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API Blogger Conference Call: Waxman-Markey Bill - 9.17.09

API Blogger Conference Call: Waxman-Markey Bill - 9.17.09

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Published by Energy Tomorrow
On September 17, API hosted bloggers for a conference call focusing on the status of upcoming energy legislation and API’s current legislative priorities. API President and CEO Jack Gerard took questions from the bloggers, along with API experts John Felmy, Doug Morris and Kyle Isakower.
On September 17, API hosted bloggers for a conference call focusing on the status of upcoming energy legislation and API’s current legislative priorities. API President and CEO Jack Gerard took questions from the bloggers, along with API experts John Felmy, Doug Morris and Kyle Isakower.

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Published by: Energy Tomorrow on Sep 19, 2009
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BLOGGER CONFERENCE CALL MODERATOR: Jane Van Ryan, API SPEAKERS: Jack Gerard, President and CEO, API John Felmy, Chief Economist, API Doug Morris, API Kyle Isakower, API Thursday, September 17, 2009

Transcript by Federal News Service Washington, D.C.

Bloggers on the call included Byron King from Whiskey & Gunpowder, Gail Tverberg from The Oil Drum, Geoff Styles from Energy Outlook, Lew Waters from Right in a Left World, Nan Swift from FreedomTalks and Robert Rapier from R-Squared. 00:13 JANE VAN RYAN: Hello, everybody. This is Jane Van Ryan at API. Thank you for joining us today. I have got in the room with me today Jack Gerard who is president and CEO of the American Petroleum Institute. And he is flanked by a variety of other people who also can help answer your questions. So we are going to get started in just a minute. Before we do that, let me call the roll, if I might, and find out who all we have on the call right now. Who would like to go first? 00:39 ROBERT RAPIER: Yeah, Robert Rapier. 00:41 MS. VAN RYAN: Great, Robert. How is weather in Hawaii today? 00:45 MR. RAPIER: It is a little bit misty. 00:47 MS. VAN RYAN: Ah, good reason to come in for a conference call then. Who else do we have on the line? 00:52 GAIL TVERBERG: This is Gail Tverberg. 00:55 MS. VAN RYAN: Hi, Gail. Thanks so much for joining us. Who else? 00:56 NAN SWIFT: Nan Swift. 00:58 MS. VAN RYAN: Great, Nan. All right, and next? 01:03 BYRON KING: Byron King. 01:04 MS. VAN RYAN: Good, Byron. Terrific. Glad you could join us as well. And anyone else? 01:09 GEOFF STYLES: Geoff Styles. 01:10 MS. VAN RYAN: Hi, Geoff. Terrific. And who else do we have? 01:16 LEW WATERS: Lew Waters. 01:19 MS. VAN RYAN: Hi, Lew. Glad you could join us. Who else? (Pause.) Maybe that is it for now. I know that we have one person who is planning to join us late. And there may be additional people that will be joining us. So why don’t we go ahead and get started?

