhance our
energy security. The Agreement establishes a cooperative
process for managing oil and gas reservoirs along the boundary
region in the Gulf of Mexico, and encourages cooperative
agreements between U.S. independent oil companies, and Mexico's
state-owned company, PEMEX, to jointly develop energy resources
along boundary areas in the Gulf of Mexico.
Importantly, this Agreement will provided legal certainty
to U.S. companies, which will encourage them to invest in new
energy development, creating jobs and spurring economic growth.
The importance of this Agreement is magnified by the fact that
the Administration has chosen a status quo approach to offshore
oil and natural gas development that restricts oil and gas
development to the Gulf of Mexico and Alaska, and leaves more
than 85 percent of OCS areas off limits.
We continue to hear about an all-of-the-above energy
approach, and the Administration's own projections show that
oil and natural gas will supply most of the Nation's energy for
decades to come. Yet we continue to see proposals to increase
taxes on the industry, decisions to reduce opportunities for
leasing and resource development, processes that string out
permitting decisions, and continued regulatory uncertainty.
Implementing legislation authorizing this important
Agreement should be approved as quickly as possible. And House
Bill 1613 takes that pivotal step. Swift implementation of the
Transboundary Hydrocarbon Agreement is important to providing
regulatory certainty, will allow companies to make investments
in these boundary areas with the knowledge that there is a
framework in place to allow for orderly extraction of these
resources.
Given that industry investments in the offshore are largely
limited to the Gulf of Mexico, this will serve to enhance our
Nation's energy security and long-term economic growth, and
highlight the importance of national leadership in promoting a
positive, forward-looking energy policy.
In addition, this legislation would also exempt any related
oil and gas developmental activities from resource extraction
reporting requirements of Section 13(q) of the Exchange Act.
Section 13(q) requires SEC-listed companies to report payments
to foreign governments, sub-national governments, and the
Federal Government, on a project-by-project basis. Instead of
including common sense exemptions for public disclosure and
conflicts of law, the SEC pushed through the most costly rule
in the Commission's nearly 80-year history. API continues to
litigate Section 13(q) with the SEC, and believes the rule
should be vacated to avoid competitive disadvantage of U.S.
companies around the world.
I would like to also add that the industry fully supports
transparency and disclosure, and the EITI efforts that we are
currently involved with, and that a reasonable 1504 rule would
be modeled--it would follow along those types of lines, rather
than what we now have as the final rule.
I would like to thank again the Chairman and the Committee,
and I look forward to your questions. Thank you.
[The prepared statement of Mr. Milito follows:]
Statement of Erik Milito, Group Director,
Upstream and Industry Operations, API
Good morning Chairman Lamborn, Ranking Member Holt, and members of
the committee. I am Erik Milito, Upstream Director at the American
Petroleum Institute.
API has more than 500 member companies, which represent all sectors
of America's oil and natural gas industry. Our industry supports 9.2
million American jobs and 7.7 percent of the U.S. economy. The industry
also provides most of the energy we need to power our economy and way
of life and delivers more than $85 million a day in revenue to the
federal government.
Our nation can and should be producing more of the oil and natural
gas Americans need here at home. This would strengthen our energy
security and help put downward pressure on prices while also providing
many thousands of new jobs for Americans and billions of dollars in
additional revenue for our government. According to Energy Information
Administration statistics, we produced a little more than 5 million
barrels of oil a day in 2009 and are projected to produce 8 million
barrels a day by the end of 2014. But we can and should do more.
The Transboundary Hydrocarbon Agreement with Mexico is important as
it could help create additional resource opportunities for U.S. oil and
natural gas companies in the Gulf of Mexico and in turn create more
jobs and enhance our energy security. The agreement establishes a
cooperative process for managing oil and gas reservoirs along the
boundary region in the Gulf of Mexico and encourages cooperative
agreements between U.S. independent oil companies (IOCs) and Mexico's
state-owned oil company (Pemex) to jointly develop energy resources
along boundary areas in the Gulf of Mexico. Importantly, this agreement
will provide legal certainty to U.S. companies, which will encourage
them to invest in new energy development, creating jobs and spurring
economic growth.
The importance of this agreement is magnified by the fact that the
administration has chosen a status quo approach to offshore oil and
natural gas development that restricts oil and gas development to the
Gulf of Mexico and Alaska and leaves more than 85 percent of OCS areas
off limits. We continue to hear about an ``all-of-the above'' energy
approach and the administration's projections show that oil and natural
gas will supply most of the nation's energy for decades to come. Yet we
continue to see proposals to increase taxes on the industry, decisions
to reduce opportunities for leasing and resource development, processes
that string out permitting decisions, and continued regulatory
uncertainty.
Implementing legislation authorizing this important agreement
should be approved as quickly as possible, and H.R. 1613 takes that
pivotal step. Swift implementation of the Transboundary Hydrocarbon
Agreement is important to providing regulatory certainty and will allow
companies to make investments in these boundary areas with the
knowledge that there is a framework in place to allow for orderly
extraction of these resources. Given that industry investments in the
offshore are largely limited to the Gulf of Mexico, this will serve to
enhance our nation's energy security and long-term economic growth and
highlight the importance of national leadership in promoting a
positive, forward-looking energy policy.
In addition, this legislation would also exempt any related oil and
gas developmental activities from resource extraction reporting
requirements of section 13(q) of the Exchange Act. Section 13(q)
requires SEC-listed companies to report payments to foreign
governments, subnational governments, and the Federal Government on a
project-by-project basis.
Instead of including common senses exemptions for public disclosure
and conflicts of law, the SEC pushed through the most costly rule in
the Commission's nearly 80 year history. API continues to litigate
section 13(q) with the SEC and believes the rule should be vacated to
avoid a competitive disadvantage of U.S. companies around the world.
Thank you again to the Chairman and the Committee and I look
forward to your questions.
______
Mr. Lamborn. Thank you, Mr. Milito.
Mr. Simmons, go ahead and proceed with your five minutes.
STATEMENT OF DANIEL R. SIMMONS, DIRECTOR OF REGULATORY AND
STATE AFFAIRS, INSTITUTE FOR ENERGY RESEARCH
Mr. Simmons. Mr. Chairman, Ranking Member Holt, and members
of the Subcommittee, thank you for the opportunity to talk
today about the Transboundary Hydrocarbon Agreement.
First of all, some context. The United States and Mexico
are energy-rich countries. Total recoverable oil in North
America exceeds 1.7 trillion barrels. To put that in
perspective, at the U.S. current rate of use, that is enough
oil for 242 years. Total recoverable natural gas is
approximately 4.2 quadrillion cubic feet, enough for 176 years
at the U.S.'s current rate of use, and North America has nearly
500 billion short-tons of coal, enough coal for nearly 500
years at our current rate of use.
North America is not limited by our energy resources.
Instead, we are limited by access to these vast energy
resources. Trade between the United States and Mexico,
especially in energy, not only makes our Nation stronger, but
it raises our combined economic welfare. In 2011, Mexico was
the second-largest source of oil exports to the United States
behind only Canada, and Mexico was the largest recipient of
U.S. gasoline exports.
Mexico's heavy oil production is falling. But hopefully,
the Transboundary Hydrocarbon Agreement will help turn around
Mexico's oil production. The Transboundary Agreement could lead
to oil and natural gas production on 1.5 million acres in the
Gulf of Mexico that was previously off limits, due to border
issues. This production alone will not lead to a revolution in
hydrocarbon production in the United States or Mexico. But more
important than the oil and natural gas resources along the
border is the potential for greater cooperation between the
U.S. and Mexico.
Mexico has long been a leading oil producer, but oil
production in Mexico is falling. This is not, again, from a
lack of resources. Mexico has an estimated 10.5 billion barrels
of proven oil reserves. But that amount could double when
unconventional and deep water resources become proven reserves.
The United States is the leader in accessing unconventional and
deep water resources, as seen by huge new oil discoveries in
places like offshore Brazil, that were made using technologies
developed in the U.S. Working together, we can increase
Mexico's oil production to reverse their oil production
decline.
This is especially true if U.S. hydraulic fracturing
technologies are used to access Mexico's shale, oil, and gas
resources. For example, one of America's most prolific shale
fields, the Eagle Ford, extends into Mexico. But all of the
activity is on the U.S. side of the border.
The Obama Administration finalized negotiations on the
Transboundary Hydrocarbon Agreement last year. Hopefully
Congress will now be able to act to finalize this Agreement.
But one important note. While the Transboundary Hydrocarbon
Agreement is a good agreement that will aid both the U.S. and
Mexico, one potential problem is the conflict between Article
20 in the Agreement and the SEC's rule 13(q) regarding
disclosure for resource extraction payments. A possible
conflict between rule 13(q) and Article 20 of the Transboundary
Agreement at the very least creates some uncertainty about
compliance with both Mexican and American disclosure laws. This
uncertainty and potential disclosure conflict could place
foreign state-owned oil companies who are not regulated by the
SEC at a competitive advantage to companies which operate in
the United States and are regulated by the SEC.
Also much of the transboundary area in the Gulf is deep
water, and would require multi-billion-dollar investments to
produce these hydrocarbon resources. Any additional uncertainty
makes these large investments harder and helps to impede
additional exploration and production. Therefore, the authors
of H.R. 1613 are to be commended for recognizing this
uncertainty and taking the proper steps to isolate this unique
agreement from the uncertainty surrounding rule 13(q).
There is much more that can be done to benefit our
continent, which happens to sit on the largest sources of
hydrocarbons in the world. Affordable, reliable, and secure
energy is our common bond, and the U.S. and Mexico can both
benefit from its development. Positive movement on the
Transboundary Hydrocarbon Agreement will help other energy
projects move forward to the benefit of our people.
Thank you for your time, and I will gladly answer any
questions.
[The prepared statement of Mr. Simmons follows:]
Statement of Daniel R. Simmons, The Institute for Energy Research
The Institute for Energy Research (IER) is a non-profit
organization that conducts intensive research and analysis on the
functions, operations, and government regulation of global energy
markets. IER articulates free market positions that respect private
property rights and promote efficient outcomes for energy consumers and
producers. IER staff and scholars educate policymakers and the general
public on the economic and environmental benefits of free market
energy. The organization was founded in 1989 as a public foundation
under Section 501(c)(3) of the Internal Revenue Code. Funding for the
institute comes from tax-deductible contributions of individuals,
foundations, and corporations.
Introduction
Discussion of the Transboundary Agreement requires some background
on the relative energy positions of the countries of North America, and
therefore, I will include today a discussion of the situation we find
ourselves in. It is in fact a great situation, if government policies
adjust to allow the benefits to flow. The United States and Mexico are
energy rich countries, especially when the combined oil, natural gas,
and coal endowments are considered together. There is no reason why
North America's energy resources cannot meet the needs of our nations
for generations to come, except government policies. That is why the
Committee's focus on ensuring the Transboundary Agreement works to
benefit all of our citizens is welcome.
Total recoverable oil in North America exceeds 1.7 trillion
barrels. The total recoverable North American natural gas is
approximately 4.2 quadrillion (4,244 trillion) cubic feet and North
America has over 497 billion short tons of recoverable coal. For
comparison's sake, the U.S. uses roughly 7 billion barrels of oil, 24
trillion cubic feet and 1 billion short tons of coal annually. North
America is not limited by energy resources, but instead by access to
these vast energy resources. Trade between the United States and Mexico
only makes our nations stronger and raises our combined economic
welfare.
Mexico is America's third largest trading partner \1\ and has been
one of the largest sources of oil exports to the United States.\2\
Mexico is the largest recipient of U.S. gasoline exports \3\ and the
second largest recipient of our natural gas exports.\4\
---------------------------------------------------------------------------
\1\ U.S. Census, Top Trading Partners--Total Trade, Exports,
Imports, http://www.census.gov/foreign-trade/statistics/highlights/
toppartners.html.
\2\ Energy Information Administration, U.S. Total Crude Oil and
Products Imports, http://www.eia.gov/dnav/pet/
pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm.
\3\ Energy Information Administration, Finished Motor Gasoline
Exports by Destination, http://www.eia.gov/dnav/pet/
pet_move_expc_a_epm0f_eex_mbbl_a.htm.
\4\ Energy Information Administration, U.S. Natural Gas Exports by
Country, http://www.eia.gov/dnav/ng/ng_move_expc_s1_a.htm; Energy
Information Administration, U.S. Natural Gas Imports by Country, http:/
/www.eia.gov/dnav/ng/ng_move_impc_s1_a.htm.
---------------------------------------------------------------------------
The energy trade between the United States and Mexico is growing,
especially for America's finished petroleum and natural gas exports.
Mexico's heavy oil production is falling, but that means more spare
refining capacity on the Gulf Coast if Canadian oil sands can be
transported to the Gulf Coast.
The energy and economic welfare of the United States and Mexico are
intertwined by our shared geography, geology, and peoples. The
Transboundary Hydrocarbon Agreement will help to tie our countries
together and grow our economies. North America does not lack energy
resources, but what we do lack, at times, is the necessary political
will that could lead to greater economic growth and prosperity.
