By: Kristin Van Veen-Hincke/Vikki Cooper & Associates
Nov/Dec 2011

Earlier this year, the House Oversight and Government Reform Committee, chaired by Darrell Issa (R-CA), released a report documenting Obama Administration policies that negatively impact domestic energy prices. The report had eight key findings:
1. Key members of the Obama Administration have expressed the idea that energy prices should be higher. Their actions and comments show the Administration’s plan to increase the cost of all methods of energy.
2. While the Obama Administration touts nascent “green” energy technologies, domestic energy resources are currently the largest on earth — greater than Saudi Arabia, China and Canada combined. While industry is working hard to develop new and better retrieval technologies, the Administration is working to ensure that these resources are off limits to production.
3. The industry has not thrown in the towel in spite of constant regulatory roadblocks. Many U.S. firms are investing in newly discovered resources in California, Texas, Colorado and North Dakota. Experts believe these areas could yield more oil each day than the Gulf of Mexico.
4. Actions by the Administration have already delayed production in many areas due to cost and regulatory obstacles. The report also noted that recent Environmental Protection Agency (EPA) and Department of Interior regulatory actions are having a detrimental impact on independent energy producers.

This report documents Obama Administration policies that negatively impact domestic energy prices.

5. Efforts have been undertaken by other regulatory agencies to limit production. A good example of this is the current battle occurring in the Permian Basin as U.S. Fish and Wildlife Service consider adding the dunes sagebrush lizard to the Endangered Species list.
6. Collaborations between EPA and members of various environmental groups are affecting production. Many of these environmental concerns have nothing to do with oil and gas operations; however, legal wrangling is causing delays and increased production costs.
7. The Administration continues to push for the removal of the tax deductions currently available to the industry. Mr. Obama has attacked these deductions in each of his three budget proposals as well as proposing these tax incentives be removed in order to fund his current jobs bill.
8. Green technologies currently promoted by the Administration actually cause unintended environmental, security and economic consequences. Some of the commodities needed to make the new green energy batteries or wind turbines are controlled by the Chinese who currently uses coal to power more than 70 percent of its energy needs.

The House report also outlines the affect these policies are having on five areas of the U.S.: the Appalachian region, the Gulf of Mexico, Alaska, the Rocky Mountain region and Texas.

The Appalachian region
The Marcellus Shale formation lies beneath the Appalachian region that extends from Mississippi and Alabama through Tennessee, West Virginia and Pennsylvania ending in New York. One-third of the nation’s natural gas resources are from shale gas which was considered to be too expensive to extract just a few years ago. The U.S. Geological Survey estimated in 2002 that 1.9 trillion cubic feet of natural gas existed in the Marcellus. In 2009, the Department of Energy put that estimate at 262 trillion cubic feet of recoverable natural gas. As we all know, this estimate has risen due to advances in horizontal drilling and hydraulic fracturing. This region has endured a staunch attack by Obama Administration officials who are convinced fracking is a threat to the nation’s water supply. Currently, states regulate the process of fracking and have done so successfully for decades, but if President Obama has his way, the EPA will oversee this function in the future.

The Gulf of Mexico
For nearly 30 years, drilling in the waters off the coast of the United States was prohibited. However, record high gas prices in the summer of 2008 created the need for this moratorium to be lifted, and President Bush and Congress did just that in September 2008. Opportunity for new production was short-lived. Access to an additional 500 million acres for new exploration was again closed off by the Obama Administration in March 2009 on the premise that this and other proposed changes would reduce the country’s reliance on foreign oil and create jobs. In actuality, this decision closed off access to 13.14 billion barrels of oil and 41.49 trillion cubic feet of natural gas.