If you remember how we do these things, we will be recording this blogger conference call. The audio file and a transcript will be placed online at energytomorrow.org, so you will be able to refer to that. Also, when you ask a question, please be sure to identify yourself first because that helps us when we go back to write the transcript. And we will try to get the audio file and the transcript posted by this time tomorrow. Okay? Here we go. Jack, would you like to start with an opening statement? 02:05 MR. GERARD: Please. Thank you, Jane. And I thank each one of you for joining us today. Let me take just a moment if I can. As you know, energy has been in the news and will continue to be in the news for some time. As we go into the fall now that Congress has returned a few weeks ago, it will be a very intense time. Although healthcare tends to dominate the news, we think issue 1A is the climate question or a variety of other energy matters. So let me touch on kind of where we think things are at this point. And then maybe at that point, I will open it up for some questions and some answers. One other thing that I would add that I think many of you are aware of and have talked about in the past is during the month of August, we were involved with some educational outreach with a variety of national partners from a variety of different groups – small business to farmers to truckers to the Chamber of Commerce to manufacturers. The list goes on. And the reason I raise that is it was fascinating to us, in fact, that we were a little surprised at the strong and enthusiastic interest in the area of energy. We held about 20 rallies across 19 states in the country in the month of August. And we were often amazed at the number of people who showed up to express their views, particularly on the climate change issue. And the reason I raise that is I think the public, particularly in light of economic considerations right now, as we are still trying to restore the economy, are heavily focused on what it is going to cost them in the future and what it will cost them now to heat their homes, to drive their vehicles, to take care of their families now and in the future. So that is one area that we have been active in over the last 30 to 45 days. And see that anxiousness, if you will, on the part of the American public continuing into the fall, particularly now that the Congress returns. Three key areas that we are focused on and will continue to work on first is the climate legislation. We adamantly oppose Waxman-Markey, as I think all of you are well aware. We believe it will cost jobs; dependent upon which report or analysis you read, I will say the clear majority of analysis show that it will cost significant jobs – somewhere around 2 million. In addition to that, it is concluded we’ll raise the price of energy, particularly gasoline. And there are some estimates it would go over $4 a gallon in the current marketplace. So as a matter of climate policy, we think the House approach is wrong. We adamantly oppose it. And we are calling on the Senate to get it right; to look at these fundamental issues.

Some of you are probably aware yesterday there was a document released from the White House that at least shows they too were aware early on that climate legislation could cost families in this country significantly. So we are glad that the reality is starting to set in. We are starting to have an honest debate and discussion about this. The second issue we are focused on is the question of access; the ability to have adequate supplies of oil and natural gas in the United States. Two hearings held this week – one just concluded today in the House Natural Resource Committee, where Chairman Rahall has put forward a piece of legislation that in our mind only adds to delay, and a potential bureaucracy, in terms of getting access and being able to develop our natural gas and oil resources. So we will be working on that question. While he has made some improvements from an earlier draft that we talked to him about, clearly the legislation before the House Committee – or that they are talking about moving through the process – we believe, adds further delay, and could negatively impact our ability to produce and the ability of the public to consume domestic American resources. The last thing I will point out is the question of taxation on the oil and gas industry. A week ago – again, many of you are already aware of this – the Senate Finance Committee held a hearing. The Obama administration has put forward a tax proposal or a budget proposal that effectively repeals many, if not all, of the oil and gas provisions in the tax code. I was a little bit surprised when the assistant secretary at Treasury for economics essentially said in their documents as part of their budget what we call a greenbook show. But the justification for these changes in tax law was based on their premise that we have an overproduction of oil and natural gas in the United States. It was best stated by one of the senators who asked him, since when has it been the policy of the United States that we have too much energy production, particularly oil and gas? Of course, he couldn’t answer that question, but went on in an attempt to justify a potential 80-plus billion dollar hit to the oil and gas industry at the very time that we need investment, and at the very time that they put at risk the 9.2 million people that recently PricewaterhouseCoopers has determined are employed directly or indirectly in the oil and gas sector. So with that, why don’t I quit rambling and open it up for some questions or some thoughts? As Jane mentioned, we have a few experts in the room who can answer any more detailed questions. But again, we appreciate you taking some time to visit with us, and let’s now hear what is on your mind. 08:03 MR. KING: Did that guy from Treasury happen to mention where this excess oil and gas production is so we can go shut in the wells? (Laughter.) 08:13 MS. VAN RYAN: Good question, Byron.