North American Energy Inventory
North America has vast energy resources and more discoveries
continue to be made. The United States alone has the world's largest
combined oil, natural gas, and coal resources,\5\ and both Canada and
Mexico have large oil and natural gas resources. To better understand
the North America's energy potential, The Institute for Energy Research
compiled the North American Energy Inventory \6\ in which we catalogued
the known oil, coal, and natural gas resources in Canada, the United
States, and Mexico using government reports. In the report we found
that:
---------------------------------------------------------------------------
\5\ Gene Whitney et. al., U.S. Fossil Fuel Resources: Terminology,
Reporting, and Summary, Congressional Research Service, Nov. 30, 2010,
http://epw.senate.gov/public/
index.cfm?FuseAction=Files.view&FileStore_id=04212e22-c1b3-41f2-b0ba-
0da5eaead952.
\6\ Institute for Energy Research, North American Energy Inventory,
Dec. 2011, http://www.energyforamerica.org/wp-content/uploads/2012/06/
Energy-InventoryFINAL.pdf.
---------------------------------------------------------------------------
North America is blessed with enough energy supplies
to promote and sustain economic growth for many generations.
The government's own reports detail this, and Congress was
advised of our energy wealth when the Congressional Research
Service of the Library of Congress released a report showing
that the United States' combined recoverable oil, natural gas,
and coal endowment is the largest on Earth.
The amount of oil that is technically recoverable in
the United States is more than 1.4 trillion barrels, with the
largest deposits located offshore, in portions of Alaska, and
in shale in the Rocky Mountain West. When combined with
resources from Canada and Mexico, total recoverable oil in
North America exceeds 1.7 trillion barrels.
That is more than the world has used since the first
oil well was drilled over 150 years ago in Titusville,
Pennsylvania. To put this in context, Saudi Arabia has about
260 billion barrels of oil in proved reserves. For comparative
purposes, the technically recoverable oil in North America
could fuel the present needs in the United States of about
seven billion barrels per year for around 250 years.
Moreover, it is important to note that that
``reserves'' estimates are constantly in flux. For example, in
1980, the U.S. had oil reserves of roughly 30 billion barrels.
Yet from 1980 through 2010, we produced over 77 billion barrels
of oil. In other words, over the last 30 years, we produced
over 150 percent of our proved reserves and still had over 20
billion barrels of oil reserves.
Restrictions in the form of federal bans and leasing
combined with declining offerings of lease acreage mean only
about 2.2 percent of America's offshore acreage is currently
leased for production.
Proved reserves of natural gas in the United States
and throughout North America are enormous, and the total amount
of recoverable natural gas is even more impressive. The EIA
estimates that the United States has 304.6 trillion cubic feet
of proved reserves of natural gas.\7\ The total amount of
natural gas that is recoverable in North America is
approximately 4.2 quadrillion (4,244 trillion) cubic feet.
---------------------------------------------------------------------------
\7\ Energy Information Administration, Natural Gas Reserves Summary
as of Dec. 31, http://www.eia.gov/dnav/ng/
ng_enr_sum_a_EPG0_R11_BCF_a.htm.
---------------------------------------------------------------------------
Given that U.S. consumption is currently [as of
December 2011] about 24 trillion cubic feet per year, there is
enough natural gas in North America to last the United States
for over 175 years at current rates of consumption.
Total supplies of natural gas in North America dwarf
those of other countries. The United States, Canada, and Mexico
have more technically recoverable natural gas resources than
the combined total proved natural gas reserves found in Russia,
Iran, Qatar, Saudi Arabia, and Turkmenistan.
With respect to total recoverable resources, however,
North America's combined coal supplies are even more
staggering. The United States, Canada, and Mexico have over 497
billion short tons of recoverable coal, or nearly three times
as much as Russia, which has the world's second largest
reserves. North America's recoverable coal resources are bigger
than the five largest non-North American countries' reserves
combined (Russia, China, Australia, India, Ukraine).
North American recoverable coal could provide enough
electricity for the United States for about 500 years at
current levels of consumption.
While the United States and North America contain
enormous energy wealth, U.S. policies have increasingly made
exploration, development, production and consumption of that
energy more difficult.
Therefore, a scarcity of good policies, not a
scarcity of energy, is responsible for U.S. energy insecurity.
U.S. Oil and Natural Gas Production Trends
The federal estate contains vast energy resources, but the federal
government allows energy production on a very small percentage of
taxpayer-owned federal lands. The Interior Department has leased just 2
percent of federal offshore areas and less than 6 percent of federal
onshore lands for oil and gas development.\8\ This is particularly
important because, while the entire U.S. including Alaska and Hawaii is
2.271 billion acres, the government owns mineral access to 2.4 billion
acres because of the Outer Continental Shelf.
---------------------------------------------------------------------------
\8\ See Bureau of Ocean Energy Management, Regulation and
Enforcement, Offshore Energy and Minerals Management, http://
www.boemre.gov/offshore/. According to the administration's website,
the outer continental shelf is 1.76 billion acres (http://
www.boemre.gov/ld/PDFs/GreenBook-LeasingDocument.pdf page 1) and only
38 million acres are leased (Department of Interior, Oil and Gas Lease
Utilization--Onshore and Offshore, http://www.doi.gov/news/
pressreleases/loader.cfm?csModule=security/getfile&pageid=239255 page
4). That is a mere 2.16% of the entire Outer Continental Shelf.
According to the Department of Interior, 38 million acres of onshore
lands are leased for oil and natural gas production. See Table 3 in
Department of Interior, Oil and Gas Lease Utilization--Onshore and
Offshore, http://www.doi.gov/news/pressreleases/
loader.cfm?csModule=security/getfile&pageid=239255. According to the
Congressional Research Service, the federal government owns just over
650 million acres of land. See Appendix A. Congressional Research
Service, Major Federal Land Management Agencies: Management of Our
Nation's Lands and Resources, May 15, 1995, http://www.ncseonline.org/
nle/crsreports/natural/nrgen-3.cfm. The federal government also
controls an additional 58 million acres of federal mineral estate below
privately owned surface estate. See Bureau of Land Management, Split
Estate, http://www.blm.gov/pgdata/etc/medialib/blm/wo/MINERALS_REALTY
_AND_RESOURCE_PROTECTION_/bmps.Par.98100.File.dat/
SplitEstate08finalWeb.pdf.
---------------------------------------------------------------------------
Despite a large endowment of oil and natural gas resources on
federal lands, which include offshore resources, oil and natural gas
production is declining on federal lands in the United States.
According to a recent report from the Congressional Research Service,
from 2007 through 2012, oil production fell 4 percent and natural gas
production fell 33 percent on federal lands.\9\
---------------------------------------------------------------------------
\9\ Marc Humphries, U.S. Crude Oil and Natural Gas Production in
Federal and Non-Federal Areas, Feb. 28, 2013, http://
www.instituteforenergyresearch.org/wp-content/uploads/2013/03/CRS-
report-on-oil-and-nat-gas-on-federal-lands.pdf.
---------------------------------------------------------------------------
The falling production on federal lands is in stark contrast to the
dramatically increasing production on private and state lands. Over the
same time period, oil production grew by 35 percent and natural gas
production grew by 40 percent.
[GRAPHIC] [TIFF OMITTED] T0979.001
The historic increase in oil and gas production from non-
federal lands is the reason President Obama could say in his State of
the Union address, ``We produce more oil at home than we have in 15
years.'' We produce more natural gas than ever before--and nearly
everyone's energy bill is lower because of it.''
The President is right, but the federal government has had nothing
to do with that success. The reason that oil and natural gas is
increasing on private and state lands while falling on federal lands is
because of a major difference in policies. The states understand that
it is possible to protect the environment and produce oil and natural
gas, while red tape on federal lands continues to increase.
Consider one example of the time required to get a permit to drill
on federal land versus some energy producing states. It takes an
average of 228 days for the Bureau of Land Management to process a
permit to drill, up from 154 days in 2005,\10\ but only 27 days for
Colorado,\11\ 14 days for Ohio,\12\ and 10 days in North Dakota. It
should come as no surprise why oil and natural gas production is
rapidly increasing even while energy production on federal lands is
declining. The federal government has vast energy resources, but the
federal government's current energy plans result in limiting energy
production on federal lands.
---------------------------------------------------------------------------
\10\ Bureau of Land Management, Average Application for Permit to
Drill (APD) Approval Timeframes: FY2005-FY2012, http://www.blm.gov/wo/
st/en/prog/energy/oil_and_gas/statistics/apd_
chart.html.
\11\ Dave Neslin to Colorado Oil and Gas Conservation Commission,
Apr. 25, 2011, http://cogcc.state.co.us/announcements/
CommissionLtr4_25_11.pdf.
\12\ Ohio Division of Oil and Gas Resources Management, 2011 Ohio
Oil and Gas Summary, http://ohiodnr.com/portals/11/publications/pdf/
oilgas11.pdf.
[GRAPHIC] [TIFF OMITTED] T0979.002
The federal government's land use policies have reduced oil and
natural gas production on federal lands because federal regulations
make it much more difficult to work on federal lands. Instead of
following the example of the states, the federal government continues
to slow down energy production.
Some argue that the reason oil and natural production is increasing
on federal lands is because shale resources are located on private
lands.\13\ There are a few problems with this argument. First, it
overlooks that the fact that it is more expensive to produce oil and
natural gas from unconventional resources like shale. Because it is
less expensive to produce oil and natural gas from conventional
resources, undoubtedly conventional oil production would be occurring
in the Pacific, the Atlantic, parts of the Gulf of Mexico, offshore
Alaska, in ANWR, in the National Petroleum Reserve-Alaska if the
federal government had allowed access to these conventional resources.
---------------------------------------------------------------------------
\13\ See e.g. The Checks and Balances Project, Senators get it
wrong on oil & gas production at Jewell nomination hearing; Industry is
following the oil to nonfederal lands, Mar. 8, 2013, http://
checksandbalancesproject.org/2013/03/08/senators-get-it-wrong-on-oil-
gas-production-at-jewell-nomination-hearing-industry-is-following-the-
oil-to-nonfederal-lands/.
---------------------------------------------------------------------------
Second, oil and natural gas producers go to where there is access
to the resources. With the federal government restricting access, oil
production is increasingly occurring on private and state lands where
access is permitted and delays allow investment dollars to be spent.
This is why the shale revolution is occurring in the North Dakota,
Texas, Arkansas, Louisiana, and Pennsylvania--and not on federal lands
or in states like California. The Monterrey shale in California is
larger than the Bakken and the Eagle Ford combined, but production is
occurring elsewhere.
Third, with 982 billion barrels of recoverable oil shale, if R&D is
successful, what matters is a path to commercial production because
there is no guarantee the federal government will permit commercial
leasing if R&D does indeed go well. Companies will not be willing to
invest the hundreds of millions and billions of dollars necessary to
make production economical if they are not able to reap the rewards
from production. The government's approach is akin to inviting
pharmaceutical companies to invent new drugs without a patenting
system. Few believe companies would invest if there was no potential
for a reward after all one's risk.
This example of potential resources in the United States shows that
the regulatory environment is critical to exploration, and oil
production increases can occur if people have access to resources. We
know it can happen because it is happening.
[GRAPHIC] [TIFF OMITTED] T0979.003
Mexican Oil and Natural Gas Production Trends
In Mexico, oil and natural gas production is controlled by
Petroleos Mexicanos or Pemex--the state-owned oil company. According to
the Energy Information Administration, over the past 5 years, oil
production in Mexico has fallen by 17 percent,\14\ while natural gas
production has increased by 5 percent.\15\
---------------------------------------------------------------------------
\14\ Energy Information Administration, International Energy
Statistics: Petroleum, http://www.eia.gov/cfapps/ipdbproject/
iedindex3.cfm?tid=5&pid=57&aid=1&cid=regions&syid=1980&eyid=2011&unit=TB
PD.
\15\ Energy Information Administration, International Energy
Statistics: Natural Gas, http://www.eia.gov/cfapps/ipdbproject/
iedindex3.cfm?tid=3&pid=26&aid=1&cid=regions&syid=1980&eyid=2011&unit=BC
F.
---------------------------------------------------------------------------
According to Mexican Finance Minister Luis Videgaray, there is no
plan to privatize Pemex, but the company's performance shows that it
``cannot do everything itself.'' \16\ Videgaray continued, explaining
``private participation--particularly in those fields where there is
opportunity because of nature and geology but where Pemex clearly
doesn't have either the capital or the expertise.'' \17\
---------------------------------------------------------------------------
\16\ Mary Antastasia O'Grady, O'Grady: Will Mexico Welcome
Wildcatters?, Wall Street Journal, Feb. 24, 2013, http://
professional.wsj.com/article/SB1000142412788732450320457832019117496
7104.html?mod=WSJ_Opinion_BelowLEFTSecond&mg=reno64-wsj%5C.
\17\ Id.
---------------------------------------------------------------------------
One example of where there is great potential, but where Pemex does
not have expertise is in shale plays. The Eagle Ford shale extends into
Mexico, but all of the production is on the U.S. side of the border.
[GRAPHIC] [TIFF OMITTED] T0979.004
In a way, Mexico has privatized their refining sector. Mexico
exports crude oil to the United States and imports gasoline and refined
products from Gulf coast refineries. Mexican oil imports to the United
States peaked in 2006 and have since decreased by 30 percent.\18\
Despite the decrease in Mexican oil imports to the U.S., American
gasoline exports have dramatically increased in recent years. From 2007
through 2011, U.S. gasoline exports to Mexico have more than
tripled.\19\
---------------------------------------------------------------------------
\18\ Energy Information Administration, U.S. Imports by Country of
Origin, http://www.eia.gov/dnav/pet/
pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm.
