Stop Excessive Energy Speculation Act of 2008 - Motion to Proceed - Continued
Floor Speech
STOP EXCESSIVE ENERGY SPECULATION ACT OF 2008--MOTION TO PROCEED--Continued -- (Senate - July 22, 2008)
BREAK IN TRANSCRIPT
Ms. MURKOWSKI. Mr. President, I appreciate the opportunity this evening to bring to light some of the comments that have been made on this floor earlier about what is happening with existing leases across the country, the oil and gas leases that exist, and whether the oil companies are sitting on these leases--whether they are producing energy. I will try to assess what we are talking about when we look at the leasing status of the oil and gas opportunities around the country.
Some have suggested that perhaps the oil and gas companies are sitting on these leases, that they are not producing energy, in an effort to drive up the prices of oil and gas. I suppose that is a creative theory but, honestly, it is one that has so many holes in it, it is like installing a screen door on a submarine. It is bound to sink.
At best, the charge is based on a review of what I consider to be incomplete data viewed through a prism of little actual knowledge of the difficulties of producing energy from any individual tract. At worst, the charge is a smokescreen to cover up the opposition to the production of more oil and natural gas from where it is likely to be found, and not necessarily from those areas where the opponents want it to be located.
Currently, of the 45 million acres onshore in the United States under oil and gas lease, about 10.5 million acres are producing energy, with the remaining 34.5 million acres not yet in production. Offshore, of the 49.3 million acres under lease, about 15.2 million acres are producing. These are statistics on which I think we are all in agreement. These are the known leases out there.
What that means is, of the Nation's current 67,700 oil and gas leases, about 30,000, or 44 percent, are producing oil and gas at this time.
I can understand how, at face value, you look at that and say that doesn't look like a very good track record, only 44 percent producing. The numbers make it seem as if there are lots of leases that the industry is simply not moving on. But I think we need to look at those leases and say: What is the situation? What are the facts on the ground?
Let's take a closer look at these inactive leases.
This is just the onshore leases. If you look at the 34.5 million acres, of those, 3.2 million acres are suspended while review problems are being worked out. You have 1.1 million acres that are tied up in the development of land use plans. You have 760,000 acres that are blocked from any development by active and ongoing court litigation. You have 645,000 acres that are waiting the completion of legally required environmental impact statements. You have about 450,000 acres that are awaiting revisions of their EISs after reviews, and you have 500,000 acres that are tied up in the production-permitting process.
Walking through the numbers, when we are talking about inactive, what does ``inactive'' mean? If you look at the status of many of these, you see there are a multitude of reasons they are not producing: litigation, permitting process, land use plans, other acreage is on hold until companies can find and lease drilling rigs, and then all of the other exploratory equipment that they need to go into these exploratory wells. This is not an easy proposition, given the level of activity in the oil and gas patch right now.
I can tell you for a fact that it is extremely difficult to get the drilling rigs, the exploratory rigs, that we need, and there is a wait for those. Even more acres already have been explored, but they are awaiting confirmatory or additional exploratory wells to determine whether the hydrocarbon find is large enough to be economical to produce. Just because you find a little bit doesn't mean that it is going to be economical to produce. You have other tracts that are waiting for infrastructure to be built to get their oil or gas to market.
You have heard me say on the Senate floor many times, we have incredible natural gas supplies on the North Slope, all in the northern part of Alaska, but we do not have the infrastructure to get that gas to market.
In other cases, complex coordination is needed among a host of differing lease holders to determine the future for new energy provinces that haven't yet been finished. Then, of course, you have some of the tracts that have either demonstrated very disappointing initial shows of the hydrocarbons or they are just too small to be economically produced without production from nearby tracts that have more oil.
The overwhelming number of the tracts, the lease tracts that exist out there, simply do not hold any hydrocarbons that anyone has been able to find. Companies may not yet have had enough time to return them to the Government. I have had conversations with some who, it seems, believe that because an oil company has paid good money for a lease there must be oil and gas there. The truth is, while some of these prelease reviews of the tracts are conducted so some of the companies are not exactly bidding blind, the level of presale review is not sufficient for the companies to have a clear vision of whether there is going to be sufficient oil and gas to be found there. About two-thirds of the time it is not, it is not sufficient, and the companies drill their infamous dry wells.