08:15 MR. GERARD: I guess we didn’t quite get to that part of the question-andanswer. But it was interesting. Frankly, I was shocked and surprised by his ability to hold a straight face when he made his argument. And part of the argument was, well, we are going to go look at the tax code generally now. And so we are really not singling out the oil and gas industry because we have now determined we are going to create a commission to go look at these issues. Of course, he failed to justify or failed to mention that they had already singled out the oil and gas industry, and attempted to justify those changes in the tax laws somehow on the basis of overproduction – I believe is the actual word that is used in their justification document. So it doesn’t make any sense at all. It’s illogical; it’s counterproductive to what needs to be done in this country at this time as we hope to bring the economy back. And we are going to need all the energy we can get. 09:15 MR. KING: Yeah, I am not going to make any more – this is not going to be a sarcastic point. Do you, as API, have a position on the comment by, I think, it is former General Jim Jones, who is the national security advisor that the U.S. export-import bank is going to line up $2 billion of assistance for Brazil to develop its offshore? I could turn that into a sarcastic comment about U.S. overproduction, but, you know – I mean, have you guys followed that? 09:47 MR. GERARD: We are aware of that. And we haven’t specifically taken a position on it, but let me just speak to it generally. In the United States, we have great reserves of oil and natural gas. We have the technology. We have the world’s leading companies, if you will, that have the ability to develop these resources, to do it in an environmentally friendly way and a responsible way that provides good employment, high-paying jobs, particularly at a time that we need these things in this country. So we would hope that governmental leaders regardless where they are – and I think General Jones – I know him well – has a good handle on what the issue is in this country. And he worked in the energy area at the Chamber of Commerce before he went to the White House. But I think we have really got to start thinking about our own economic situation, thinking about the potential we have to develop our resources. We are leaders in all forms of energy. And yet, too often, some try to pit this debate as an all-or-nothing, a winner and a loser, as opposed to saying, how do we develop these vast resources from various sources to benefit our society? So within that general framework, we believe that is the way we should look at all these issues. How do we bring more energy to the market; how do we support and assist our people here? 11:16 MS. VAN RYAN: Another question? Robert, I know that you sent one to me by e-mail. Would you like to pose that question yourself? 11:24 MR. RAPIER: Yeah, I’ll do that. Yeah, the question was, I understand the concern about the cap-and-trade legislation; I have similar concerns. I am wondering if you have

an alternative proposal; if there is any kind of legislation for cap-and-trade that you could get behind that achieves the same goals? 11:46 MR. GERARD: We haven’t. There has not been a proposal out there yet, Robert, that we have gotten behind. We think now is the time for a reset. There was a lot of focus on this early on in the Waxman-Markey bill. There was a lot of effort gone into it and it just came out in the wrong place. So what we have been attempting to do over the past few months is to point out the significant flaws in that legislation with the hope and expectation that we can help educate policymakers and the public. And what we found is that when you begin to educate, not only does it resonate but it is clearly understood. The House exercise was focused primarily on the utility area or consumers’ bills, industrial bills that we often think of that you get at home to pay for your heating, your cooling, et cetera. But it almost totally left out the fuels question. And that is why 44 percent of all the emissions – or I should say refineries – will be held responsible for 44 percent of all the emission and yet given only 2.25 percent of allowances to transition us to a carbon-constrained world. So the net effect of that is – and I am oversimplifying this now – is that you’ve shifted the cost onto those who use fuels. And that is why you see the farm bureau, you see the truckers, you see small business and others. When they began to see through the dust of the activity in the House, they say, well, what happened is we are looking at our utility bills and the Congress made an effort to transition us over time to a carbon-constrained world and they tried to provide some mitigating factors – in this case, allowances – to do that, but on the fuel side, we got totally forgotten. So anybody who drives a pickup truck, a car, rides the bus, the train, flies on an airplane is going to have an almost immediate impact as a result of Waxman-Markey. And so in educating on that front, I believe we now have their attention that we have got to look at that question. And we internally, and as an industry, are developing further thoughts and ideas, if you will, as to how best address the fuel question and how it fits into the broader framework of a carbon-constrained world. 14:13 MR. STYLES: Jack, this is Geoff Styles. Could I follow up on that? 14:16 MR. GERARD: Please. 14:17 MR. STYLES: Because I certainly share your concern about the disproportionate way that Waxman-Markey doles out the free emissions allowances. In conversations with some of the folks who have been supporting the bill, I get a sense that there is a belief out there that, to some extent, maybe to a significant extent, they feel that the costs that would be imposed on the refining sector would somehow be absorbed by the refining sector and not actually passed on to consumers. Has API done anything looking at, you know, to what degree, any degree, of cost absorption by the refining sector as opposed to simply shifting the market pricing points, and in effect, pushing it on to consumers would take place?