\19\ Energy Information Administration, Finished Motor Gasoline
Exports by Destination, http://www.eia.gov/dnav/pet/
pet_move_expc_a_epm0f_eex_mbbl_a.htm.
---------------------------------------------------------------------------
Despite the rise in Mexico's natural gas production, Mexico is a
net natural gas importer.\20\ U.S. natural gas exports by pipeline have
increased by 86 percent from 2010-2012.\21\
---------------------------------------------------------------------------
\20\ See Mary Antastasia O'Grady, O'Grady: Will Mexico Welcome
Wildcatters?, Wall Street Journal, Feb. 24, 2013, http://
professional.wsj.com/article/SB1000142412788732450320457832
0191174967104.html?mod=WSJ_Opinion_BelowLEFTSecond&mg=reno64-wsj%5C.
\21\ Energy Information Administration, U.S. Natural Gas Exports by
Country, http://www.eia.gov/dnav/ng/ng_move_expc_s1_a.htm.
[GRAPHIC] [TIFF OMITTED] T0979.005
The Transboundary Hydrocarbons Agreement
The Gulf of Mexico is one of the most prolific hydrocarbon-
producing areas for both the United States and Mexico. Oil production,
especially in deepwater on the U.S. side of the border, has moved
closer to the U.S.-Mexico maritime border in recent years. Until last
year, however, there was no agreement on how to divide resources
between the United States and Mexico for resources that straddle the
border.
The Transboundary Hydrocarbon Agreement comes after decades of
indecision between Mexico and the United States. This decision allows
oil and natural gas production on 1.5 million acres in the Gulf of
Mexico that was previously off-limits because of border issues.
The Transboundary Hydrocarbon Agreement itself will not lead to a
revolution in hydrocarbon production for the United States and Mexico.
This is not to say that the hydrocarbon resources are not important--
they are. But more important than the oil and natural gas resources
along the border is greater cooperation between the United States and
Mexico and American companies and PEMEX.
Mexico has long been a leading oil producer, but as explained
above, oil production in Mexico is falling. This is not from a lack of
resources. Mexico has an estimated 10.5 billion barrels of proven oil
reserves, but that amount could double when unconventional and
deepwater resources become proven reserves.\22\ And if the private
sector is allowed to become more involved in Mexico, their resources
could expand greatly, as our own have. The Transboundary Hydrocarbon
Agreement is important for the production of some of these deepwater
resources.
---------------------------------------------------------------------------
\22\ Minority Staff Report, United States Senate Committee on
Foreign Relations, Oil, Mexico, and the Transboundary Agreement, Dec.
21, 2012, http://www.foreign.senate.gov/publications/download/oil-
mexico-and-the-transboundary-agreement.
---------------------------------------------------------------------------
Not only can the Transboundary Hydrocarbon Agreement lead to
greater production in the Gulf of Mexico, it will foster greater
cooperation between Mexico and American companies. This is critical
because the United States is the leader in accessing unconventional and
deepwater resources. Working together, we can increase Mexico's oil
production and reverse their oil production decline. This is especially
true if U.S. hydraulic fracturing technologies are used to access
Mexico's shale oil and gas resources. For example, one of America's
most prolific shale fields, the Eagle Ford, extends into Mexico, but
all of the activity is on the U.S. side of the border. This is similar
to areas throughout the U.S. where production is skyrocketing on
private and state lands but remaining dormant on federal government
lands.
After the Obama administration did the important work of
negotiating the Transboundary Hydrocarbon Agreement, they took over a
year to decide whether the agreement was a treaty or an Executive
Agreement. The United States needs secure energy supplies from its
neighbors and allies. It should not take over a year for the
administration to decide whether an agreement is a treaty or an
executive agreement, and therefore it is good that the Committee is
providing oversight and direction consistent with its enumerated powers
under the Constitution.
Concerns about a Potential Conflict Between the Transboundary
Hydrocarbon Agreement and Section 1504 of Dodd-Frank
While the Transboundary Hydrocarbon Agreement is a good agreement
that will aid both the United States and Mexico, one potential problem
is a conflict between Article 20 of the agreement and the Security and
Exchange Commission's Rule 13q-1 regarding Resource Extraction
Payments.
Article 20 states:
To the extent consistent with their national laws, the Parties
shall maintain confidential, and obligate their Licensees to
maintain confidential, all Confidential Data and other
information obtained from the other Party or its Licensees in
accordance with this Agreement.
Together with Rule 13q-1, requiring ``resource extraction issuers''
to disclose payments made to foreign governments, Article 20 can create
an impossible situation for American companies operating on
transboundary hydrocarbon resources. For example, Mexican
confidentiality requirements may forbid the disclosure of the very
information that Rule 13q-1 requires American companies \23\ to
disclose. This would lead to a situation where companies regulated by
the SEC have, at very least, uncertainty about compliance with both
Mexican and American disclosure laws. This uncertainty and potential
disclosure conflict would place foreign state-owned oil companies, who
are not regulated by the SEC, at a competitive advantage to the
companies which operate in the United States are regulated by the SEC.
---------------------------------------------------------------------------
\23\ I'm using the term ``American companies'' as shorthand for
companies regulated by the SEC.
---------------------------------------------------------------------------
Because much of the transboundary area is deepwater, it would
require multi-billion dollar investments to produce the hydrocarbon
resources. Any legal uncertainty brought about by disclosure law could
easily dissuade American companies from undertaking what is already an
expensive decision, in turn reducing opportunities for new jobs for
Americans.
Rule 13q-1 also creates a different type of competitive
disadvantage for American companies operating in in the Gulf of Mexico
Transboundary area. The rule would allow foreign state-owned oil
companies with a competitive advantage to consider business-sensitive
information about American companies' operations. If Mexico were to
allow foreign-owned companies to extract oil along the deepwater
transboundary area, there could very well be competition between U.S.
private companies and foreign-state owned companies. Even though the
deepwater technology was developed in the U.S. deepwater, the U.S.
companies would be at a disadvantage. This is like playing poker but
being required to show your cards to your fellow card-players.
Therefore, the authors of H.R. 1613 are to be commended for
recognizing this and taking proper steps to isolate this unique
agreement from the uncertainties surrounding 13q.
Conclusion
North America is an energy rich continent. Our energy issues are
not issues of a lack of supply, but a lack of access to energy
resources. The Transboundary Hydrocarbon Agreement is one way the
federal government should be moving forward to grant more access to
taxpayer-owned energy resources. The agreement is a good agreement and
should expeditiously move forward, but it should not have taken more
than a year for the Administration to submit Transboundary Hydrocarbon
Agreement to Congress.
Affordable, reliable energy is critical for the welfare of all
Americans and Mexicans. Hopefully our countries will work better
together in the future to enhance our energy security and our economic
welfare as well.
______
Mr. Lamborn. Thank you for your testimony.
Mr. Groves.
STATEMENT OF STEVEN GROVES, SENIOR RESEARCH FELLOW, HERITAGE
FOUNDATION
Mr. Groves. Thank you, Mr. Chairman, for inviting me to
testify this morning regarding the U.S.-Mexico Transboundary
Hydrocarbon Agreement and H.R. 1613, the authorizing
legislation that was introduced on April 18th by Congressman
Duncan. My name is Steven Groves, and I am a Senior Research
Fellow at the Heritage Foundation.
The Transboundary Agreement is the latest treaty between
the United States and Mexico regarding the Gulf. Between 1970
and 2000 the U.S. and Mexico completed a series of treaties
delimiting their maritime and continental shelf boundaries. The
Transboundary Agreement builds on those treaties, and
represents an effort to preempt disputes regarding the
development of hydrocarbon deposits that straddle the
international maritime boundary.
Congress must closely examine the Agreement to determine
whether it will advance our national interests and will do so
without compromising American sovereignty. Congress is
obligated to assess the terms of the Agreement and approve it
only if its benefits outweigh its costs, hopefully by a
significant margin. The terms of the Transboundary Agreement,
if they are interpreted and implemented as currently
understood, would benefit the United States.
Although congressional approval of the agreement is
unlikely to result in a meaningful increase in U.S. oil
production in the near term, there are broader interests that
may be advanced through the agreement, such as boosting U.S.-
Mexico relations on energy issues and facilitating working
partnerships between U.S. companies and PEMEX.
There is hope within the petroleum industry that the
Agreement could lead to needed reforms in Mexico's energy
governance. And while the development of transboundary
reservoirs may be some time in coming, the Agreement is
designed to provide the necessary certainty to U.S. companies
that desire to lease blocks that abut the international
boundary in the western and central planning areas.
Now, in contrast to other international agreements such as
the United Nations Convention on the Law of the Sea, the
Agreement strikes the necessary balance between the U.S.
interest in establishing a framework for the development of
hydrocarbon resources, and preserving freedom of action by the
United States and its companies.
Unlike the Law of the Sea Treaty, the Agreement does not
expose the United States to frivolous international lawsuits,
nor does the agreement require the United States to transfer
hydrocarbon royalties to an international organization for
redistribution to the developing world. The Agreement is
designed to promote, rather than compel, cooperation between
the United States and Mexico, and to foster collaboration
between U.S. oil companies and PEMEX. And the difference
between promotion and compulsion is a key element that
differentiates the Agreement from the Law of the Sea Treaty.
For example, under Article 7 of the Agreement, if a U.S.
company is unable to successfully negotiate a unitization
agreement with PEMEX, it may still be authorized to develop a
transboundary reservoir, subject to determination regarding the
equitable allocation of production for the reservoir.
Moreover, unlike the Law of the Sea Treaty, the Agreement
does not create dispute resolution mechanisms that possess
broad jurisdiction and enforcement authority. Rather, disputes
under the Agreement are referred to a two-person joint
commission composed of a U.S. and Mexican representative
appointed by the parties. In limited instances, disputes that
cannot be resolved by the joint commission are referred to a
special expert.
The Agreement's dispute resolution procedures are designed
to stimulate, rather than stymie, the development of
transboundary reservoirs. For example, in the event that there
is a dispute regarding the existence of a transboundary
reservoir, both countries must provide the joint commission
with well data to support a claim that the reservoir, in fact,
extends across the delimitation line. In other words, neither
the U.S. nor Mexico may make an unsubstantiated unilateral
claim that a transboundary reservoir exists in an effort to
hinder the other country's development activities.
In conclusion, the Transboundary Agreement advances U.S.
national interests by promoting cooperation between the
relevant governmental and private-sector entities, by avoiding
the pitfalls of the Law of the Sea Treaty, by providing
certainty to U.S. companies, and by doing so without
compromising American sovereignty.
Again, I appreciate the opportunity to provide my views on
this issue this morning, and I look forward to any questions
you may have.
[The prepared statement of Mr. Groves follows:]
Statement of Steven Groves, Bernard and Barbara Lomas Senior Research
Fellow, Margaret Thatcher Center for Freedom, The Heritage Foundation
Mr. Chairman and members of the Committee:
Thank you for inviting me to testify before you today regarding the
Agreement between the United States of America and the United Mexican
States Concerning Transboundary Hydrocarbon Reservoirs in the Gulf of
Mexico (the ``Transboundary Agreement'') and H.R. 1613, the legislation
that has been introduced to implement the Agreement.
Developing hydrocarbon resources in the Gulf of Mexico along the
international boundary with Mexico, including along the boundary within
the ``Western Gap'' area on the extended continental shelf, is in the
national interest of the United States. A successful implementation of
the Transboundary Agreement advances that interest, and does so without
entangling the United States in a deeply-flawed international
convention adopted more than 30 years ago--the United Nations
Convention on the Law of the Sea (UNCLOS).
Proponents of U.S. ratification of UNCLOS claim that unless the
United States joins the convention, it will be unable to develop the
hydrocarbon resources in the Western Gap, including presumably any
transboundary reservoirs. They claim that international recognition of
the U.S. extended continental shelf (ECS), which is the continental
shelf that extends beyond 200 nautical miles from the coast, is
absolutely conditional upon U.S. accession.
However, that claim lacks basis in fact or law. The United States
regularly demarcates the limits of its continental shelf and declares
the extent of its maritime boundaries with presidential proclamations,
acts of Congress, and bilateral treaties with neighboring countries. As
a result of bilateral treaties between the United States and Mexico,
the Department of the Interior's Bureau of Ocean Energy Management
(BOEM) currently leases areas of the U.S. ECS in the Western Gap to
American and foreign oil and gas companies for exploration and
development. Indeed, BOEM has leased an area that sits directly on the
international boundary within the Western Gap to Eni Petroleum, an
Italian multinational oil and gas company.
The United States should take every action necessary--including the
implementation of the Transboundary Agreement--to develop its
hydrocarbon resources located on its ECS in the Gulf of Mexico. The
United States can accomplish this end while acting as a sovereign
nation rather than by joining UNCLOS and seeking the approval of the
Commission on the Limits of the Continental Shelf (CLCS), an
international committee of geologists and hydrographers located at U.N.
headquarters in New York City.
The U.S. Extended Continental Shelf
Since 2003, in an effort to define the outer limit of the U.S.
continental shelf, the United States has collected bathymetric and
seismic mapping data on the outer margins of its continental shelf in
the Arctic Ocean, Gulf of Alaska, Gulf of Mexico, and Bering Sea; along
the Atlantic and Pacific Coasts; and off the Northern Mariana Islands,
Kingman Reef, Palmyra Atoll, Guam, and Hawaii. The U.S. Extended
Continental Shelf Task Force, an interagency project, is conducting
this data collection.\1\ To date, the ECS Task Force has identified six
areas that ``likely'' contain submerged continental shelf and qualify
as ECS and nine areas that ``possibly'' qualify. One area that likely
contains ECS is the Western Gap, designated in Map 1 (below) as area
#14.
