Washington Fly-In: PESA members tell the industry story

PESA’s founding directive was to establish and maintain a working relationship with the federal government. This year, the Association returned to its roots.

Sixteen executives flew into Washington, D.C. to meet and educate policymakers and make the service and supply sector’s voice heard. PESA members met face-to-face with many lawmakers including Sen. David Vitter (LA), Rep. Doc Hastings (WA), Rep. Steve Scalise (LA), Rep. Tom Reed (NY), and Rep. Kevin Brady (TX) in addition to a host of Congressional staffers and industry leaders.

“The main takeaway from the Fly-In was that we have to constantly educate and reinforce the value of our industry to those working in Washington, D.C.,” says Galen Cobb, Vice President for Industry Relations, Halliburton. “Many do not fully understand the role of the service and supply sector and the contributions we make in revenues, jobs, and technology development. The unified voice of PESA was well received and we all gained a better understanding of how D.C. politics can affect our daily operations and business interests.”

The Legislators

Sen. David Vitter (LA) says that oil and gas industry trips to Washington, D.C., like PESA’s Fly-In, are essential to the government process. He suggested that PESA strive to not only involve as many members as possible, but include suppliers as well and speak as a unified voice.

“It’s vital that you get in front of your representatives and tell your story. It takes time and money, and I know Washington isn’t always a friendly place for people associated with oil and gas, but it’s very important,” says Vitter. “Something that many businesses don’t do is mobilize their suppliers—think of all of the small businesses that depend on you around the country—get them to tell your story as well.”

The importance of PESA’s visit lies in total job and economic impact of the association’s member companies. While oil and gas production is expanding to new states such as Pennsylvania and New York, the impact of 184 companies and their suppliers is felt in every state. Rep. Steve Scalise (LA) shared an example of an unexpected impact of reduced drilling in the Gulf of Mexico.

“A company that makes helicopters in Connecticut—normally people in Connecticut won’t care about oil and gas production—had to cancel orders for six expensive helicopters, which affects jobs,” says Scalise. “If you can get us examples of real companies in other states, and I tell that story to a colleague in that state, they will realize that they are affected by the work stoppage in the Gulf. It’s not just Texas, Louisiana, and the obvious states.”

The protracted lack of exploration and production in the Gulf was a primary topic for discussion. PESA Chairman Bill Coates (Schlumberger) shared a story with Sen. Vitter, which became a theme for much of the Fly-In.

“I’m worried because Schlumberger used to have 2,000 people working in the Gulf of Mexico, almost all of them living in Louisiana. Today we have 530,” says Coates. “They’re not unemployed—they’re in Angola, Kazakhstan, Russia—all over the world. To bring those people back will be a slow and painful process. I worry that the longer this goes on at this measured pace, the more difficult it’s going to be to restart operations in the right way. I think we’re getting to the tipping point where the Gulf of Mexico will never recover, so I’m extremely concerned about what I see as a lack of care by BOEMRE and the administration about what’s happening to the industry and the Gulf. Time is of the essence, and I don’t sense that the urgency is there.”

Sen. Vitter agreed with Coates, adding that the situation has made him “distraught for months.”

“Several weeks ago, Michael Bromwich was asked when we were going to be back at the level of permitting that we were prior to the Macondo disaster, and he said, ‘I don’t think we’ll ever get back.’ Every week that goes by makes it tougher to return people to the Gulf and get back to work,” says Vitter. “We’ve always talked about international companies making judgments about political risks, and the political risk is now worse than Angola, Nigeria, Brazil, and lots of other places. That’s not a great statement on the business environment in the U.S.”

Rep. Scalise answered Coates’ theme in two steps. First, he says to tie the industry’s economic impact to government financial health—the royalties and taxes paid by energy companies are the largest source of federal income outside of personal taxes.

“We have a deficit problem in this country and many people get that—you solve deficit issues through revenue generation, not taxes,” says Scalise. “You generate new revenue through job creation, and if you open up new areas for leasing and drilling, you create new jobs and billions in new federal revenue. That’s how you balance the budget. We need to quantify the loss in federal revenue from not only shutting down production, but also the failure to open up new areas for leasing.”

Second, he says, “One of the things we’ve tried to do is educate our colleagues across the country about the work stoppage in the Gulf. Without a commitment to an ‘America first’ energy strategy, gas prices will continue to skyrocket, and thousands more jobs will be run out of our country while simultaneously making us more dependent on Middle Eastern oil.”