As you can see, it is not simply as easy as saying there are 34 million acres that are not producing oil. The examples I have given you are as they relate to onshore. The same is true for offshore exploration. We have to recognize that production just doesn't start once the lease bid has been won. We certainly know that in Alaska. The complication of lawsuits, the regulatory compliance, the current shortages we are seeing of labor, of equipment, of infrastructure--they are ignored by charges of energy lease warehousing.
Sometimes when you think about all that goes into exploration and development, it is a wonder--at least it is a wonder to me--that of the 7,700 new leases that have been issued in 2007, we have about 1,800 that have yet to be explored. The industry has obtained drilling permits for the first 5,300 of them. I look at that and say it looks as if they are doing pretty well. But it normally takes longer than a year to start the exploration. The norm is about a 2- to 5-year time period to get through the planning, get through the redtape, before you actually determine whether you have oil.
Alaska is different. As you know, our resources, our reservoirs, are quite extensive. We have been producing oil from Alaska's North Slope for the last 30 years and, in my opinion, doing a fine job of it. But we recognize that exploration and development in the Arctic is that much more challenging; it is that much more complicated. The timeframes are that much longer. It takes us about 6 to 7 years at a minimum to get to the point where we are able to determine whether there is oil to be had there.
In addition to the delays that I have mentioned, the permitting, for instance, and just the equipment issues, is the requirement that we have in place that ice roads be used to locate the drilling rigs. You just can't take your drilling rig and plunk it out there on the tundra. We have very firm and set requirements for how that exploratory activity can take place, when it can take place. The companies have to wait until the tundra is frozen. They have to wait until it is frozen before they can move the rigs to the sites. It is an extremely limited exploratory season. When you have a limited season like this, it can add years to the timetable for exploration.
I had asked our DEC, our Department of Environmental Conservation, which is the State department that makes the determination as to when the companies can actually go out onto the tundra and engage in any exploratory work out there. For the 2007-2008 exploration season, the timeframe in Alaska was December to May. This includes the time that it takes to move the equipment to the site.
Just to give an example of what we are talking about, it depends on where you are going. It is not just the beginning of December to the end of May. In the e-mail that we received from DEC, it says ``oil companies can begin regular travel across the tundra along the coast on December 28. In the upper foothills you cannot begin until January 24, and in the eastern and lower foothills''--this is where most of the activity has occurred--``you can commence on January 16 of 2008.''
They have about 4 months to do their work. They have to be off the tundra in the upper foothills on May 13, and out of everywhere else on May 16.
This is how precise it is. It is not because we are looking at a calendar, and there is some magic day. It depends on what is happening with the season, how cold it is. The rules are--and I am quoting:
The companies can't get onto the tundra until the ground is a negative 5 degrees centigrade, 30 centimeters down--
About a foot--
and until there is 9 inches of snowcover to protect the vegetation.
For all those who are saying you can't do this exploration in Alaska because we do not care about our environment, let me tell you we have been caring about our environment for a long time. We put these parameters in place because we do care about the ecosystem. We do care about the condition of the tundra. We do want you to have an ice bridge that you move this heavy equipment across during the winter months and that is removed right after you have done the exploration. Then when the spring comes, and the summer, and the thaw happens, there is no mark to the tundra because your road has melted. We leave no impact.
But when you think about how you do business in any other field--if you are a construction company, you know what your construction season is. If you are a fisherman, you know what your fishing season is. The oil and gas industry in Alaska, they know that their exploratory season is very limited. Essentially we are talking about 60 to 90 days a year.
In the National Petroleum Reserve--I will put up the map just so people can understand what we are talking about in terms of the geography. This is the ANWR area. This is State lands. This is our Trans-Alaska Pipeline, which is carrying the existing oil from the Prudhoe Bay fields down to the southern part of the State. This is the National Petroleum Reserve.
In the NPRA, waiting for these frozen conditions to allow for exploration again means that the companies have between 60 to 90 days during which actual drilling can take place. The leases on the North Slope, then--put it in context--are available for drilling activity between somewhere about 15 percent to 25 percent of the year.
You put that in context with most any other industry and you would say you can't just operate only 15 percent of the year. Your costs must be incredible. Yes, costs are incredible up there. A single drill rig can only drill at most two exploration wells per year, and part of this is just how we move the equipment. The ice for making the roads, the weather issues, the fuel, and the logistics--all these account for about 75 percent of the costs for exploration. The actual drilling actually accounts for about 25 percent of the costs.