---------------------------------------------------------------------------
\1\ U.S. Department of Commerce, National Oceanic and Atmospheric
Administration, National Ocean Service, ``Extended Continental Shelf
Project,'' revised August 25, 2011, http://continentalshelf.gov
(accessed April 17, 2012).
[GRAPHIC] [TIFF OMITTED] T0979.006
The value of the hydrocarbon deposits lying beneath the
entirety of the U.S. ECS is difficult to estimate, but it is likely
substantial. According to the ECS Task Force, ``Given the size of the
U.S. continental shelf, the resources we might find there may be worth
many billions if not trillions of dollars.'' \2\
---------------------------------------------------------------------------
\2\ U.S. Department of Commerce, National Oceanic and Atmospheric
Administration, National Ocean Service, ``About the Extended
Continental Shelf Project,'' http://continentalshelf.gov/about.html
(accessed April 17, 2012).
---------------------------------------------------------------------------
``International Recognition'' of the U.S. ECS
Historical experience has repeatedly debunked the notion that
achieving ``international recognition'' of U.S. maritime boundary and
continental shelf claims requires UNCLOS membership. The United States
has had no difficulty whatsoever in achieving recognition of such
claims in the past. Since 1945, U.S. Presidents have issued
proclamations and Congress has enacted laws on U.S. maritime claims and
boundaries. None of these have been challenged by any nation, any group
of nations, or the ``international community'' as a whole.
Proponents of UNCLOS offer no evidence that any foreign nation has
not recognized or will not recognize the unilateral proclamations made
by the United States. Yet the same proponents contend that the United
States cannot hope to gain recognition of its ECS or assert
jurisdiction and control over it unless and until it joins the
convention. Law of the sea experts such as Ted McDorman at the
University of Victoria disagree with that position:
It can be asked whether a non-party to the LOS Convention can
legally exercise jurisdiction over its adjacent continental
margin beyond 200 nautical miles or whether this entitlement is
only available to parties to the LOS Convention. The answer is
that there appears to exist sufficient state practice . . . to
support the view that, as a matter of customary international
law, states can legally exercise jurisdiction over the
continental margin beyond 200 nautical miles irrespective of
the State's status as a LOS Convention ratifier.\3\
---------------------------------------------------------------------------
\3\ Ted L. McDorman, ``The Entry into Force of the 1982 LOS
Convention and the Article 76 Outer Continental Shelf Regime,'' The
International Journal of Marine and Coastal Law, Vol. 10, No. 2 (1995),
p. 167 (emphasis added). McDorman cites evidence of actual state
practice under the 1958 Convention on the Continental Shelf and UNCLOS
Article 76 to support his conclusion.
---------------------------------------------------------------------------
No evidence suggests that membership in UNCLOS is necessary, much
less essential, either to gain international recognition of the U.S.'s
ECS boundaries or to claim, legally and legitimately, jurisdiction and
control over its ECS resources. It is telling that proponents of U.S.
accession to UNCLOS do not claim that international recognition of the
U.S. territorial sea, contiguous zone, or exclusive economic zone (EEZ)
is contingent upon U.S. accession to the convention, yet they assert
that accession is the sine qua non for international recognition of the
U.S. ECS.\4\
---------------------------------------------------------------------------
\4\ Besides the United States, other UNCLOS non-parties, including
Cambodia, Colombia, El Salvador, Syria, Turkey, the United Arab
Emirates, and Venezuela, delimit their maritime boundaries (e.g., 12 nm
territorial sea, 24 nm contiguous zone, and/or 200 nm EEZ) in
conformity with the convention without objection from other nations.
See U.S. Department of Defense, Under Secretary of Defense for Policy,
Maritime Claims Reference Manual, June 23, 2005, http://
www.jag.navy.mil/organization/code_10_mcrm.htm (accessed April 17,
2012).
---------------------------------------------------------------------------
There is no magic ritual for achieving international recognition of
maritime and continental shelf boundaries. Foreign nations recognize
and respect U.S. maritime claims and boundaries, and vice versa, as
long as those claims and boundaries conform to widely accepted
international law, including the various provisions of customary
international law that are reflected in UNCLOS.
Like its other maritime claims, the United States will demarcate
the limits of its ECS in a manner that conforms to international law.
In November 1987, a U.S. government interagency group issued a policy
statement declaring its intent to delimit the U.S. ECS in conformity
with Article 76 of UNCLOS, which provides a formula for measuring the
extent of a coastal state's ECS. The pertinent part of the policy
statement reads:
[T]he Interagency Group on Ocean Policy and Law of the Sea has
determined that the proper definition and means of delimitation
in international law are reflected in Article 76 of [UNCLOS].
The United States has exercised and shall continue to exercise
jurisdiction over its continental shelf in accordance with and
to the full extent permitted by international law as reflected
in Article 76, paragraphs (1), (2) and (3). At such time in the
future that it is determined desirable to delimit the outer
limit of the continental shelf of the United States beyond two
hundred nautical miles . . . such delimitation shall be carried
out in accordance with paragraphs (4), (5), (6) and (7).\5\
---------------------------------------------------------------------------
\5\ ``United States Policy Governing the Continental Shelf of the
United States of America,'' November 17, 1987, reprinted in J. Ashley
Roach and Robert W. Smith, U.S. Responses to Excessive Maritime Claims,
2nd ed. (The Hague: Martinus Nijhoff Publishers, 1996), pp. 201-202
(emphasis added).
---------------------------------------------------------------------------
Despite the claims of UNCLOS proponents, the United States can
successfully pursue its national interests regarding its ECS--
particularly hydrocarbon exploitation--without first gaining universal
international recognition of its outer limits. While such recognition
may be a worthy achievement, it is of no consequence to U.S. national
interests whether the 195 nations of the world affirmatively recognize
America's jurisdiction over its ECS in the Gulf of Mexico.
U.S. ECS in the Gulf of Mexico
International cooperation on the delimitation of maritime
boundaries is necessary in resource-rich areas such as the Gulf of
Mexico. Since the 1970s, the United States and Mexico have negotiated a
series of bilateral treaties to delimit their maritime and continental
shelf boundaries, including areas of their abutting ECS in the Western
Gap:
In November 1970, the U.S. and Mexico signed a treaty
to maintain the Rio Grande and Colorado River as the agreed
international boundary between the two nations. As part of the
treaty, the two nations demarcated their maritime boundaries in
the Gulf of Mexico and the Pacific Ocean out to 12 nm.\6\ The
treaty entered into force on April 18, 1972.
---------------------------------------------------------------------------
\6\ ``Treaty to Resolve Pending Boundary Differences and Maintain
the Rio Grande and Colorado River as the International Boundary,''
November 23, 1970, http://faolex.fao.org/docs/pdf/bi-51757.pdf
(accessed April 17, 2012).
---------------------------------------------------------------------------
In May 1978, building on the 1970 treaty, the two
nations signed a treaty delimiting their maritime boundaries in
the Gulf and in the Pacific out to 200 nm.\7\ The treaty
demarcated boundary lines in the Gulf where their respective
200 nm EEZ abutted, leaving a ``doughnut hole'' of
approximately 5,092 square nm (the Western Gap) where their 200
nm boundary lines did not meet. A second doughnut hole was
created in the eastern Gulf where the EEZs of the U.S., Mexico,
and Cuba fail to intersect (the ``Eastern Gap''). The treaty
entered into force on November 13, 1997.
---------------------------------------------------------------------------
\7\ ``Treaty on Maritime Boundaries Between the United Mexican
States and the United States of America,'' May 4, 1978, http://
www.boem.gov/uploadedFiles/BOEM/Regulations/Treaties/1978_0504-Treaty-
MaritimeBoundariesMexicoandUS.pdf (accessed April 17, 2012).
---------------------------------------------------------------------------
In June 2000, the U.S. and Mexico signed a treaty
dividing the area of ECS within the Western Gap. Of the 5,092
square nm of ECS in the Western Gap, 1,913 (38 percent) went to
the United States and 3,179 (62 percent) went to Mexico.\8\ The
treaty established a drilling moratorium over a narrow strip
along the international boundary within the Western Gap due to
the possibility that transboundary hydrocarbon reservoirs are
located along the boundary. The treaty entered into force on
January 17, 2001.
---------------------------------------------------------------------------
\8\ ``Treaty Between the Government of the United States of America
and the Government of the United Mexican States on the Delimitation of
the Continental Shelf in the Western Gulf of Mexico Beyond 200 Nautical
Miles,'' June 9, 2000, http://www.boem.gov/uploadedFiles/BOEM/
Regulations/Treaties/2000_0609-Treaty-OCSinWGOMbeyond200nm.pdf
(accessed April 17, 2012), and news release, ``MMS Lauds U.S. and
Mexico Continental Shelf Boundary Treaty Agreement,'' U.S. Department
of the Interior, Minerals Management Service, June 13, 2000, http://
www.gomr.boemre.gov/homepg/whatsnew/newsreal/2000/000713.html (accessed
April 17, 2012).
---------------------------------------------------------------------------
Collectively, these treaties between the United States and Mexico,
particularly the June 2000 ECS delimitation treaty, demarcated an area
of U.S. ECS--the 1,913 square nm of submerged continental shelf in the
northern portion of the Western Gap. There is no evidence that any
nation, any group of nations, or the international community as a whole
does not or will not recognize the ECS in the northern portion of the
Western Gap as subject to the jurisdiction and control of the United
States.
[GRAPHIC] [TIFF OMITTED] T0979.007
Yet UNCLOS proponents commonly claim that U.S. companies will
lack the ``certainty'' they require to develop the hydrocarbon
resources located on the ECS unless the United States accedes to UNCLOS
and receives the approval of the Commission on the Limits of the
Continental Shelf (CLCS). For example, in 2007, former Deputy Secretary
of State John Negroponte stated, ``In the absence of such international
recognition and legal certainty, U.S. companies are unlikely to secure
the necessary financing and insurance to exploit energy resources on
the extended shelf.'' Another prominent advocate of U.S. accession has
argued that U.S. failure to join the convention ``could result in a
loss of thousands of square kilometers of resource-rich . . .
continental shelf.'' \9\
---------------------------------------------------------------------------
\9\ John Norton Moore, written testimony, in hearings, The U.N.
Convention on the Law of the Sea (Treaty Doc. 103-39), Committee on
Foreign Relations, U.S. Senate, 108th Cong., 2nd Sess., October 14,
2003, p. 56, http://www.foreign.senate.gov/download/?id=564DC8D7-F536-
4CCB-B0CE-3FD8A1C7CC6C (accessed April 17, 2012).
---------------------------------------------------------------------------
Reality tells a different story. The ECS area on the U.S. portion
of the Western Gap has been available for development since August
2001. Specifically, BOEM offered the northern portion of the Western
Gap for lease almost immediately after the 2000 U.S.-Mexico ECS
delimitation treaty was ratified. That treaty entered into force on
January 17, 2001. Seven months later, on August 22, BOEM offered the
area of U.S. ECS in the Western Gap in Lease Sale 180. In that lease
sale, three U.S. companies (Texaco, Hess, and Burlington Resources
Offshore) and one foreign company (Brazil's Petrobras) submitted
successful bids totaling more than $2 million for seven lease blocks in
the Western Gap.\10\
---------------------------------------------------------------------------
\10\ U.S. Department of the Interior, Bureau of Ocean Energy
Management, Regulation and Enforcement, ``Western Gulf of Mexico Lease
Sale 180 Information,'' updated August 30, 2010, http://
www.gomr.boemre.gov/homepg/lsesale/180/wgom180.html (accessed April 17,
2012).
---------------------------------------------------------------------------
U.S. Leasing Activity in the Western Gap
BOEM has offered the ECS blocks in the Western Gap in more than 20
lease sales between August 2001 (Lease Sale 180) and March 2013 (Lease
Sale 227). In connection with those sales, seven U.S. companies
(Burlington, Chevron, Devon Energy, Hess, Mariner Energy, NARCA
Corporation, and Texaco) submitted bids to lease blocks in the Western
Gap. Five foreign companies--BP, Eni Petroleum (Italy), Maersk Oil
(Denmark), Petrobras, and Total (France)--also bid on Western Gap ECS
blocks during those sales. BOEM collected more than $50 million in
bonus bids in connection with lease sales on those blocks.
Of the approximate 320 blocks located in whole or in part on the
Western Gap ECS, 67 (approximately 20 percent) are currently held under
active leases by nine U.S. and foreign oil exploration companies.\11\
---------------------------------------------------------------------------
\11\ U.S. Department of the Interior, Bureau of Ocean Energy
Management, ``Lease Sale Information,'' http://www.boem.gov/Oil-and-
Gas-Energy-Program/Leasing/Regional-Leasing/Gulf-of-Mexico-Region/GOMR-
Historical-Lease-Sale-Information.aspx (accessed April 17, 2012).
---------------------------------------------------------------------------
The successful delimitation and subsequent leasing of areas in the
Western Gap demonstrate that the United States does not need to achieve
universal international recognition of its ECS. The United States
identified and demarcated areas of ECS in the Western Gap in
cooperation with the only other relevant nation, Mexico, and that area
was subsequently offered for development to U.S. and foreign oil and
gas companies. All of this was achieved without U.S. accession to
UNCLOS or CLCS approval.