In a cruel turn of events, an explosion occurred on April 20, 2010 onboard the Deepwater Horizon causing more than four million barrels of oil to spill into the Gulf of Mexico. Once again, drilling in the Gulf came to a screeching halt as Secretary of Interior Ken Salazar ordered a six month moratorium on deepwater drilling. The moratorium was immediately challenged by industry and a judicial decision invalidated the original order. Ignoring this decision, Secretary Salazar announced a second moratorium on July 12, 2010 claiming it was necessary to implement new safety guidelines.

The House report outlines several instances in which Administration officials admitted that the economic effect of a moratorium on the Gulf Coast Region was never studied. On October 13, 2010, Secretary Salazar announced the end of the moratorium; however, it soon became apparent that another set of barriers had been put into place. In what has become known as “The Permitorium,” producers are now saddled with permitting delays and new regulatory requirements enacted by the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). Although industry has made vital changes to promote safety in offshore drilling, the Administration continues to turn a blind eye to these efforts still insisting that offshore drilling is a safety and environmental hazard.

Alaska
Production in Alaska continues to decline. In 1988, oil production from this region constituted 25 percent of total domestic production. By 2007 that number had dropped to 14 percent due to regulatory red tape. According to the House report, the Obama Administration supports policies that will continue to negatively affect production in Alaska. Although the drilling moratoriums set in motion in 2010 did not specifically affect the waters off Alaska, the uncertainty created by those decisions did.

For four years, Shell has been waiting to begin exploration, a project that could bring 54,700 jobs to the area, generating $145 billion in payroll income and $193 billion in government revenue by 2057. The wait continues as EPA officials drag their feet on the issuance of the final permits needed. The House Oversight investigation reports that “Shell has spent more than $3 billion on leases, environmental analyses, and permitting so far with no return on their investment.” Keep in mind that the federal government has received $2.2 billion in bonus bids for Shell’s leases in the Chukchi Sea. This figure does not include what the company has paid for leases in the Beaufort Sea.

Rocky Mountain Region
The biggest challenge facing production in this region is the presence of the federal government as a landowner. According to the report, the federal government owns approximately 650 million acres primarily in the west where more than 50 percent of the land is owned by the feds. This means the taxpayers own the land and should be reaping the benefits of its resources. However, this is not the case. Revenue from production on federal lands has seen a drop from 2008 to 2010 blamed on policies instituted by the Obama Administration. In 2010 alone, the number of new leases on federal land dropped by nearly 50 percent. As the President is touting that oil production is at its highest level since 2003, he neglects to add that this rise is attributed to increased production on private lands especially in the shale rich regions of North Dakota that are experiencing record production levels.

The Administration continues to use bureaucracy to delay production. For example, the Bureau of Land Management (BLM) has added a level of planning to the lease process in order to prevent development. According to the report, Ewing Exploration has invested $3.5 million to explore leases it owns. The company recently nominated another 10 parcels in order to complete its drilling block. This small company of six employees planned to drill 24 wells on this block. The day before the sale, the BLM removed those 10 parcels from the sale stating they had to be “reprocessed in conformance with the new leasing reform process.” Those parcels won’t be available until February 2012. The report also states that this 16 month delay is also deferring payments of $2.7 million per month in federal royalties and $1.3 million per month in state taxes and royalties.

Texas
Privately-held land in Texas has become an ideal location for producers frustrated with the federal red tape of the West. As Texas seems to weather the recession better than most the country, the EPA moved in to throw a wrench in the stability. In June 2010, the EPA began rejecting air quality permits issued by the state for refiners and other industrial plants. This “flex permit” system had been in place since 1996. The state fought back refusing to acknowledge EPA. In December, EPA notified Texas regulators that it was taking over the permitting process in the state.

The regulatory threat at the forefront of everyone’s mind in the Permian Basin is the U.S. Fish and Wildlife’s proposal to add the dunes sagebrush lizard to the Endangered Species list. If successful, this effort would limit oil and gas production in West Texas and southeastern New Mexico.
Thousands of acres in this area which produces nearly 20 percent of the nation’s oil supply could be removed from production drastically affecting the economic well-being of the area.