15:11 MR. GERARD: Let me answer that generally. And I will turn to our chief economist, John Felmy, afterwards to see if he can add anything to it. My simple response would be unless you can repeal the laws of economics and supply and demand, that is the only conditions under which that thought would work because it just doesn’t make any sense. What we are talking about here is significant costs. We are not talking about nuances around the edge. And just as I mentioned earlier, some of our analysis shows you would drive gasoline over $4 a gallon in the current environment. And so, you know, potential job loss of 2 million jobs. We are not talking a penny or two here. We are talking about quarters and dollars. And how they could come to that conclusion might give them some political cover in trying to justify what they have asked for in the bill. But I don’t see how it makes any economic sense and frankly, it is unrealistic. Now, let me turn to an economist to give you a real answer. How is that? 16:14 JOHN FELMY: Well, if I could just add, I mean, that is absolutely right. There are two key factors. First of all, the emissions that the refiners themselves produce – they are competing on a world scale with international refiners. And we had commissioned EnSys to take a look at that. And it clearly showed that it would be a severe and negative implication for refining capacity in the U.S. because of an inability to be able to compete. But more importantly on the consumption side and a sense of being responsible for the emissions from the tailpipes of your users, I think it is helpful to look at the current refining situation right now. In the second quarter of this year, almost every refiner lost money. And in the fourth quarter of last year, basically, there was a complete inability to pass along any cost changes. And so with that kind of market conditions, primarily driven by international competition with a lot of, for example, gasoline on world markets from places like Europe and so on, I fail to understand how there is that ability to be able, from an economic sense, to have that happen. Analytically, you have got a weak gasoline market. You have got a lot of supply on world markets. And that competitive aspect, by most analysts, is expected to remain. 17:33 MR. STYLES: So in effect then, John, what you are saying, I think, is what I concluded a long time ago, which is if refineries are expected to absorb this, they will absorb it by going out of business. 17:44 MR. FELMY: Exactly. If you are already losing money and you raise your costs and you have no ability to address that, the margins already were low when they were positive, and when they are negative, there is nothing to give away. 17:58 MR. STYLES: Thank you. 18:00 MR. FELMY: And with, you know – we have got three broad classes of refiners in this country. You have got the big ones, which are about 50 percent; you have got about 25

percent, which are the big independent ones that are not integrated; and then a lot of very small refiners that would really take a beating in that environment. 18:20 MS. VAN RYAN: Before we go to the next question, it sounds as though we may have had a couple of people join us. Do we have people who have come in after the beginning of the call? (Pause.) Well, maybe they don’t want to identify themselves. All right, we will move forward. Anyone else have a question at this point? 18:42 MS. TVERBERG: This is Gail. I was just going to ask, now, do you think that the Senate really will take up and handle the climate change legislation this year? Or do you think it will get pushed off to 2010? 18:55 MR. GERARD: Well, the longer time goes on, Gail, it has become clear, I think, it is going to be more and more difficult for the Senate to consider climate legislation this fall. Majority Leader Reid this week was quoted as saying that he as the leader thought it would be difficult to get it on the agenda. When you look at what has happened on health care in the last 24 to 48 hours, after working mightily, they have come out with a proposal that appears to be disliked by everybody. And so that is going to take considerably more time. When you put it in the political context, clearly the administration and the leadership in the House and Senate are very anxious to have a significant victory. And so I think you are going to see a lot of time and effort focused on health care. The president has been around the country on a couple of occasions this week talking about financial reform; Wall Street-type issues. So I believe what they will do is work very hard to finish up the budget bills and appropriations bills, work hard to complete a health-care type package, an after that, the next large item they will likely move to is financial reform, with the carbon climate legislation be kind of the third big item in the queue. And each of those issues obviously play against each other or offset one another in political terms. But as of right now, it appears they are going to have a difficult time raising it this fall. Now, we will continue in our efforts. We will continue to talk about it, to educate as to what the Waxman-Markey proposal does and what that would mean for the country. And so we intend to stay on the field because it is not entirely clear it won’t happen, but I believe most people believe now there is less likelihood it will happen. 20:52 MS. TVERBERG: And if it does go forward in 2010, I would presume it has to start over from – it is actually ground zero again. So something new would have to pass in the House. 21:03 MR. GERARD: Well, the way the Congress functions is the House could leave the Waxman-Markey bill out there as their offer, if you will, for a potential conference committee. 21: 10 MS. TVERBERG: Oh, okay.