Even though approximately 20 percent of the U.S. ECS that has been
made available for lease by BOEM is currently under an active lease,
the U.S. oil and gas industry has supported and will likely continue to
support U.S. accession to UNCLOS in order to achieve even greater
``certainty.'' \12\ That is their prerogative, of course, and achieving
a maximum amount of certainty is a legitimate and desirable goal for a
capital-intensive commercial enterprise. However, the successful
delimitation of the ECS in the Western Gap would appear to have
provided the certainty necessary for several major U.S. and foreign oil
companies to contemplate the development hydrocarbon resources on the
Gulf ECS, including along the international boundary in the Western
Gap.
---------------------------------------------------------------------------
\12\ Paul Kelly, statement, in hearings, The U.N. Convention on the
Law of the Sea (Treaty Doc. 103-39), pp. 113-116.
[GRAPHIC] [TIFF OMITTED] T0979.008
The United States is unlikely to accede to UNCLOS in the near
term, or perhaps ever. However, this does not mean that the United
States should not take every action necessary--including implementation
of the Transboundary Agreement--to secure oil and gas resources on its
ECS in the Gulf of Mexico. The United States can accomplish this end
while acting as a sovereign nation, continuing the tradition of
American Presidents in proclaiming the nation's maritime and resource
rights, and without acceding to a deeply flawed treaty or seeking the
approval of an international commission of experts housed at the United
Nations.
--Steven Groves is the Bernard and Barbara Lomas Senior Research
Fellow in the Margaret Thatcher Center for Freedom, a division of the
Kathryn and Shelby Cullom Davis Institute for International Studies, at
The Heritage Foundation.
The Heritage Foundation is a public policy, research, and
educational organization recognized as exempt under section 501(c)(3)
of the Internal Revenue Code. It is privately supported and receives no
funds from any government at any level, nor does it perform any
government or other contract work.
The Heritage Foundation is the most broadly supported think tank in
the United States. During 2012, it had nearly 700,000 individual,
foundation, and corporate supporters representing every state in the
U.S. Its 2012 income came from the following sources:
[GRAPHIC] [TIFF OMITTED] T0979.009
The top five corporate givers provided The Heritage Foundation
with 2% of its 2012 income. The Heritage Foundation's books are audited
annually by the national accounting firm of McGladrey & Pullen. A list
of major donors is available from The Heritage Foundation upon request.
Members of The Heritage Foundation staff testify as individuals
discussing their own independent research. The views expressed are
their own and do not reflect an institutional position for The Heritage
Foundation or its board of trustees.
______
Mr. Lamborn. Thank you for your testimony.
Mr. Manuel.
STATEMENT OF ATHAN MANUEL, DIRECTOR,
LANDS PROTECTION PROGRAM, SIERRA CLUB
Mr. Manuel. Thank you, Mr. Chairman, and good morning. And
good morning to all the members of the Committee. My name is
Athan Manuel, I work with the Sierra Club as our Director of
Lands Protection. And I think most folks know Sierra Club as
the Nation's largest grass roots environmental organization
with over 2 million members and supporters around the country
in every congressional district, and I appreciate the
opportunity to testify this morning on H.R. 1613 and the U.S.-
Mexico Transboundary Hydrocarbon Agreement.
Again, as most of you know, the Sierra Club has always been
a strong champion of protecting America's special places and
protecting our planet. But also we have been strong champions
of worker safety. And we saw those two issues intersect 3 years
ago last week in the explosion and the spill from the Deepwater
Horizon that killed 11 workers and caused the largest oil spill
in U.S. history. So in that context, I think we see H.R. 1613
as kind of a mixed bag.
We are generally supportive of the changes that have been
made to the oversight of offshore drilling in the wake of the
spill that happened 3 years ago, but we do not support any
expansion of new offshore oil and gas drilling anywhere, in
part in terms of having a cleaner energy policy, but also, if
we are serious about fighting climate change, we think one of
the issues that the U.S. needs to struggle with and triumph
over is we need to keep the oil and gas and coal that is in the
ground now in the ground, if we are serious about fighting
climate change.
As I mentioned, the inspections part of the bill we like,
we are generally supportive of what the Obama Administration
and the Department of the Interior and BOEM and BSEE have done,
in terms of increasing inspections of our offshore rigs. We
would like to see more money allocated for more inspections.
If you look at the way the U.S. inspects our rigs compared
to other countries that have a lot of offshore drilling, in
Norway there is one inspector for every 1.3 rigs. In Britain,
the rate is almost 1 to 1. But here in the U.S., the ratio is
still now 1 to 29. So we would love to see more money allocated
to allow our Federal agencies to do more inspections of
existing rigs, but also, obviously, the rigs that will be put
in place as a result of the Transboundary Agreement.
As Mr. Holt and others have mentioned earlier in this
hearing, we do support an increase in BSEE's jurisdiction to
increase civil penalties for companies that break U.S. laws
whether, again, they are operating in areas that are currently
opened or the areas that will be opened up by the Transboundary
Agreement. We are also supportive of increasing the liability
cap, which again, hasn't been updated since the Exxon Valdez
oil spill happened, and should be increased in light of what we
have seen with the Deepwater Horizon, where we see now spills
from rigs, not just spills from tankers.
And finally, one of the provisions that we hope will not be
neglected is that the Fish and Wildlife Service and the
National Marine Fisheries Service will be consulted before
drilling commences in these areas that are opened up by the
Transboundary Agreement. But bottom line for us, obviously, the
issue comes down to how do we get our energy. The Sierra Club
thinks it is time for us to start getting off of oil and gas
and, therefore, don't support new drilling in any areas off the
Outer Continental Shelf or special places in Alaska or the
Arctic Refuge.
We think that all companies right now are doing very well.
Quarterly profits have come out this week and you see Conoco
and ExxonMobil are doing very, very well. The U.S. is producing
more oil than they have in years and years. The amount of rigs
have tripled since the Obama Administration has come in office,
so this energy industry is doing very, very well, without
opening up new areas to drilling and to open them up to the
possibility of the spills and pollution that could damage
coastal economies.
And I think the coastal economies sector of this debate is
often overlooked. But our coastlines, whether you are talking
about Florida's coast or North Carolina's coast or New Jersey's
coast or California's coast, or South Carolina's coast,
generates billions of dollars a year and supports hundreds of
thousands of jobs. And we don't think those jobs and those kind
of ecosystems should be at risk from new oil and gas drilling.
And just to kind of wrap up, obviously, from the Club's
perspective, we are much more supportive of domestic energy
policies that are focused on renewables and energy efficiency.
Those jobs can't be moved from the United States. They help us
create jobs domestically, and they help us fight climate
change. So we think that is the way our Nation should pursue an
energy policy, moving forward.
Again, I appreciate the opportunity to testify this
morning. We do like the inspection regime here, and having U.S.
laws be applied to these new areas, but we are not supportive
of expanding new drilling into new areas. But thanks for the
time, and I appreciate the opportunity.
[The prepared statement of Mr. Manuel follows:]
Statement of Athan Manuel, Director,
Lands Protection Program, Sierra Club
Mr. Chairman and members of the Committee, good morning. My name is
Athan Manuel, and I am the Director of Lands Protection for the Sierra
Club. I am here representing more than 2.1 million Sierra Club members
and supporters who belong to more than 65 chapters and 450 groups
nationwide. We are the largest environmental grassroots organization in
the country. I am very appreciative of the opportunity to testify this
morning regarding H.R. 1613, the ``U.S.-Mexico Transboundary
Hydrocarbon Agreement and Steps Needed for Implementation.''
The Sierra Club has always been a strong champion of protecting our
special places and enjoying and exploring our planet, but we are
equally concerned with issues of worker safety. We saw those two issues
intersect 3 years ago last week when the explosion of the Deepwater
Horizon off shore rig killed 11 workers and caused the largest oil
spill in United States history.
We see H.R. 1613 and the U.S. Mexico Transboundary Hyrdrocarbon
agreement as a mixed bag. We support the idea of increased inspection
of rigs operating in U.S. waters. However, we do not support the
expansion of drilling into new areas.
We certainly agree with one of the goals of H.R. 1613, to promote
domestic job creation, but think the best way to do that is by
promoting domestic clean and renewable energy and energy efficiency.
I. Inspections
One goal of the Transboundary Hydrocarbon Agreement is to hold
joint inspections of off shore drilling regulations.
The Sierra Club supports the reforms and regulations put in place
by the Obama Administration, the Department of the Interior, the Bureau
of Safety and Environmental Enforcement, and the Bureau of Ocean Energy
Management in the wake of the BP Deepwater Horizon spill. Regulations
that require operators to demonstrate that they are prepared to deal
with the potential for a blowout and worst-case discharge, and
mandating that permit applications for drilling projects must meet new
standards for well-design, casing, and cementing, and be independently
certified by a professional engineer per BOEM's Drilling Safety Rule.
We also support the guidance requiring a corporate compliance
statement and review of subsea blowout containment resources for deep-
water drilling. We hope all these standards will be applied to the
nearly 1.5 million acres of the U.S. Outer Continental Shelf that could
be leased as part of the Transboundary Agreement.
However, while these reforms have strengthened BSEE's inspection
and oversight capabilities, funding levels remain far below what would
be needed for frequent and thorough inspections. Low inspection rates
not only undermine regulatory compliance by reducing the odds that
violations will be observed, but also limit real-time monitoring of
operations by inspectors. The explosion at the West, Texas fertilizer
plant, which as last expected by OSHA in 1985, is one recent and vivid
example. The best way to avoid another Deepwater Horizon spill is to
increase monitoring and inspections, whether in areas currently open
for drilling or the areas to be opened by the Transboundary Agreement.
Despite these tough new regulations, the U.S. lags behind the rest
of the developed world when it comes to inspectors available and
trained to inspect the oil and gas rigs off our coasts. The number of
inspectors per offshore oil rig in other developed countries is as
follows:
In the U.K., the inspector to rig ratio is 1: 2.78
In Norway, the inspector to rig ratio is 1:1.05
In the U.S., the inspector to rig ratio is 1: 29 \1\
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\1\ ``A review of the U.K. Safety Case Approach & Norway's Offshore
Regulations'' conducted by LCDR Marc Montemerlo, 2012.
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We urge Congress to increase funding for BSEE's inspection program,
and thus increase the inspection rate of our off shore rigs. Doing so
would make these rigs safer and create jobs. The Sierra Club would
support such an amendment to H.R. 1613.
II. Civil Penalties Need to be Increased
The Sierra Club also feels that BSEE's civil penalties are too
small to ensure compliance and deter risk taking by the oil and gas
industry. The penalty for violating regulations is only $40,000 per
day, per incident. Considering that the daily operating costs of a
drilling rig can range up to $1 million, a $40,000 a day fine is not an
adequate disincentive.
We feel that raising the maximum fine BSEE can assess for civil
penalties to a level comparable with operational costs is warranted,
and should be added to H.R. 1613 and applied to the area opened for
drilling in the Transboundary Agreement.
III. Applying the Final Drilling Safety Rule
The regulations in the Final Drilling Safety represent positive
reforms that are an improvement from the pre-Deepwater Horizon
statutes. However, we feel that some improvement is needed, and that
these improvements should be amended to H.R. 1613.
Improved maintenance and training are both positive reforms that
can reduce chances of equipment failure and operator error and thus
increase safety. Yet of all the provisions in the Final Drilling Safety
Rule, training and maintenance regulations are the most dependent on
the robustness of BSEE's oversight and inspection capabilities.
Maintenance is an ongoing concern that necessitates being frequently
checked and inspected and training is only valuable if it translates
into appropriate actions, which also requires continuous oversight to
ensure.
The Final Drilling Safety Rule requires drilling wells to be
equipped with two independent barriers to flow. If correctly installed,
these barriers could in fact protect against blowouts. However, the
requirements for two barriers to flow can easily be undermined by
operator error. This problem is illustrated by the Deepwater Horizon
disaster, where a cement job, a common barrier to flow, was compromised
by numerous operator errors. With limited funds for inspection and
oversight, and perverse economics that incentivize project speed over
safety, it is likely that not all barriers will be properly installed.
The Sierra Club hopes that the Fish and Wildlife Service and the
National Marine Fisheries Service will be consulted before drilling
activity begins in the areas opened by the Transboundary Agreement to
review the potential impacts to endangered species.
IV. No New Drilling
The government's most recent Five-Year Plan allows access to more
than seventy-five percent of the estimated undiscovered, technically
recoverable oil and gas resources on the U.S. Outer Continental Shelf,
including in fragile ecosystems like the Arctic. \2\ That is clearly
enough to keep the industry busy given that the oil and gas industry is
sitting on a large number of inactive leases in federal waters, proving
H.R. 1613 to be unnecessary.
---------------------------------------------------------------------------
\2\ U.S. Department of the Interior. ``Secretary Salazar announces
2012-2017 offshore oil and gas development program.'' 8 Nov. 2011.
http://www.doi.gov/news/pressreleases/Secretary-Salazar-Announces-2012-
2017-Offshore-Oil-and-Gas-Development-Program.cfm.
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According to a March 2011, U.S. Department of the Interior report,
oil and gas companies hold more than 4,000 leases for which exploration
or development plans have not been submitted or approved. \3\
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\3\ U.S. Department of the Interior. ``Oil and gas lease
utilization--onshore and offshore.'' Mar. 2011.
