Watson: Energy Renaissance Possible with Right Regulatory, Tax Policies

- Watson: Energy Renaissance Possible with Right Regulatory, Tax Policies

Thursday, September 01, 2011
Rigzone Staff
by Karen Boman

Chevron Chairman and CEO John S. Watson said Wednesday that the U.S. is within reach of an energy renaissance that would unlock U.S. energy resources and generate economic growth if a rational, robust and comprehensive energy policy in the U.S. can be established.

"Such a policy would prepare us for rising demand, expand safe and responsible production at home and promote energy efficiency across the country," Watson told attendees at the Greater Houston Partnership luncheon in Houston. This policy also would encourage alternative sources, not by mandates and subsidies, but by allowing the market to identify the best new fuels and bring them up to commercial scale.

"Make no mistake – this is not the kind of energy policy we have today," Watson said. "To the extent that we have an energy policy, it is paralyzed by a fundamental contradiction. On one hand, there is wide consensus in America that we should strive for energy security. Whether we can be truly energy independent is debatable, but we can certainly do much more to enhance our country's energy security."

At the same time, the U.S. government has declared the Outer Continental Shelf on the east and west coasts off limits to new development, and regulatory agencies have put a strong collar on development pace in the U.S. Gulf of Mexico and Alaska.

Watson said the company is seeing progress with the Bureau of Ocean Energy Management, Regulatory and Enforcement's (BOEMRE) permitting process. While it has taken time for BOEMRE to decide on the standards for permitting and time for the energy industry to understand, Watson believes the permitting process will accelerate going forward. Still, exploration and production in the Gulf of Mexico "is still far short of where we should be."

Watson agrees with President Obama that the U.S. should support vigorous development of Brazil's oil and gas industry – where Chevron has partnered with Brazil's state energy company Petrobras for two major offshore Brazilian projects – but noted that "we have an even bigger opportunity to build a stronger oil and gas industry in the United States, with results like job creation, revenue growth and economic expansion directly benefiting U.S. citizens."

While Chevron has made significant investment in U.S. unconventional gas plays with its acquisition Atlas Energy, the company remains bullish on conventional oil and gas assets, including conventional assets in California and the deepwater Gulf of Mexico. The company has sanctioned $14 billion in deepwater U.S. Gulf projects despite the moratorium resulting from the Macondo incident in 2010.

Chevron will continue to make its headquarters in California, but is expanding its presence in Houston, with the recent acquisitions of buildings on Smith Street and Louisiana Street downtown. The most recent acquisition, the former YMCA building site, will give Chevron three buildings in the downtown area.

"I always like visiting Texas," Watson said. "It's a chance to catch up with business friends who have moved here from the West Coast. I've even heard a new saying out there: If you want to find a happy California businessperson, just visit Texas." However, the company's 130 year-plus history in California, along with its refineries, substantial retail station presence, employees and access to Silicon Valley technology in the state, offer compelling reasons for the company to stay, a company spokesperson said.

The company employs 10,000 workers in Houston, triple the number of workers it had here in 2001. Chevron's current employees in Houston include 7,000 full-time employees and 3,000 contract workers. Watson noted that Texas understands that energy must play a vital role in any economic growth scenario. "A strong oil and gas industry certainly makes a difference for Texas, but it's every bit as important to the future of our whole country," said Watson, adding that the energy industry has still been hiring, investing and generating tax revenues during the recession.

The company continues to recruit on college campuses, but also is hiring large numbers of experienced workers. Petrotech workers, including engineers and scientists, are in high demand both in the U.S. and worldwide, and Chevron has been scrambling to find these workers. Watson wouldn't give an exact number for how many new workers it would hire, but noted that the company has twice increased the number of new employees it would add to its roster this year. Chevron typically hires around 5,000 petrotech workers worldwide per year. Chevron has hired a number of former nuclear industry employees for its refining operations, and would welcome former NASA employees. "We need to continue hiring good people wherever we can," Watson said.

Watson said he agrees with U.S. Energy Secretary Chu's leadership on enabling public-private partnerships such as Chevron's research partnership with Los Alamos National Laboratory in New Mexico, where work to develop wireless technology for use in onshore and offshore oil and gas production from declassified military technology is underway. In June, Chevron announced a second strategic partnership with NASA's Jet Propulsion Lab in California to jointly develop technology that can benefit energy production. "If we're going to make step-changes in technology, our national laboratories are a great place to start."