For all of these various reasons, in the NPRA, the oil and gas industry has only been able to drill 28 exploratory wells since the year 2000.
This is out of the hundreds of leased tracts. So far, the area in which they have found some prospective tracts is in the Greater Mooses Tooth Unit, but unfortunately, given how far these small amounts of oil are from the existing nearest infrastructure, which is the Alpine Oilfield, production is anticipated to still be quite far away.
Again, to put it in context, this red line here is our existing pipeline going down to Valdez, but you have pipeline infrastructure up here on the coast. The Alpine field extends to here, and the Mooses Tooth area is right in this region here. But it is 80 to 100 miles to connect from some of these more prospective finds to the existing infrastructure. On the other hand, it is about 25 miles between the end of the pipeline here and the 1002 area in ANWR where we are seeking to have an opportunity to explore and drill.
I think what I want to leave folks with this evening is keeping in mind that not all leases are equally prospective. We know you have some elephant finds; Prudhoe was an elephant find. We believe the ANWR will also be an elephant field. But we know that for every big find you have out there, there are just as many, if not more, dry holes. There are leases where the companies spend billions of dollars to buy, as they have this past year in the Gulf of Mexico and in the Chukchi Sea over here. There, the geology is very favorable for oil and gas discoveries. But mostly companies buy usually a minimum lease, and the cost is a couple of million dollars per tract, and they are really very marginal. Those are the leases that likely do not contain the oil and gas that are still awaiting exploration.
We look at how the oil companies are making their investment because certainly from Alaska's perspective, we want to know whether they are investing in oil and gas opportunities up north. This last year, the top 25 oil and gas companies in the United States invested $1.15 trillion on exploration and production, the top 5 companies spent $765 billion on exploration from 1992 to 2006, and in both instances industry members invested more than they earned back in profits.
Now, in part, this is because this country has not been putting its most prospective tracts for oil and gas discoveries up for lease. You have some 777 million acres of lands onshore that are off limits to oil and gas production. That is about 62 percent of the Nation's likely oil and gas potential.
To bring it back to Alaska, think of ANWR, the place where the largest onshore deposit of oil is likely to be found in America. There is a 95-percent chance that 5.7 billion barrels will be found, a 5-percent chance that there will be 16 billion barrels, and the mean estimate is about 10 billion barrels of recoverable oil. And it is off limits. It is off limits.
Offshore, 1.76 billion acres of our coastline are off limits to development. This is an area which is believed to hold approximately 80 billion barrels of oil.
So in kind of wrapping up my comments here this evening about the leases, I wish to remind folks that when they talk about the ``use it or lose it'' rationale or direction they feel we should take, they need to remember that these oil and gas leases around the country already expire after 10 years. Only in Alaska can companies seek an additional 10-year extension to bring the leases into production. This is a right we had granted companies in the Energy Policy Act of 2005, and we did it for the reasons I have outlined for you tonight, because we recognized that environmentally sound exploration was, in many cases, taking longer than 10 years. I do not think there are any of you out there who are going to suggest that, well, we do not want to do it in an environmentally sound manner. Well, if we are going to do it right and we are going to protect the environment, it might take us a little bit longer in a place such as Alaska where you are only able to explore and engage in exploratory and production activity for 15 to 25 percent of the year.
You have to ask the question, Why should companies spend money on new leases in an area where they can easily be delayed from bringing oil and gas online and then lose all of their investment through no fault of their own? Companies also have no reason to delay producing oil. Each year, they pay between $1 and $5 onshore and $6.25 and $9.50 an acre offshore to keep their leases in effect. So in order to hold their leases, they have to be paying.
Think about what they have already kind of put in place, if you will. They have purchased the lease up front, and for many of the leases, they are extremely expensive in terms of the outlays the company has to make. Then they engage in the pre-exploratory efforts.
I keep mentioning NPRA and the cost we are seeing there. It is anywhere between $50 and $100 million to drill an exploratory well in the NPRA area--$50 to $100 million to drill. And then what happens if you drill and there is nothing there? Well, you get to give it back, but you do not get anything from the Federal Treasury when you give it back. These are costs you have as a company. So there is a very powerful incentive for companies to see the development of any lease acres they believe have the potential they are looking for, a powerful incentive for companies to speed development of the 68 million acres that some argue is not being developed quickly enough.