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V. Domestic Energy Jobs: Clean energy versus oil and gas drilling
The Sierra Club strongly feels that the best place to create
domestic energy jobs is by focusing on renewable energy and energy
efficiency. The renewable energy industry is providing clean,
affordable, and reliable electricity across the United States. To
support this industry, good green jobs are being created and they're
overwhelmingly based here in the U.S. The sectors that heave
demonstrated the most dramatic job growth are the wind, solar, and
energy efficiency. In fact, every dollar invested in clean energy
creates three times as many jobs as every dollar invested in oil and
gas. \4\
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\4\ http://www.peri.umass.edu/fileadmin/pdf/
other_publication_types/green_economics/economic_benefits/
economic_benefits.PDF.
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Wind Industry:
The security of federal tax incentives such as the Production Tax
Credit (PTC) has brought wind manufacturing facilities to the United
States, creating jobs and fostering economic development across the
country. Today, the wind industry employs 80,700 Americans and there
are over 400 facilities, in 43 states, which create parts for wind
turbines. \5\ These jobs are directly associated with wind energy
project planning, siting, development, construction, manufacturing and
supply chain, and operations. Of the 80,700 jobs at the end of 2012,
approximately 25,500 were in the manufacturing sector. Texas led the
nation in wind jobs with over 10,000 employed in the wind industry
followed by California, Iowa, Illinois, and Kansas.
---------------------------------------------------------------------------
\5\ http://www.awea.org/suite/upload/
AWEA_USWindIndustryAnnualMarketReport2012_ExecutiveSummary.pdf.
---------------------------------------------------------------------------
The wind industry estimates that if the PTC remains in place, they
will create 54,000 additional American jobs in the next four years,
including 46,000 manufacturing jobs. This rate of growth would keep the
industry on track to support 500,000 jobs by 2030. \6\
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\6\ http://www.awea.org/newsroom/pressreleases/Navigant_study.cfm.
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Solar Industry:
For the third consecutive year, the U.S. solar industry continued
its growth in 2012 and created jobs at a faster rate than the overall
economy. As of September 2012, the solar industry employed 119,016
solar workers, a 13.2% growth in the solar workforce from revised
figures for 2011. Of the nearly 14,000 jobs created in 2012, 86% of
them are new jobs, rather than existing positions that have added solar
responsibilities. \7\
---------------------------------------------------------------------------
\7\ http://thesolarfoundation.org/sites/thesolarfoundation.org/
files/NSJC%202012%20Factsheet%20FINAL.pdf.
---------------------------------------------------------------------------
The solar industry's growth is especially impressive given that the
12-month growth rate for the entire U.S. economy was only about 2.3%,
which suggests that 1 out of every 230 new jobs in the U.S. economy was
created in the solar industry this past year. During the same period,
the fossil fuel electric generation industry shed 3,857 jobs, a decline
of 3.77%.
Energy Efficiency:
The effects of energy efficiency job growth are powerful and multi-
faceted. Earlier this year, the Alliance Commission on National Energy
Efficiency Policy (ACNEEP) unveiled its policy recommendations that
were based on the bold yet achievable goal of doubling U.S. energy
productivity.
An independent analysis of this proposal by the Rhodium Group found
that doubling our nation's energy productivity by 2030 could: \8\
---------------------------------------------------------------------------
\8\ http://www.ase.org/resources/energy-2030-impact-modeling.
---------------------------------------------------------------------------
Cut average household energy costs by more than
$1,000 a year;
Save American businesses $169 billion annually;
Reduce government agency spending by $13 billion a
year;
Create 1.3 million jobs and increase GDP by up to 2%;
Decrease energy imports by more than $100 billion
annually; and,
Reduce CO2 emissions by 33 percent below
2005 levels.
Conversely, the Deepwater Horizon spill dramatically demonstrated
how drilling can hurt coastal economies, cost rather than create jobs,
AND reduce receipts to state and local governments and businesses.
Pollution and spills from off shore drilling will damage booming and
economically vital coastal tourism economies. According to the World
Tourism & Travel Council, tourism in America employs over 14.7 million
people, 10 percent of the American workforce, and accounts for 8.8
percent of the national GDP, bringing in $1.3 trillion. This makes
America's coastal recreation and tourism industry the second largest
employer in the nation. Our coast serves over 180 million Americans who
make more than 2 billion trips to these areas every year. American
tourism is a trillion dollar industry, and of that coastal communities
alone contribute over $700 billion annually to our economy. Oil spills
and pollution from rigs, whether they occur in the central and western
Gulf, or in the areas opened by the Transboundary Hydrocarbon
Agreement, are not compatible with our nation's tourism and recreation
economies, our oceans and waters, or our coastlines.
______
Mr. Lamborn. All right. Thank you, all of you, for
testifying today. We will now begin a round of Member
questions. And I will begin. And first I would like to ask a
question of Mr. Milito.
Last year, the American Petroleum Institute submitted
comments to the Security and Exchange Commission regarding
implementation issues with Section 1504 of Dodd-Frank, which
requires energy companies to disclose payments made to foreign
countries. Specifically, API cited that there are currently
four countries which prohibit disclosure of such payments.
These are Angola, Cameroon, China, and Qatar.
This forces companies to essentially choose between
violating foreign laws or shutting down substantial operations
in foreign countries. The Agreement under consideration today
has outlined several areas where confidentiality is required by
lease holders.
Should Mexico choose to prohibit the disclosure of payments
made to their government, can you tell me what would happen to
one of your U.S. member companies who seeks to develop a
transboundary hydrocarbon reservoir with Mexico, and could they
potentially be prevented from developing this resource as a
result of this stringent Dodd-Frank regulation, Section 1504?
Mr. Milito. Thank you, Mr. Chairman. That is an excellent
question. And I would say absolutely. The way that we see this
1504 legislation applying, and the rule that has been created,
it would put companies in that specific dilemma.
And I think you highlighted a very important point, that
the parties to this agreement, this Transboundary Agreement,
and the resulting agreement itself, put a significant emphasis
on a confidentiality of information. And the reason why that is
so important is it allows U.S. companies to be able to move
forward on a competitive level.
So you have the competition issue, but then you also have
the issue that could arise where a country like Mexico could
prohibit the disclosure and our companies are committed to
following U.S. laws, and it could put them in a situation that
prevents them from developing the resources. So this is
precisely the type of situation that we were complaining about
in our comments, and that we are trying to overturn through our
litigation. So I appreciate the question, and I would agree
with that concern.
Mr. Lamborn. Well, thank you for that answer. And I am
concerned about Dodd-Frank. It has a lot of regulations yet to
be written. Obamacare has 1,700 more regulations to be written.
But Dodd-Frank, which has been in force longer, still has many,
many regulations to be written. And those that are written,
such as this one, I will give a charitable interpretation and
say it was an unintended consequence, not an intended
consequence. But this puts companies in a real dilemma. These
are American companies. And so I am really concerned about
Section 1504.
As a follow-up to that, does the language in H.R. 1613 help
to provide certainty when it comes to this potential conflict
between confidentiality and required disclosure?
Mr. Milito. Yes, it does. It provides a full exemption and
would allow companies to move forward with those investments.
And the thing I would like to add is the Department of the
Interior does collect this information and they report it. And
so we see the money that the United States is getting from oil
and gas distribution. So that money is coming in, that is being
disclosed.
And the other thing I would also add is that the industry
fully supports transparency and payments to governments, and we
are fully participating in the extractive industry's
transparency initiative, which allows both companies and
countries to participate, so that there is a bit of a back-and-
forth, and you could actually see if the countries are being
honest. That is a good model to follow, because you are not
requiring project-by-project disclosures, which puts everything
out there and creates that competitive disadvantage.
So, this provision in House Bill 1613 would provide the
solution to that problem that we see with 1504.
Mr. Lamborn. Well, I am glad to hear that, and hopefully
that will be a model for going forward.
And also, I would like to ask you about a different
subject. My colleague from Nevada asked the Assistant Secretary
what industry has done to improve safety, especially as we will
need that for deep water drilling in the transboundary area.
Can you speak about what industry has done to increase safety
since the Gulf disaster 3 years ago?
Mr. Milito. The industry has taken significant proactive
and positive steps, and I have about 30 seconds left, but I
think it could take actually a couple of weeks to go through
them.
At the outset, on May 17th, within a month after the tragic
incident, the industry provided its recommendations to Interior
for improving and making the regulations more effective. Since
then, the industry has created the Marine Well Containment
Company and the Helix Well Containment Group, which both
provide containment caps on the ready in the event that there
is an incident.
We have also created the Center for Offshore Safety, which
helps create a culture of safety, and enforces safety as a core
value, not just as a priority, but as a core value. And what we
are doing is working on a systems-based approach to safety.
API has developed various standards that are now in the
regulations and incorporated by reference. One of the key
issues coming out of Macondo was cementing. We have a document
called Standard 65 Part 2, ``Isolating Potential Flow Zones
During Well Construction,'' which is the global standard for
cementing wells.
I can go on and on. There is a two-day forum next week in
Houston on offshore safety being hosted by the Center for
Offshore Safety. We are committed to safety. And every day the
experts in the industry are developing the standards and we are
working with the government to make sure we have a robust
regime in place. We are also working on spill response so we
have a system in place that has the plans that can be followed
most effectively and also has the communication mechanisms in
place so that government and the public are completely aware of
what is happening in the event of a response to a spill.
So, we are doing all we can, and I would welcome the
opportunity to be able to brief this Committee, any offices, on
everything we have done, because there is a lot going on that I
think would be good for this Committee to be aware of.
Mr. Lamborn. OK, thank you for that answer. Thank you all
again for being here. I have a lot more questions I would love
to ask, but my time is up. So I will now turn to Representative
Grijalva.
Mr. Grijalva. Thank you again, Mr. Chairman. Mr. Milito, I
wanted to ask you to go back to the SEC resource extraction
payments rule. Authorized under Dodd-Frank Section 1504, I
think the accurate statement is that rule was fully mandated by
Dodd-Frank and the SEC was obligated by law to release the rule
in its current form. And I think the rule goes to the core of
SEC's mission of investor protection. That was the intent of
the rule. Secret payments can be easily demanded by corrupt
governments. They can also be a signal that maybe a company is
involved in risky business overseas or risky decisions, risks
that I think the investor needs to know about when making
investments.
So, my question remains, why would you believe or API take
the position that oil companies shouldn't release this
information when it is clearly, I think, critical for the
investment community and part of, I think, a legal fiduciary
responsibility on the part of companies to release that? And
that is my question.
Mr. Milito. Yes, our concern is the way the rule was
finally put into its current form. And there is two main areas
I would like to point out. One is the requirement to report
payments on a project-by-project basis. When you are working
with nations around the world, and you are engaging in
contracts that are for multi-billion-dollar projects, you are
putting out, through this mechanism, all your financials for
the world to see, including other nations, which we may not
want to gain competitive advantages over our own U.S.-based
companies and put U.S. shareholders in a position where they
could potentially have a negative impact on their own
performance of retirement funds, IRAs, 401k's, and things like
that.
The second issue concerns the conflict of law issue, where
we have Section 1504, but those specific countries that the
Chairman described prohibit those types of disclosures. And it
is our position that the SEC has the ability to provide
exemptions for conflict of law issues, as well as----
Mr. Grijalva. OK.
Mr. Milito [continuing]. Being able to----
Mr. Grijalva. Yes.
Mr. Milito [continuing]. Put a rule in place that doesn't
require these disclosures on a project-by-project basis.
Mr. Grijalva. The EU just released a rule that also has
this budget project-by-project release requirement of
information. So would there still be competitive disadvantage,
as you are stating?
Mr. Milito. There would be. We are concerned about the EU
rule, as well. We support the extractive industry's
transparency initiative, which is really a solid model, because
when a country is reporting under EITI----
Mr. Grijalva. OK, but----
Mr. Milito [continuing]. They are providing all the
payments being brought in, and then you can match it up with
what the countries are actually providing, to see if those
countries are being honest. So we actually have a system
under----
Mr. Grijalva. Thank you.
Mr. Milito [continuing]. EITI that provides a better
system----
Mr. Grijalva. Thank. Mr. Manuel--I only have a few minutes.
Mr. Manuel, do you agree with the statement of your panelist,
Mr. Milito, regarding this SEC rule, the disclosure rule that
we have been talking about?
Mr. Manuel. Well, I would have to get back to you on the
details, but I think I generally support your position on this,
that disclosure is the best policy on these issues and that the
industry shouldn't have anything to fear from disclosure and
transparency.
Mr. Grijalva. Liability caps--$75 million, I think, is set
right now. Let me ask you. Do you think Congress should raise
that cap to ensure that oil companies are held accountable for
their spills, rather than what occurred with BP, where the
taxpayers ended up with the brunt of that responsibility?
Mr. Manuel. No, we certainly do. I mean we are open to any
amount. But certainly $75 million is an outdated one that was
based on the assumption that we would know that that would be a
finite amount of oil, that this was based on tankers that
obviously have a finite amount of oil they can carry. But it
was inadequate for a spill like this one that came from a well
that was not capped for months.
So, I think it is appropriate to raise it dramatically, if
not even have an unlimited cap. But whatever could politically
pass we would support. But certainly $75 million, as it stands
now, is completely inadequate and bad for the area that it
operates in, but bad for----
Mr. Grijalva. Yes.
Mr. Manuel [continuing]. Bad for taxpayers.