Rep. Doc Hastings (WA) addressed the issue as a concern for national security. He says that it’s in the best interest of the country to recognize that energy is an integral part of the economy and therefore, the U.S. should be energy independent, or at least less dependent.

“As you know, OPEC controls the majority of the world’s crude, so what if OPEC decides to just turn it off? Nobody knows what’s going to happen in the Middle East, but I would guess that it’s not going to be friendly to us,” he says. “It’s absolutely foolish for us, from an energy and national security standpoint, to ignore what we know are the resources of this country in federal lands, the Outer Continental Shelf, and Alaska. We should utilize all of these resources.”

The second major issue for the Fly-In was developing shale gas resources, specifically the environmental issue of hydraulic fracturing. Though his state is engulfed in a natural gas fracturing moratorium, Rep. Tom Reed (NY) says that the vast majority of his district’s citizens and many lawmakers are behind the industry.

“The majority of my constituents I hear from are receptive to the idea of developing our domestic energy resources,” says Reed. “People see hydraulic fracking as an unknown, and they want information. That’s why we developed the Marcellus Shale Caucus—we want to bring together scientists from the industry and environmentalists to give people the real information, because that’s what’s lacking.”

At its heart, the fracking issue is a question of regulatory overreach, says Garrett Golding, a Professional Staff Member with the House Energy and Commerce Committee. The Committee’s focus for the next several months will be the EPA’s regulations, which he says will be subject to intense review, or in many cases, refusal, by Congress—that power is derived through the Congressional Review Act (CRA), which allows Congress to nullify regulations issued by a federal agency.

“On fracturing, we have Members that are sympathetic to disclosure of fracking fluids, not from a formulaic side, but for the materials used in the fluid,” says Golding. “I doubt that any agencies will go after fracturing as strongly as they’re talking about—but if they did, we’d pull an immediate CRA bill on it.”

Rep. Hastings added “I think these policies are dead wrong and we’re going to do everything in our power to expose them with oversight. We will ask the questions over and over, we’ll have hearings, and we’ll express our views.”

The Industry Groups

In preparation for PESA’s visit to Congressional offices, PESA members heard from six industry groups. Like their legislative counterparts, each stressed the importance of continued participation in the government process.

“I cannot overemphasize how important it is to have someone other than me and my counterparts visit the Hill. We’re there regularly, and they hear us, but it becomes like white noise,” says Randall Luthi, President, National Ocean Industries Association. “When you come in from their district and have job stories to tell, they listen. It puts a human face on industry that has a hard time doing so.”

Hydraulic fracturing was the primary concern for several industry groups, as potential over-regulation of the technology would have dire consequences for many of today’s best land resources. The issue is new cultures, says Alby Modiano, President of the U.S. Oil and Gas Association. The industry has moved east, and oil and gas companies are encountering areas that have no experience with drilling.

“Much more than before, we have to be at the drilling point with the citizens at town hall meetings, city councils, and local land use groups,” says Modiano. “We need to communicate the revenues that we bring to communities—we haven’t lost Pennsylvania because most of the state leadership understands that the industry is a source of revenue and jobs.”

There are increasingly aggressive efforts to not only disclose frac fluid content, but change the Safe Drinking Water Act to exclude fracking. Well-funded, competent, and dedicated environmental groups are behind the drive, says Lee Fuller, Vice President of Government Relations, Independent Petroleum Association of America.

“Environmentalists are causing anxiety about the safety of drinking water, especially in New York City—their water is from an aquifer on the edge of the Marcellus,” says Fuller. “The groups played into New York politics, and the state froze Marcellus development.”

Now that water is the centerpiece of the anti-frac movement, the industry should have a self-acknowledging response, says Marty Durbin, Executive Vice President, American Petroleum Institute.

“We need to say that yes, we are concerned about constituents, but you need to know that the industry takes its responsibilities seriously, we’re never done, and we’re always looking for ways to improve across the board. We know that we can develop these resources safely.”

The Deepwater Horizon explosion brought a new reality for offshore production, essentially closing development and permitting for nearly a year.

“The administration cancelled four lease sales, two of which—Alaska and the coast of Virginia—will not come back,” says Luthi. “I think we’ll be lucky if there’s a Gulf of Mexico sale in 2011, and we should be concerned, and so should the government because of the revenue lease sales bring.”

