Texas Independent Producers and Royalty Owners, … Belcher TIPRO Presentation.pdf · Texas...

ENERGYNORTHAMERICA, LLC

PUBLIC POLICY TRENDS & DEVELOPMENTS FOR

OIL & GAS EXPLORATIONTexas Independent Producers and Royalty Owners, Summer Conference

August 12 - 14, 2010, San Antonio, Texas

Summary

www.energy-northamerica.com

Oil Spill and Policy Trends

Federal Legislation

Regulatory Trends

Impacts on industry

What are likely outcomes?

Forces at Work


Oil Spill has changed everything

Dynamic shifted

Everything on the table

“You don’t want to let a good crisis get

Away” Sierra Club

What will Congress do before elections?

Is Administration looking for a way out?

Do policymakers really know what is at

stake? Knee-jerk reactions

Opportunists/Ideologues vs. Pragmatists

Who will prevail?

Where We Were – Some Positive Trends


Prior to Macondo Well accident:

• Public support at new highs

• Congress allowed offshore

moratorium to expire. Promising

areas in Offshore 5 Year Plan

• Industry gaining ground on

Hydraulic Fracturing debate,

Energy In Depth gaining traction

in media

• President Obama supported

expanded offshore exploration and

acknowledged the need for more

domestic production of natural gas

http://www.atcontact.com/index.cfm/ID/108

Other Trends Moving in a Bad Direction?


• Salazar Energy Reform Team – New Administrative Rules – BLM • Eliminated Categorical Exclusions• More Environmental Reviews• More delays• Fewer acres offered on public lands

• Expanded Federal Authority• Increasingly active EPA• Administrative actions w/out rulemaking, hearings, legislation• Expanded federal authority• Rhetoric toward industry (Kings during last administration)• US Ocean Policy

• Really Bad Legislationo H.R.3534 (CLEAR ACT)o S.3663o FRAC ACTo Bad provisions that didn’t make it

CLEAR Act: HR 3534 – House Passed


• Passed House 209 to 193• Codifies MMS Reorganization• Amends Outer Continental Shelf Lands Act to create tougher

burden for leasing (more emphasis on other ocean uses/impact)• Increased requirements/mandated standards for BOPs, cementing,

systems, well design, 3rd party verification• Repeals EPACT Categorical Exclusions under NEPA• Requires same standards for state waters (or comparable)• Commerce/NOAA review of proposed lease sale• Extend to 90 days review of exploration plans• More stringent requirements including best available technology

• Removes economic consideration of BAT• Increased inspections and audits & annual certifications for

equipment facilities and plans• Increased civil and criminal penalties for violations• More stringent approval criteria• Repeals Royalty in-kind and royalty relief• Revised regulations for employment of foreign nationals• Codifies Obama Oil Spill Commission – subpoena powers• Regional Ocean Councils – Ocean Policy

CLEAR Act: HR 3534 – House Passed (cont’d)


• Removes $75 million liability cap• Conservation Fee $2//bbl, $.20/Btu federal oil and gas onshore

and offshore• Place oil and gas operations under Clean Water Act storm water

regs• Increases COFR requirements to $300 million with Presidential

discretion to raise them• Host of new requirements for MODUs• Sensing and monitoring systems• Buy America requirements

Observations

• Worse language on Federal intrusion into states removed• Onshore language from CLEAR Act removed• Moratorium Amendment – Actually increases federal power

S. 3663 Clean Energy Jobs & Oil Spill

Accountability Act of 2010


• Pushed back until September• Disclosure of HF chemicals• Removes $75 million liability cap• Increased fee for Oil Spill Liability Trust Fund• Federal research for oil spills – Interagency Coordinating

Committee• Tougher burden for leasing/other considerations• Study on impact of moratorium• New National Commission on oil spills• Increased punitive damages• Increased remedies for wrongful death• Increased role for NOAA• Coordination of National Response Plan and National Contingency

Plan• Natural gas vehicle program & Electric Vehicle Act• HomeStar Retrofit Act• Increased $ for Land & Water Conservation Fund

S. 1215 FRAC ACT


• Fracturing Responsibility and Awareness of Chemicals (FRAC) Act • Amends the Safe Drinking Water Act to:

• Repeal the exemption from restrictions on underground injection of fluids near drinking water sources granted to hydraulic fracturing operations under such Act; and (

• Require oil and gas companies to disclose the chemicals used in hydraulic fracturing operations.

Administrative/Regulatory Trends


• Increased/Centralized Federal Authority

• EPA Hydraulic Fracturing

• EPA Air Emissions

• Ozone standard is a national issue

• Conflict in Texas

• Lots of potential impacts

• Ocean Policy

• Started in June 2009

Case in Point: National Ocean Policy


• Started in June 2009• Executive Order in July, 20

• Establishes National Ocean Council out of White House• Nine Regional Councils – Ocean Zoning (CMSP)• Huge intrusion on state authority• Impacts onshore and offshore oil and gas

• Bypasses cabinet levels offices and Federal agencies

• No clear statutory authority/Conflict with 20 plus existing statutes

• Major infringement on state’s rights/sovereignty issues

• Reaches far inland – potentially anywhere in watershed

• Under the radar

• Lack of input from commercial/recreational interests

• Could endanger multiple use policy

• Application of precautionary principle

• Confusion/cost resulting from adding new layer of bureaucracy

• Without statute or rulemaking

• National Ocean Policy Coalition

• www.oceanpolicy.com

Immediate Business Impacts – Offshore Moratorium


• Seven (1 + 6) month drilling moratorium (at least)