Mr. Grijalva. Mr. Chairman, if we can't have transparency
disclosure, perhaps another mechanism for assuring the
taxpayers are somewhat protected is to deal with that liability
cap. But I am sure there is opposition to that as well. With
that, I yield back.
Mr. Lamborn. Thank you. Representative Duncan.
Mr. Duncan. Thank you, Mr. Chairman. And thank you to the
panel for being here to talk about the Transboundary Agreement.
I think it is very, very important.
I think you all would agree with me that unemployment in
the United States is north of 7 percent. But unemployment in
North Dakota is 3 percent or less. Unemployment in Texas,
Louisiana, and Oklahoma, the oil-producing, energy-driven
economies, is relatively low, compared with the U.S.
unemployment rate north of 7 percent. And so, we talk about
jobs. I think that is important.
Mr. Simmons, you note in page two of your testimony in the
written section, second paragraph, it says, ``Energy trade
between the United States and Mexico is growing, especially for
America's finished petroleum and natural gas exports. Mexico's
heavy oil production is falling, but that means more spare
refining capacity on the Gulf Coast.''
We talk about the spare refining capacity a lot of times
when we are talking about the Keystone Pipeline, that we have
the refining capacity to refine that Canadian oil into the
petroleum products. And the other side of the argument says,
``Well, that is not going to be used in the United States, and
it is not going to do anything to lower the price at the pump
for Americans, it is just going to pass right through.'' And I
say, ``So what?'' Because global demand is high, that is the
reason prices are high. But if we can increase supply globally,
that is going to lower the price for everyone, including here
at home.
I would argue that a lot of those contracts being
negotiated and those products refined at American refineries
will be used here. But beside that, we are creating American
jobs. The capacity is there, the refineries are built,
Americans are trained. If they had the raw oil product in order
to refine, that we would be continuing to put Americans to work
and producing energy resources. We would be trading with a
friendly neighbor to our north, in Canada.
But we are talking about Mexico and the Transboundary
Agreement here. So I would ask--well, first off, let me just
say when I am talking about jobs that drilling equals jobs,
refining equals jobs, Keystone equals jobs, transboundary
equals jobs, and jobs equal the American way of life. Just
wanted to say that.
So, what I want to ask is, by what means are we
transporting oil from Mexico to the Gulf Coast? Do we see any
changes with the Transboundary Agreement on the amount of
Mexican oil that may be coming to the U.S. for refining? And I
ask that to Mr. Simmons.
Mr. Simmons. The vast majority of oil is transported by
tanker, as I understand it, between Mexico and U.S. refineries.
Much of Mexico's oil, they are the number one recipient of our
finished gasoline products. Much of their oil comes to the
United States because they don't have enough refining capacity
in Mexico. Much of the oil comes to the United States, is
refined, is then shipped back to Mexico as finished gasoline
products, finished petroleum products.
Mr. Duncan. So those are American jobs that----
Mr. Simmons. Those are American jobs that happened because
of Mexican oil production. Transboundary will help that, and
especially if the Transboundary Agreement could lead to greater
Mexican production overall. That means more American jobs,
because we could have more refining in the U.S. plus the
additional production in the Gulf, because all of those
companies that operate, not all of them, but a vast majority of
those companies that operate in the Gulf, all have U.S.
businesses that will increase the number of jobs.
Mr. Duncan. OK. Well, thanks for that. And I want to shift
gears a little bit for Mr. Groves, because I am a Co-Chair of
the Sovereignty Caucus here in Congress, along with the
Chairman, who is the Chairman of the Sovereignty Caucus. So you
have both of us here.
You mention the sovereignty of the United States with
regard to transboundary, and in your written testimony, I don't
think you mentioned this in your verbal testimony, you referred
to the U.N. Law of the Sea Treaty and the United Nations
Convention on the Law of the Sea. Can you talk a little bit
more about how transboundary is much better than the U.S.
entering into any kind of treaty with the U.N.?
Mr. Groves. Well, sure. I mean the Transboundary Agreement
is everything that the Law of the Sea Treaty is not, in terms
of advancing our interests while protecting our sovereignty.
First of all, it is a bilateral agreement which, by its
nature, is much easier to manage. You don't have 190 other
countries in the mix, pulling their interests one way or the
other.
Mr. Duncan. By bilateral you mean both countries are all
in, they are in agreement to do this.
Mr. Groves. Right, and they were closely involved in
negotiating the Agreement, just those two parties.
Mr. Duncan. It wasn't forced upon them.
Mr. Groves. It wasn't forced upon them. This is something
that they both see as in their national interests on both sides
of the international border. They both want to engage these
transboundary reservoirs in a business-like way that doesn't
infringe on one another's rights.
The reciprocal obligations and risks are there, rather than
them being unbalanced between developed and developing
countries. And there aren't any complex dispute resolution
mechanisms that would turn over the interpretation of the
agreement to a court sitting over in Hamburg, Germany, or
elsewhere. They have narrowly crafted those issues that could
go for dispute resolution, and they have decided that it is
going to be U.S. and Mexican representatives deciding those
issues.
So, everything that is wrong about the Law of the Sea
Treaty is corrected and is done in the correct way in the
Transboundary Agreement.
Mr. Duncan. Thank you for that. I am out of time. So, Mr.
Chairman, I yield back.
Mr. Lamborn. Thank you. Representative Costa?
Mr. Costa. Thank you very much, Chairman. I want to thank
the Ranking Member for holding this hearing, and appreciate the
last witness's clarification on the impacts of the
transboundary legislation that we are talking about here this
morning. I, too, support it, not only the additional millions
of barrels of additional oil that would be produced, but over
300 billion cubic feet of natural gas. I think we need to come
together on a bipartisan effort on this legislation for all the
right reasons that have been stated already.
Mr. Chairman, I want to follow up on your last line of
questioning with regard to safety. And the API witness, I
think, did a good job in touching on that. It would be helpful,
I think, if we could request an update under the category of
lessons learned after the BP spill on what the current best
management practices are, and have that information provided to
the Subcommittee.
And I know that the Department of the Interior has also
worked with the American Petroleum Institute as well to ensure
that we have learned those lessons and we are applying them
today, both in offshore and deep water exploration. We want to
continue it.
[NOTE: Documents submitted for the record by the American
Petroleum Institute in response to Mr. Costa's request have
been retained in the Committee's official files.]
I think the President's announcement yesterday, an
additional 21,000--or 21 million, I guess it was--acres of
lease is under the good news category. But, obviously, we don't
ever want to repeat the horrific spill that occurred 2 years
ago.
I have a question to Mr. Manuel. I am one here that has, I
think, been very clear about my support of using all the energy
tools in our energy toolbox, having both an interim and a long-
term energy policy. I have not only been on record here and
have voted for, but when I was in California, a robust
renewable portfolio. We are going to be, by the year 2020, in
California have over 30 percent of our energy will be
renewable. And we have looked at all-of-the-above conservation.
I have supported CAFE standards, because I think you have to
use all of the above. There aren't any silver bullets in it.
But Mr. Manuel, I would like to know, in your opinion, with
the efforts that we pursue in renewable technologies, are they
developed fully enough to provide the energy necessary in the
United States that won't hamper our economy, either today,
tomorrow, or in the near term? Because there are some that
suggest, i.e. the XL Pipeline, that we ought to make a
statement that we are going to change overnight. What is your
view?
Mr. Manuel. Well, we support all of the above, as long as
all of the above is clean energy. We think that we are
optimistic----
Mr. Costa. Coal?
Mr. Manuel. No. We want to start----
Mr. Costa. Oil?
Mr. Manuel. No. All the fossil fuels--I will save you some
time. All the fossil fuels----
Mr. Costa. OK. So you think we could convert, without
hampering the American economy, and do away with all the fossil
fuels, as you just stated? When?
Mr. Manuel. Well, we want to try and reduce our use of
fossil fuels by 80 percent. We think we can do that.
Mr. Costa. By what?
Mr. Manuel. By 80 percent.
Mr. Costa. Eighty----
Mr. Manuel. I will get back to you on the date for that.
But we are optimistic of that----
Mr. Costa. Well, no, the date is important.
Mr. Manuel. Well, I will get back to you on that. Well, I
do our lands policy for us. I will get back to you on the
specifics--I am happy to get back to you today on the date.
Mr. Costa. Well, see, I guess that is where we differ.
Because, I mean, I don't think that is realistic.
Mr. Manuel. Well, we are----
Mr. Costa. I think perhaps in the next--I don't know what
the time period is, I am not an expert in this. But whether it
is 20 years plus, or less than 20, we will continue to build
up, as we are doing in California, a more robust renewable
portfolio. But all of the above doesn't mean that you eliminate
fossil fuel, as you just stated. I mean maybe in the middle of
this century we will have new technologies, and new
developments in the ability in which fossil fuels are the
minority of the energy usage in America and around the world.
But I don't think the position you just stated is any more
reflective of reality than the people that believe that we can
drill our way out of all of our energy problems. We can't do
either of the above. We have to use all the energy tools in the
energy toolbox.
Mr. Manuel. Well----
Mr. Costa. And I think what is lacking is a plan to get
there.
Mr. Manuel. I could follow up with you and your office on
that, but we are optimistic that, through innovation, through
energy efficiency, we can dramatically reduce the amount of
fossil fuels we use in powering the United States without
seeing impact, a negative impact, on the U.S.----
Mr. Costa. What about nuclear?
Mr. Manuel. Pardon me?
Mr. Costa. What about nuclear?
Mr. Manuel. No, we are not fans of nuclear, either. I am
from the Sierra Club, so----
Mr. Costa. All right. Give me the year. Get back to me on
that year.
Mr. Manuel. I will.
Mr. Lamborn. Thank you. Thank you. But there is nothing
left. OK, let's have a second round of questions. There is a--
oh, excuse me. First we will hear from Representative Thompson.
Mr. Thompson. Thank you, Chairman. Thank you, gentlemen,
for your testimony. I mean I wasn't going down that path, but
Mr. Manuel, I have to ask. It doesn't sound like you support
``not all of the above,'' you support ``none of the below.''
And ``some of the above'' you don't support, either.
I just have to ask--and you probably have a handle on this,
how much does the production tax credit cost? Do you know what
we invest, as taxpayers, and a production tax cost?
Mr. Manuel. For clean--I would have to get back to you on
the specifics on the----
Mr. Thompson. It is a significant amount of money. Do you
know how long it has been in effect?
Mr. Manuel. No, I will have to get back to you on that,
too.
Mr. Thompson. A very long time. The question is, what will
happen to the wind industry if that credit is not extended?
Mr. Manuel. No, I know they need that now to----
Mr. Thompson. Despite the fact we have had that tax credit
in place, spending a lot of taxpayer-invested monies for a very
long time.
Mr. Simmons, the Assistant Secretary stated that the
Department of the Interior estimates that the transboundary
area currently contains as much as 172 million barrels of oil
and 304 billion cubic feet of natural gas. Do you agree with
those estimates?
Mr. Simmons. Until we can look further, yes.
Mr. Thompson. Oh.
Mr. Simmons. If I just might add, one of the interesting
things, and one of the great things that has happened in the
Gulf over the past 20 years is that the amount of resources
that they thought were available 20 years ago, it turns out
that there is more than double, and up to triple and quadruple
as many oil and gas resources in the Gulf, once we were able to
look. And that is really the message.
Once we can go look, once we can use modern technologies,
there is more hydrocarbon resources than we ever thought there
was, previously.
Mr. Thompson. Can you follow up on that? You mentioned in
your testimony estimated and proven reserves, and some
opponents of production like confusing those two terms. Can you
follow up on your previous statement and explain for us the
difference between estimated reserves and proven ones? And why
is it that actual reserves tend to be higher than the initial
guesstimates of reserves?
Mr. Simmons. Well, frequently what people talk about is
proven reserves, proven oil reserves. And that is the oil that
is in the ground that we have a very good idea of how much,
because oil companies have drilled, they have started
producing, they know. I mean they report to the SEC that,
``This is how much oil we have.'' They know with very
reasonable certainty.
But they know that there is more oil in the ground, but
they haven't drilled yet in other areas. But because of the
geology, they believe that there is much more oil. And I am
spacing on the exact term, but those are defined as other types
of reserves, not proven reserves. Proven reserves are ones that
oil companies are very certain about the amount of oil. We have
much more oil than what are the proven reserves.
And before I forget, since you asked about the wind
production tax credit, according to the Joint Tax Committee,
the wind production tax credit will cost $12.1 billion for the
extension for this year alone, regardless of the past billions
of dollars since it has been in effect since about 1992.
Mr. Thompson. Thank you. Mr. Milito, if opened up for
production, what specific impacts would the transboundary area
have on jobs? Any projections?
Mr. Milito. Well, it would be difficult to project the
actual jobs that could be created. We are looking at direct
employment in the tens of thousands, because of the Gulf of
Mexico. But we have seen recently various companies paying
millions and millions of dollars for leases in the vicinity of
that area. I think 852 is where the Perdido production platform
is. There are four fields that feed into that. It is very close
to the boundary there.
One thing I would mention is that these aren't just Gulf
jobs. If you look at the indirect jobs, you are looking at
support jobs. We have a report from Quest Offshore we could
provide to the Committee that shows in New Jersey there are 40
companies that provide services and supplies to Gulf
operations; Massachusetts, 30 companies; you have steel
production plants in Ohio. So it really has tentacles that feed
throughout the whole country. But it just would continue to
drive economic growth.