We have a ``use it or lose it'' law in place. It is a situation of enforcing it, and we do enforce it. There is no reason, in my mind, that we need to do more in this area at this time.
I know I have gone over my time. I had hoped to be able to have a little discussion about the distinctions between the ANWR area and the NPRA area. I do not see any of my colleagues on the floor at this point in time, so with the permission of the Chair, I would like to continue, unless there is another order at hand.
The PRESIDING OFFICER. The Senator has no time limits.
Ms. MURKOWSKI. Mr. President, I wish to kind of walk people through a little bit of the distinction, if you will, with ANWR, which the American public has heard an awful lot about for the past 20 years as we have, in our effort, attempted to open this 1002 area that was set aside for exploration and development when the refuge area was established.
ANWR consists of an area that is 19.6 million acres--the size of the State of South Carolina. This map is a little bigger and helps you put it in context. This is the entire Arctic National Wildlife Refuge in the State of Alaska. It borders against Canada. And here is our pipeline coming down. This whole Arctic National Wildlife Refuge is the size of the State of South Carolina, again, about 19.6 million acres.
Also within the Refuge is a huge wilderness area, the ANWR wilderness area. It is 10.1 million acres in the Refuge itself. Nothing can happen in the wilderness area in terms of any development whatsoever. It is wilderness. We have established it as such. It will remain as such.
The area we are talking about in ANWR for development is what is known as the 1002 area, taken from the legislation itself, section 1002. What we are talking about when we ask for permission from the Congress to allow for exploration in ANWR is not permission to drill in the Refuge, not permission to explore in the wilderness, but permission to explore in the area that was set aside by Congress for the purpose of exploration and development in this 1002 area; it is 1.5 million acres in this area.
But we are not seeking to do all of the 1002 area with exploratory wells; we are asking for permission to drill in an area that would be about a 2,000-acre area. So when you kind of winnow down what we are talking about, it is really pretty minimal in context of the whole. If you take into account that the Refuge area is the size of South Carolina, this is the area we are looking to explore. And within that area, we have agreed we do not think we need more than 2,000 acres of area for disturbance.
Why do we think we can get by with that small amount? It is simply because we have advanced our technologies so far when it comes to oil and gas development in the Arctic, the technologies that allow us to drill under the surface and go out directionally up to almost 8 miles in every direction. The caribou are on top, and they do not know what is going on. You do not have disturbance to the surface. It is our technology that will allow us to extract a resource and utilize the resource and still allow for the care of the environment, for the animals that are there, for the caribou that migrate through. We want to do it right.
So this is the ANWR area I mentioned earlier. This is the existing series of pipelines that spurred off of the Trans-Alaska Pipeline built about 30 years ago. The line extends to an area about 25 miles to the border of the 1002 area. So when we are talking about access to the resource, to the infrastructure that is there, it is not too bad, 25 miles. It is still difficult given the environment, but it is certainly doable.
Let's go over here to NPRA. NPRA is 23 million acres in size, 23 million acres total; 4.4 million acres are new acres available for leasing, 3.94 of which are available immediately. These are leases in the northeast and the northwest part of NPRA. If you look at this map, it has the leases themselves. These are in the green area. The 2006 leases are in this area here, and then the new leases that are coming on are in the northeast and the northwest area of NPRA.
The crosshatched areas we see here have been put off; in other words, we have deferred these areas. This area here north of Teshekpuk Lake is now protected, 430,000 acres in this area. We have agreed to this deferral because we recognize the sensitivity of the ecosystem, the waterfowl that come through there. It is an area that we recognize should be off limits. NPRA, in terms of its prospects, the estimate is 5.9 to 13.2 billion barrels of technically recoverable oil. So the mean there is about 9.3. It is right in the same ballpark as ANWR. If you recall, I said ANWR had a mean estimate of about 10 billion barrels of oil. So it is about the same. The difference is access to the infrastructure and the geography.
Go back to this other map. If you have 10 billion barrels estimated in this small area and you have 10 billion barrels estimated in this larger area, we are talking about 1.5 million acres versus 23 million acres. It doesn't take a math genius to figure out that it is more concentrated in ANWR; 15 times more oil per acre in ANWR than NPRA. That is worth repeating: 15 times more oil per acre in ANWR than you would anticipate in the NPRA.