• Commission may take longer than six months

• Recommendations will need to be implemented (regulation & legislation)

• Drilling will not take place immediately

• Several months to consider drilling plans – now have 90 days

• Availability of drilling rigs

• Rigs, activity will move overseas

• History suggests it will take a year or more

• Moratoria having major impact on Gulf Coast economy

• Layoffs

• Moratoria could be a material breach of contract – ongoing litigation

• Alaska drilling permit breach – Shell $3 billion commitment

Gulf of Mexico Leases


Water Depth

in Meters

Active

Leases

Approved

Applications

to Drill

Active

Platforms

0 to 200 2,250 33,648 3,365

201 to 400 146 1,102 21

401 to 800 339 835 10

801 to 1000 421 506 7

1000 and

Above3,512 1,635 25

Future of US Offshore Oil & Gas:

Key Questions


• Will Pragmatism Prevail over Opportunism?

• Can a system be developed to allow Independents to Operate

• Will Congress be Heavy Handed? Will something pass this year?

• How will liability be addressed?

• Will industry continue to act cooperatively?

• How much of the business will move abroad?

Onshore Oil & Gas Situation

Not any better


• BLM Energy Reforms• Changes to leasing policy• More layers of analysis• House bill repeals statutory NEPA categorical exclusions• Fewer leases/long delays• Less production in the Rockies. Capital leakage

• Shale Gas & Hydraulic Fracturing• Links being made to GOM Spill• Objective HF study will be challenging due to pressure from • House & Senate bills to mandate disclosure of frac fluid chemical

constituents• More regulation from state agencies likely to thwart additional EPA

oversight• Congress looking to lift SDWA prohibition• Biggest threat to shale gas play• “Gasland” the movie airs

Contrary to the popular belief, the oil and gas

industry is not invincible


One real life example, the Rockies

•73% of Western Energy Alliance survey respondents downsized 2010 capital

investment plans in the Rockies

•$1.1 billion of capital investment shifted out of the Rockies

•$2.8 Billion not invested in the Rockies because of federal constraints

•$708 million shifted from federal to private lands, thereby reducing return to

American taxpayers on energy resources they own

What is at stake?


• America’s vast oil & gas resources

• Economic recovery – complete disconnect

• Active efforts in executive branch

• Flight of capital overseas

• Impact on global competitiveness – continued retreat

• Same strategies won’t work any more – we can’t continue to play defense

Is There Backpedaling?


•My quick optimistic moment

•Some evidence to suggest the Administration wants a way out

•Moratorium has backfired

•Beach damage his been limited

•Looks bad in the face of high unemployment/trade deficit

•Looking for a way out

•Internal struggles over path forward

•Rendell and Marcellus Shale

•Embraced economic development

Elections and Lame Ducks


Elections

• Charlie Cook will fill you in, but major changes could be in the mix

• Republican landslide in November could slow or stop energy legislation

• Energy Committee Chairman Bingaman doubts bill will pass before Nov

Lame Duck Session

•Nothing to loose

•Bullet proof Congress

•Everything but the kitchen sink

•Time for education is now

QUESTIONS?


Jack Belcher

Todd Ennenga

Energy North America

MMS Reorganization


• May 19, 2010: Sec. Salazar issued Secretarial Order restructuring the Minerals

Management Service into 3 separate entities with independent missions:

• Bureau of Ocean Energy Management--“responsible for the sustainable development

of the Outer Continental Shelf’s conventional and renewable energy resources,

including resource evaluation, planning, and other activities related to leasing”

• Bureau of Safety and Environmental Enforcement--“responsible for ensuring

comprehensive oversight, safety, and environmental protection in all offshore energy

activities”. Both report to Asst. Secy for Land & Minerals Management

• Office of Natural Resource Revenue--“responsible for the royalty and revenue

management function including the collection and distribution of revenue, auditing

and compliance, and asset management”. Reports to Asst. Secy. For Policy,

Management & Budget

• Implementation schedule to be developed within 30 days of Order

Possible Policy Initiatives


• Increase in liability cap

• Extend statutory limit to approve exploration plans

• Change to statutory permitting deadline• Likely material breach of contract for existing leases

• Increase Excise Tax for Oil Spill Liability Trust Fund

• Raise Statutory Expenditure Limitation in Trust Fund

• Establish New “Asbestos Fund” For Oil Companies

• Additional Inspections/Enforcement Activities

• Equipment Requirements

• Staging areas/New Procedures

• Obama Administration Ocean Policy

Where We Are Now:

The unthinkable happens and the Administration reacts


Elements of Opportunism & Pragmatism

• DHS-DOI investigation launched

• Sec. Salazar directed to complete report by May 28 on additional safety measures for offshore operations

• Initial 30-day moratorium & no offshore activity until safety review completed

• DOI established OCS Safety Oversight Board

• CEQ/DOI announce review of NEPA procedures for MMS.

• National Academy of Engineering analysis and technical investigation

• Executive Order established the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling

• Sec. Salazar issued order restructuring MMS into three separate entities

Possible Policy Initiatives


• Increase in liability cap

• Extend statutory limit to approve exploration plans

• Change to statutory permitting deadline• Likely material breach of contract for existing leases

• Increase Excise Tax for Oil Spill Liability Trust Fund

• Raise Statutory Expenditure Limitation in Trust Fund

• Establish New “Asbestos Fund” For Oil Companies

• Additional Inspections/Enforcement Activities

• Equipment Requirements

• Staging areas/New Procedures

• Obama Administration Ocean Policy

Texas Independent Producers and Royalty Owners, … Belcher TIPRO Presentation.pdf · Texas...

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