And what I mentioned before is that we are limited to
developing in the Gulf of Mexico. So if that is going to be the
case, we have to open up new areas in the Gulf of Mexico and
provide them for development so we can maintain that
employment, as well as try to increase it, although we support
opening up other areas, as well. So it is hard to project, but
it is of tremendous economic benefit to this country in many
respects.
And the other thing we have to realize is that the revenues
from this type of production go to the Federal Government. So
we are averaging about $4 billion, some years $20 billion, from
offshore production. That is all going to the treasury. So it
is a good step in making sure we are addressing our budget.
Mr. Thompson. Yes. Thank you, Mr. Chairman.
Mr. Lamborn. Thank you. Representative Holt.
Dr. Holt. Thank you. Before I begin my questions, Mr.
Simmons, I would like to ask you to go back and check with your
tax experts and provide for the record the actual cost of the
wind production tax credit.
Mr. Simmons. Sure thing.
Dr. Holt. Per year. It was actually a 2\1/2\ year
extension.
Now, I believe Mr. Grijalva asked about the liability cap.
But he only asked one of the witnesses. I would like to ask the
other three: Mr. Milito, and Mr. Simmons, and Mr. Groves. The
liability cap for offshore oil spills is set, it is a cap set
at $75 million. Do you think Congress should raise the cap to
ensure that oil companies would be accountable for the cost of
cleaning up the spills?
Mr. Milito. I think you have to look at the system as a
whole, because there is no cap on environmental clean-up costs.
Dr. Holt. And should the oil liability cap be left at $75
million? Yes or no?
Mr. Milito. Well, I think you can't just make a yes or no
answer, because there is more to the----
Dr. Holt. We have to vote up or down. Yes or no?
Mr. Milito. Well, there is a whole system in place,
Congressman, that we have to look at, including the fact that
there is no cap on environmental clean-up costs, and that the
cap is lifted in the event that there is----
Dr. Holt. Are you familiar with the $75 million cap?
Mr. Milito. I am.
Dr. Holt. OK. That is the cap I am talking about. Should it
be left at $75 million?
Mr. Milito. I think it depends as to what the overall
legislative package looks like.
Dr. Holt. Yes or no?
Mr. Milito. I----
Dr. Holt. You just can't----
Mr. Milito. You can't look at this in a vacuum. That is----
Dr. Holt. Mr. Simmons?
Mr. Milito. Respectfully, Congressman----
Dr. Holt. Mr. Simmons, should it be left at $75 million?
Mr. Simmons. I don't know, because it is not the only way
that oil companies are held accountable----
Dr. Holt. So, then, let me see if maybe somebody here
knows. Mr. Groves?
Mr. Groves. You are barking up the wrong tree, Mr. Holt. I
am expert in treaty and international law.
Dr. Holt. So, let me ask you as somebody who works in the
field, should the taxpayer be on the hook for any expenses
above $75 million? Even if it is the result of malfeasance, or
whatever it is, by the drilling company?
Mr. Groves. Well, I am all for protecting the taxpayers----
Dr. Holt. OK. So let me try something else, then, thanks.
The maximum fine that the Department of the Interior could
levy against BP for one of the worst oil spills in history was
$21 million. That is the maximum fine for something that has
cost into the billions. And we have all read, we all know, we
have had some testimony--although not from the CEOs--we have
had some testimony about how it came to pass. A fine is
relevant and warranted.
But let me ask the panel, each of you, please, all four of
you, do you think Congress should increase the fines that the
Department of the Interior could levy in the case of such a
spill to deter--well, to enforce good behavior, let's say? Mr.
Milito?
Mr. Milito. Well, my understanding is that BP has already
paid $4 billion in criminal fines, and----
Dr. Holt. No, that is--no, no. There is a fine. There is a
penalty. And again, I would like you to answer the question
that I am asking, because we have to decide whether that is
sufficient, or whether we need to change the law to provide
some sanction.
Mr. Milito. And with all due respect, Congressman----
Dr. Holt. Yes.
Mr. Milito [continuing]. I think you can't look at these in
a vacuum.
Dr. Holt. OK.
Mr. Milito. I think you have to look at the system as a
whole, and look at----
Dr. Holt. So on that particular--the ability to levy a
fine, should it be raised?
Mr. Milito. Well, the litigation right now is likely to be
in the billions. That is what----
Dr. Holt. OK.
Mr. Milito. All indications are the fines and penalties are
going to be in the billions in the ongoing litigation. That is
what all appearances are, that it will be in the billions.
Dr. Holt. Yes. I mean the Department of the Interior is the
regulator.
Mr. Milito. Correct.
Dr. Holt. They can levy fines.
Mr. Milito. Yes.
Dr. Holt. Should that be raised?
Mr. Milito. Like--I will repeat myself.
Dr. Holt. OK, Mr. Simmons?
Mr. Milito. We have to look at the whole system, because we
can't look at these in a vacuum.
Dr. Holt. I am glad you are not running any of the
companies in my district.
Mr. Simmons?
Mr. Simmons. Well, I mean, I would like to see the actual
legislation, because otherwise it is a hypothetical, and I
really can't----
Dr. Holt. No, it is not hypothetical.
Mr. Simmons. I cannot--it----
Dr. Holt. You know, on the books there exist penalties that
may be levied for malfeasance, for damages, to enforce good
behavior. Should that fine, the amount that might be levied, be
increased?
Mr. Simmons. Well BP already paid $40 billion.
Dr. Holt. That is not what I am asking.
Mr. Simmons. But it matters critically to what you are
asking, because what you are asking is what will enforce good
behavior. What enforces good behavior is not just the fines and
not just----
Dr. Holt. OK, so----
Mr. Simmons [continuing]. Not just this one liability, but
it is the entire system.
Dr. Holt. So--OK. You are saying that fines have no effect
on behavior. And, in fact, when----
Mr. Simmons. No----
Dr. Holt [continuing]. The fine is only $21 million, you
can bet it has no effect on behavior.
Yes, Mr. Groves?
Mr. Simmons. That is not what I am saying.
Mr. Groves. Again, Mr. Holt, I would defer to industry
experts on this. But I figure in legislation like this, when
you are putting maximum limits on fines or liability caps, that
there is a balance between what type of certainty you are going
to be giving to the industry, whether they are going to----
Dr. Holt. OK.
Mr. Groves [continuing]. Engage in the behavior----
Dr. Holt. Dodging again. Mr. Manuel?
Mr. Manuel. No, we do support raising the civil penalties,
and think that should be amended as part of this bill. That
would be a great amendment to 1613.
Dr. Holt. Thank you. Finally, an answer.
Mr. Lamborn. Let's have a second round. There is only a
handful of us here. This will go relatively quickly. But there
are certainly some follow-up questions I would like to ask. One
second here.
Mr. Groves, we were talking earlier about the Law of the
Sea Treaty.
Mr. Groves. Yes, sir.
Mr. Lamborn. And what would be the revenue impact if the
Law of the Sea Treaty were in effect for the Gulf of Mexico, as
opposed to the transboundary type of agreement that we are
looking at in this legislation? You said that one is a good
approach, the Law of the Sea Treaty is not the good approach.
What is the difference?
Mr. Groves. Well, the good approach is when companies are
exploiting the resources in the Western Gap, for example, and
the Gulf of Mexico, that all 18\3/4\ percent of the royalties
that are generated from production there are transmitted to the
U.S. Treasury for the benefit of the American people.
If you join the Law of the Sea Treaty, then a portion of
those revenues are siphoned off, and don't go to the treasury
for the American people, but are instead sent down to the
International Seabed Authority in Kingston, Jamaica, to be
redistributed to the developing countries of the world. So I
don't consider that to be a provision that is in the best
interests of the United States.
Mr. Lamborn. And would the proportions and the amounts of
that distribution to other countries, is that even known in the
Law of the Sea Treaty language?
Mr. Groves. No, they just know that they are going to get
their cut of any of the royalties generated. We had a
discussion here about proven reserves. I think some of those
are going to become better known in the Western Gap, where
leasing activity has been active since 2001.
I say that any dollars that are siphoned off from the U.S.
Continental Shelf----
Mr. Lamborn. OK.
Mr. Groves [continuing]. That don't go to the American
people is a bad idea.
Mr. Lamborn. Thank you. And, Mr. Simmons, to finish up
with, seeing this as a good model for going forward, should the
U.S. also be negotiating agreements with countries like Canada
and Russia to clarify some of the boundary issues that might be
out there that would allow for further U.S. development of our
resources?
Mr. Simmons. Definitely. I mean, greater clarity and
resolving uncertainty is always valuable, especially when it
comes to areas such as along the Canadian border and also along
the border with Russia, where we have very large hydrocarbon
resources that we are not currently using.
Mr. Lamborn. Are there any issues with Cuba and the Gulf of
Mexico that should be resolved, or hanging?
Mr. Simmons. I don't know on that one.
Mr. Lamborn. OK. Mr. Groves?
Mr. Groves. Yes, just like we have the Western Gap in the
western Gulf of Mexico, there is an Eastern Gap, an area of
extended continental shelf where the U.S., Mexico, and Cuban
international waters intersect. And there will need to be
another treaty to delimit those lines before production or
exploration can begin in the Eastern Gap.
Mr. Lamborn. Well, I would certainly hope that our
Administration is taking note of this, and begins some of these
important discussions.
Thank you all for your testimony. I would now turn to
Representative Holt.
Dr. Holt. Thanks. I won't go back to the liability and the
sanctions. I think we have established that the Institute for
Energy Research, which advocates massive increase in offshore
drilling, and the American Petroleum Institute, thinks that the
taxpayers should be on the hook for anything over $75 million
in damages, and that----
Mr. Lamborn. I am not sure they said that.
Dr. Holt. They sure did. And that the sanctions are
useless--sanctions in the form of fines levied by the
Department of the Interior, so let me ask something else. Let
me ask Mr. Milito, the American Petroleum Institute
representative. Do we have too many safety inspectors on the
offshore rigs?
Mr. Milito. No, we do not.
Dr. Holt. Do we need more?
Mr. Milito. I think we have to take a look and see, and
work with BSEE to determine where the gaps might be. But I
think that is----
Dr. Holt. Do you think one inspector for every 29 rigs is--
--
Mr. Milito. Absolutely not.
Dr. Holt. Absolutely not.
Mr. Milito. No. But what I would say is----
Dr. Holt. Has the API made a recommendation to Congress for
an increase in the budget to get maybe 1 for every 10 rigs?
Mr. Milito. We have sent a letter to Congress----
Dr. Holt. You have?
Mr. Milito [continuing]. Requesting additional funding for
the agencies for----
Dr. Holt. Good.
Mr. Milito [continuing]. Inspection, permitting, and
everything else.
I would like to say that the public should not foot the
bill for any costs related to an oil spill. In terms of the way
that is done, you have to look at a system as a whole, and the
public should not foot the bill for any effects of a spill.
Dr. Holt. Well, this is with regard to the other point that
I was making.
Mr. Milito. Exactly. But I want to be on the record and
clarify what my response was----
Dr. Holt. So you think the public should not be on the
hook?
Mr. Milito. Absolutely not.
Dr. Holt. You would not say that we should raise the
liability limit. You would like it to be voluntary, and the
industries will pay for it----
Mr. Milito. I would not even say that I am opposed to it,
but I can't say I support it without looking at the system as a
whole.
Dr. Holt. OK. Mr. Simmons, let me ask you the question
about--do we have too many inspectors?
Mr. Simmons. I don't know. It does not appear----
Dr. Holt. So 1 per 29 rigs might be about right, then?
Mr. Simmons. No, that is not what I am saying. I am saying
that I don't know, and it is not an issue----
Dr. Holt. So it could be less. I mean you don't know. It
might be more, it might be less. Maybe 1 per 50 would be OK, or
1 per 10 might be OK. You just can't tell. Is that right?
Mr. Simmons. It is not an issue that I am an expert in and,
therefore, cannot give you a good answer.
Dr. Holt. Well, let me ask this. If our fatality rate, as
we have seen from the investigative commission, is about four
times the world average, does that suggest that our inspections
are adequate?
Mr. Simmons. It may, it may not.
Dr. Holt. It may not. I see.
Mr. Simmons. It all depends on what the context is.
Dr. Holt. OK. Well, as I said before, I am sure glad that
you are not running any companies in my district. If you are
that little in touch with what is going on in the industry and
how many workers are dying and how much dollars in damage are
done, God help us.
Mr. Simmons. No, and that is--and I am sorry, sir, but you
just can't look at one aspect of it, and then try to put words
in my mouth. I mean that is----
Dr. Holt. I yield back the balance of my time. I thank you.
Mr. Lamborn. Finish your statement, please.
Mr. Simmons. Just that, we have to look at the entire
system. We have to look at the entire legal framework. We have
to look at the entire safety framework. By pulling a few
numbers and saying that this means--X means Y, that is not a
valid form of reasoning, and it is a bit offensive.
Mr. Lamborn. OK. I want to thank you all for being here. As
the diplomats would say, maybe Ambassador Manuel, we have had a
frank and candid discussion.
[Laughter.]
Mr. Lamborn. Thank you for your testimony, for offering
your views, all four of you, and for being here today, and for
having that second abbreviated round of questions.
Members of the Committee may have additional questions as a
follow-up for the record, and I would ask that you respond to
those in writing if you are submitted those questions. And if
there is no further business, without objection, the Committee
stands adjourned.
[Whereupon, at 12:03 p.m., the Subcommittee was adjourned.]