The other issue is access to the infrastructure. When you are looking at 25 miles from the end of the pipeline here to get to the 1002 area and recognize that you have opportunities through directional drilling so you can minimize impact to the surface, that is not too bad of a stretch. But when you are looking at your more lucrative finds in these areas, looking at, say, 150 to 200 miles of pipeline to get your resource into infrastructure, it is extremely difficult to reckon with that. That has been one of the issues we have faced. BLM is proceeding expeditiously. They have been working to advance the leasing program in the NPRA area.
It is interesting because it seems that some in the House and the Senate have just discovered NPRA. They say, well, you have all these wonderful leases over there and you have all this great opportunity. You should make that happen. It certainly does sound easy. I would like to do more to make it happen. But when you are dealing with geography, as we are, when you are dealing with environmental issues, when you are dealing with a lack of infrastructure, when you are dealing with a limited exploratory season and the extremely high cost, it is not so easy to make it happen.
Back in the 1940s, when NPRA first started leasing, 36 test wells were drilled, 45 shallow cores were drilled to find commercial oil and gas. But they didn't find any. In the 1980s, there were 28 more test wells. Seismic was conducted. In 2000, in the leasing period then, we saw 28 exploratory wells drilled and at least 12 3-D seismic efforts had been conducted, shooting the 3-D seismic in the area. But again, the only small finds that we have come upon have been in the Greater Mooses Tooth area. The problem is, to this point in time, we haven't found enough in these areas to justify a pipeline that would be 80 miles, 100 miles to connect up. That is a harsh reality. It is going to take realistically 6 to 7 years to bring NPRA tracts into production. Compare this with the 2 to 5 years in the lower 48. It takes that much longer. Compare the cost we face for exploration in NPRA. You are looking at wells that are costing somewhere between $50 and $100 million to do a single exploration well. This is compared to wells that can cost 6 to 10 times less in the lower 48.
I don't want to make excuses for Alaska, because we want to develop more. We are ready to develop more. But we recognize it does take longer for the multitude of reasons I have mentioned.
One of the things that perhaps has not been talked about and I might not have mentioned in my earlier comments when I was speaking about leases is the number of leases we actually see turned back by the companies. About 700,000 acres of awarded leases since 2000, in the NPRA area, have been turned back. If you look at this map--and I know on the screen you won't be able to see the squares--in these areas, in these areas, in these areas, in these areas, about 700,000 acres have been returned by Conoco-Phillips. This is the company that has the most experience in the area. They have already given up on 267 lease tracts in the preserves. They may well end up turning back another 407 tracts covering 2.8 million acres by the end of this year. What they are finding is a lot of natural gas, but the oil potential seems to have dimmed in areas where they are looking.
As I said, we have a lot of natural gas up there, but we don't have the infrastructure. We are working on that. The State of Alaska is working diligently. Our legislature is actually meeting in about an hour to take a significant vote on how we move forward with construction of a gas line. Again, the potential for NPRA is certainly there. We believe it is very viable. I mentioned the mean estimate of about 10 billion barrels. But the seismic evidence we are getting back seems to indicate that the likelihood for oil is diminishing, and we are seeing greater gas.
One of the things we also recognize is that the area that is viewed most prospective around Teshekpuk Lake here is the area that has been deferred from leasing for at least a decade. This was the outcome of lawsuits by environmental groups that had opposed the development in this key habitat area for waterfowl, the black brant. Our reality is that as good as NPRA is and as much as we want to see NPRA developed, it is less prospective than the Arctic Coastal Plain to the east; again, 15 times more oil forecast to be discovered per acre in ANWR than in NPRA.
I have had an opportunity this evening to give a little bit of perspective about what is available up in the Arctic in Alaska, what we would like to be able to provide. But I am also trying to leave my colleagues with a sense of the pragmatism, the reality that comes with oil exploration and production, not only in the Arctic, where it is challenging and very difficult, but in the rest of the country. When we say we have these leases that are in play and the companies have chosen not to produce, it is only right that we look more closely at these inactive leases and ask: What is the delay? What is the problem? Is it litigation? Is it some kind of a land use plan delaying it? Where are they in that process? But to suggest that because we are not seeing actual production here and now, that somehow or other we are not trying hard enough, ignores the reality of the complications the industry faces on a daily basis.
We want to do more. We want to find more, use less, as we have all been saying. But I think it is important that we recognize as we attempt to find more, we have to be realistic in terms of our expectations.
I yield the floor and suggest the absence of a quorum.
BREAK IN TRANSCRIPT
Source