December 2015 /// Vol 236 No. 12

Industry leaders outlook 2016

Why offshore energy still matters

As 2015 winds down, the U.S. and the world are awash in oil and natural gas. What a difference a few years make.

Cindy B. Taylor, Oil States International, Inc.

As 2015 winds down, the U.S. and the world are awash in oil and natural gas. What a difference a few years make. With significant advances in technology, the U.S. is now the leading world producer of natural gas and, by some estimates, the world leader in oil production, as well.

In 2015, OPEC and U.S. oil and gas producers squared off in a no-holds-barred contest to produce at the lowest cost. The result has been a bonanza for consumers, as pump prices dropped to lows unimaginable not so long ago. Manufacturing in the U.S. became profitable once again, and, overall, the economy took advantage of lower energy prices. However, for the oil and gas industry, which led the economic recovery efforts since 2009, the results are far different. Layoffs have topped 200,000, worldwide.

Although much of the U.S. oil and gas surge resulted from private and state lands onshore, offshore’s contribution should not be overlooked. While offshore gas production has dropped, offshore oil output from previous discoveries continues to go online.

The combination of new onshore and offshore oil production has rendered unnecessary the decades-old ban on the export of oil, and has set the stage for its demise. It is now time for the federal government to allow U.S. producers to compete directly on the world oil market.

Low pump prices have prompted fossil fuel opponents to make premature claims that we no longer need exploration programs, particularly offshore. To sway public opinion, environmental groups vilify the entire oil and gas industry as “dirty Big Oil,” and have quickly moved from the “not in my backyard” (NIMBY) argument to “not on planet Earth” (NOPE). Their justification is climate change, but they risk shooting U.S. consumers and our economy in the foot by encouraging additional, burdensome regulatory requirements that often make it more difficult to economically produce oil and gas.

Let’s start with the U.S. standard-of-living. The comforts and economic benefits that we enjoy result from affordable energy; mainly oil, gas and other fossil fuels. Our lives are bettered by this lower-cost energy. The migration from large-scale wood- and manure-burning, and horse-related transportation, led to cleaner air and the ability to live almost anywhere; heating and air conditioning allow us to do so in comfort.

Modern technology and efficiency continue to reduce the levels of CO2 and other greenhouse gases, and continued technological advances and increases in efficiency must be encouraged.

Renewables should be encouraged as part of the global energy portfolio, but it is unlikely that they will replace traditional energy sources entirely, at least not in our lifetimes. The Energy Information Administration predicts that in 2040, non-traditional energy sources will supply about 12% of our energy needs. Therefore, we clearly cannot leave fossil fuels in the ground, if we are to meet future energy needs.

Low gasoline prices have lured many into energy complacency. While no one, except a recent Secretary of Energy, wants to see $4.00-plus gasoline at the pump, consumers remain silent. Meanwhile, activists are persuading local and federal officials to block even preliminary steps toward exploration, particularly offshore.

Almost 87% of the U.S. offshore is closed to oil and gas exploration. While other Atlantic basin countries, such as Canada, Mexico, Venezuela, Brazil, Norway, Great Britain and Ghana, are all expanding exploration in the Atlantic Ocean, U.S. federal policies have kept our areas closed for over 30 years. Earlier this year, the administration proposed opening exploration 50 mi off the coasts of Virginia, North Carolina, South Carolina and Georgia in 2021. Environmental groups quickly mounted campaigns aimed at stopping the seismic surveys necessary to locate potential oil and gas reserves in the area. Using sound sources to map the ocean floor, seismic surveys also locate ideal sites for wind turbines and have revealed historic shipwrecks. Seismic survey activities have not been linked with any substantial disturbance or harm to marine mammals or fish. The final decision on Atlantic-based exploration will be made early in 2016.

More recently, environmental groups persuaded the Obama administration to cancel two oil and gas lease sales scheduled offshore Alaska. In addition, uncertain regulatory requirements and insufficient implementation timelines have halted the Arctic offshore program, to the detriment of Alaskan natives hoping to broaden their economy; Alaskan citizens looking for increased revenue; and U.S. consumers hoping to use oil delivered through the trans-Alaska Pipeline. Broader new regulatory standards, centering on well control and bonding, may be unnecessarily piling on an industry that is struggling to survive.

The bottom line is that the offshore energy industry is still viable, reliable and ready to provide an important source of energy to the U.S. and the world. We will recover from the current industry downturn. The future production of yet-untapped offshore oil and gas holds the promise of increased energy diversification, reliability and security; the creation of jobs and economic activity; and new revenue to federal, state and local governments. Decisions made in Washington in 2016 will either cultivate the fruition of those benefits, or choke them off in response to calls from environmentalists. wo-box_blue.gif

The Authors ///

Cindy B. Taylor is the chief executive officer, president and member of the board of directors of Oil States International, Inc. She is the current chairman of NOIA (2015-2016), having served as vice chairman during the 2014-2015 period. Ms. Taylor has worked at Oil States since 2000, first as senior V.P., CFO and treasurer, then as president and COO, followed by her CEO appointment in 2007. Prior to Oil States, she was CFO of L. E. Simmons & Associates, a private equity firm specializing in oilfield service investments, and the V.P./controller of Cliffs Drilling Company. She also held various positions with Ernst & Young LLP. Ms. Taylor holds a B.B.A. degree from Texas A&M University and is a Certified Public Accountant.

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