Frank Verrastro, Director for the Center for Strategic and International Studies, says production losses in the Gulf are estimated to 250,000 barrels per day for 2011, and another 250,000 barrels in 2012. By 2012, the 500,000 barrels per day loss equates to $9 billion in revenues.

The last issue for industry groups was proposed taxes, both in the elimination of tax incentives and new taxes specifically targeting oil and gas. Any tax that increases the cost of energy is not in the best interest of the country, says Jay Timmons, President and CEO, National Association of Manufacturers.

“Manufacturing consumes 30 percent of the nation’s energy, so an increase in the cost of energy means fewer jobs,” says Timmons. “Affordable energy supply is vital for a growing economy and the long term ability for this country to compete on the world stage.”

The tax issue is a problem of perception, says Durbin. The Administration has presented the tax issue to the public as a give-away to the industry, not legitimate business expenses.

“There is no question they can get a big chunk of money by repealing 199 or some of the other incentives—these proposals will give another $5 billion per year in taxes from the industry,” he says. “That view is shortsighted. It will give government revenues a quick bump in the early years, and then nothing but declines going forward due to decreased productivity.”

The BOEMRE

The Fly-In gave PESA members a unique opportunity to speak with a senior official in the newly formed Bureau of Ocean Management, Regulation, and Enforcement (BOEMRE). The questions heard the most, of course, are regarding the pace of permitting in the Gulf of Mexico.

“We don’t yet know what the new normal is,” says Bob LaBelle, Deputy Assistant Director, BOEMRE. “In the past I could quote statistics on how long it takes to approve an average well, but given the additional work that both industry and regulators have, our goal is to be able to process permit applications within 30 days.”

While some in the industry have questioned the 30-day goal as a mechanism for BOEMRE to continuously “re-set the clock” and drag out permitting, LaBelle says that is not the case. The group’s director has said should a permit need more work, he would rather that BOEMRE officials hold onto it, work with the company, and approve it in 35 or 40 days.

“He’s definitely discouraging the tendency to send it back to restart the clock,” he says. “The first few are undergoing extensive legal review, and rightly so, as we don’t want to get out there and have a well fail. It’s not at all unlikely once we get over those first few, we’ll have our guidelines set and the others will move faster.”

PESA Members

PESA members found a receptive ear for service and supply companies at each visit, as well as coming away with an education in the workings of Washington, D.C.  The visit was coordinated by Former PESA Chairman Galen Cobb (Halliburton), and PESA Government Relations Chairman Bob Moran (Halliburton) and his staff in Washington, D.C.

“These meetings helped highlight some of the good things we can accomplish as PESA members when we work together,” says Moran. “There were many good ideas raised about special projects and town hall activities that PESA may want to pursue. I look forward to examining these ideas and putting some into practice.”

Paul Butero, President of the U.S. Land Region for Baker Hughes Incorporated, echoed Moran. “It was a tremendous learning experience for me and I believe the synergies of the group will drive greater PESA involvement and action.”

Many PESA members were surprised that Congressional leaders, on the whole, sided completely with the industry.

“My greatest takeaway is knowing that the Congressmen that I visited understood what the oil and gas industry—especially PESA members—means to their constituents in the form of jobs,” says Duane Morgan, President for the Engineered Products Group, Gardner Denver. “It was also refreshing that the Congressmen really wanted the industry to tell the ‘real truth’ of fracking and dispel the untruths that are presently being told by the media.”

For other members, visiting Congressional leadership spurred a call to action—Josh Lowrey (Sunbelt Steel Texas) returned to Houston and immediately joined the PESA Membership Committee with the goal of adding to the industry’s voice.

“The Fly-In has influenced me tremendously,” says Lowrey. “I have always enjoyed politics and business, but was a little naive on the politics of business. I have made contact with a few of my Pennsylvania, Wisconsin, Oklahoma, Arkansas, Louisiana, Illinois and Ohio colleagues who I anticipate will join PESA and use the association’s influence for the greater good.”

Finally, Cobb says the Fly-In could not have been better timed. PESA’s visit coincided with a similar Fly-In from IPAA.

“The industry was out in force as we ran into some of our customers,” he says. “Of note, the first post-Macondo deepwater drilling permit was approved during our visit. I suppose we can’t take credit for that, but, nonetheless, we were happy to be a part of the effort to get the industry back to work in the Gulf of Mexico.”