Watson estimated that Chevron will make more than $7 billion in capital investments in the U.S. and $26 billion worldwide. Watson said Chevron's existing global portfolio of oil and gas assets puts the company is a position in which it does not have to make acquisitions; however, the company will continue to look for opportunities with the right fit, including opportunities in Russia. The company's current Russian operations include its interests in the Caspian Sea pipeline. "We see more opportunities in Russia, which has welcomed Western companies and their technology in recent years."

Watson anticipates further consolidation among U.S. onshore producers with shale gas assets. "While these companies went door-to-door, farm-to-farm, ranch-to-ranch putting together large acreage positions, a high business standard is needed to develop these opportunities, and larger companies are in a good position to develop these assets."

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GOM Regulatory Regime Delays Cost Revenue, Jobs, Oil Supplies - Study

- GOM Regulatory Regime Delays Cost Revenue, Jobs, Oil Supplies - Study

Friday, July 22, 2011
Rigzone Staff
by Barbara Saunders

Bottlenecks in oil and gas plan and permit approval activity in the Gulf of Mexico (GOM) since 2010's Macondo well disaster are costing some $44 billion in U.S. gross domestic product and 230,000 jobs, according to a new IHS CERA/IHS Global Insight study.

The study, Restarting "the Engine" — Securing American Jobs, Investment and Energy Security, examined the "activity gap," or the difference between the investment capacity of oil and gas companies and the regulatory capacity to process and oversee this activity. Based on data from the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), the study identified a growing backlog of exploration and development plan applications awaiting approval and a significant reduction in plan and drill permit approvals.

The costs of delays in the regulatory "new regime" are "economically significant and not just in Gulf states" such as Texas and Louisiana, said Daniel Yergin, chairman of IHS CERA and author of the Pulitzer prize-winning book on the oil industry, The Prize, during a press conference on the new study.

Daniel Yergin – Regulatory delays take "economically significant" toll outside Gulf States

The leading states outside of the GOM to benefit from oilfield supply, service and software jobs would be California, followed by New York, Florida, Illinois and Georgia, the study found. Other manufacturing-dependent economies such as Pennsylvania and Ohio also would receive significant benefits.

"There is a need to better align the new regulatory environment with industry capacity, as the current pace of plan and permit approval is congested," said Jim Burkhard, IHS CERA managing director for global oil. "With that alignment, then the country can realize the economic and energy security benefits of a restarted Gulf of Mexico."

Among the study's key findings, the lost opportunity from an inability to close the activity gap would amount to:

• 150 million barrels of oil next year, or 411,000 barrels of oil per day (bopd) from the deepwater Gulf of Mexico alone– five times the amount recently released from the U.S. Strategic Petroleum Reserve.
• $44 billion of U.S. gross domestic product growth in 2012
• 230,000 additional jobs in 2012
• $22 billion improvement in 2012 wages and compensation
• Realizing $19 billion in pent-up capital investment over a three-year period
• $18.6 billion more of federal, state and local, royalties, bonuses and rents tax payments over the next three years

The study also found that one billion barrels of oil reserves that the Gulf of Mexico in the form of new discoveries were not realized in the past 12 months. This could affect the future production outlook, IHS CERA noted.

Federal agencies that regulate energy exploration were restructured last year and the regulatory approval process has not returned to previous levels, IHS CERA reported. "Each month that passes without closing the gap reduces the potential economic benefits," the company said in a statement.

The study examined plan and permit activity levels in the six months since the lifting of the moratorium in the GOM in October, 2010. The analysis found:

• 86 percent decline in the pace of regulatory approvals for plans
• 38 percent increase in the time to reach each regulatory approval for plans
• 250 percent increase in the backlog of deepwater plans pending approval (from an average of 18 per year to a current pace of 67 per year)
• 60 percent decline in drill permits (combined shallow water and deepwater)

"An increase in oil and gas activity reverberates throughout the broader economy," said James Diffley, senior director of IHS Global Insight's U.S. Regional Economic Group. "Each new hire of a platform worker, machinist or other specialist to work in the Gulf's oil and gas industry results, on average, in more than three additional jobs in an array of industries around the country, whether it be in the Gulf region or a subsea power cable provider in Ohio, a steel manufacturer in Pittsburgh or a software firm in California's Silicon Valley."

The report also noted that the increased activity in the upstream oil and gas sector of the Gulf of Mexico will have substantial impact on income and would lead to increased consumer spending since oil and gas jobs are higher paying, on average, than wages paid to workers in many other sectors. In turn, more offshore development and the jobs it creates would lead to the enhancement of federal, state and local tax revenues by some $12 billion in 2012 and $20 billion through 2013, IHS CERA projected.

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