MR. GERARD: But what that does because I think there are a lot more people who understand better now what Waxman-Markey does. And there are some people, I think, who are regretting their vote for it. And that will also chill Senate activity because knowing what they potentially face as a negotiating posture will likely discourage some of the Senate from trying to move forward because I think Waxman-Markey is quite extreme. 21:40 MS. TVERBERG: Thank you. 21:45 MS. VAN RYAN: Anyone else have a question? If not, I have got one that was sent in by another blogger. Jack, this goes to the heart of politics again. But it really has to do with Virginia. The question comes from a Virginia blogger who writes, “Bob McDonnell once again told Virginia voters today that he wants the federal government to allow exploration for oil and natural gas off Virginia’s shores in 2011. How important is the current Virginia election to the national debate and the ultimate outcome of energy exploration and development on the Outer Continental Shelf?” 22:17 MR. GERARD: We think Virginia and New Jersey, some of the key states that are in the off-election cycle, are important for a number of reasons. Generally, it is going to be an important bellwether as to the mood of the public. And you watch both political parties posture right now to try to determine what is the real mood of the public. As they have been home for the August recess, the Congress has – clearly, there is something going on at home, if you will, that was never expected just eight or nine, 10 months ago. And I think many are still trying to understand what that really means. So that is in the broader context. And Virginia and New Jersey appear to be the real test care for is this real or, you know, is this all created? Now, from an oil and gas perspective, the Virginia race is quite important. The two candidates have differing opinions and views as to what we should do off the shores of Virginia. Candidate Deeds on the Democrat side has made a proposal that would suggest he would limit any OCS development to natural gas and has also expressed some sympathy towards current Governor Kaine’s view, which is to delay the 2011 lease sale. Candidate McDonnell has said he wants to drill for oil and gas off the coastline. And he is very anxious to keep Virginia in the 2011 lease sale process in the 5-year plan. So from our standpoint, when you just look at their positions on the issues, Mr. McDonnell, of course, comes closer to where we think the policy should be. And that is that we should open the Outer Continental Shelf as part of the 5-year plan for oil and natural gas exploration and development. Again, this is a race that is being watched closely across the nation. A lot of money has come into the state on both sides. But for our purposes, we think Virginia should be left in the lease sale for 2011 available for oil and gas. 24:35 MS. VAN RYAN: All right. Do we have another question?

24:40 MS. TVERBERG: This is Gail again. Could you tell us a little bit more about the taxation situation and what your major concerns are or maybe exactly how the procedure is that goes forward now? 24:51 MR. GERARD: Yes, Gail. There was a hearing held in the Senate Finance Committee last week. What the Obama administration’s budget proposes is three segments, if you will, that would impact the oil and gas sector in the area of taxation. The first piece of that was an identification of a variety of, what we would call legitimate business deductions and expenses, for repeal. The combination of those provisions being changed in the tax code would cost the industry over $30 billion. Then you add to that a number of the broader corporate tax provisions that they propose to change, which would add another $50 billion to the tax bill of the oil and gas industry. That is totaling over $80 billion it would cost us. Then you add to that their potential proposals on the climate question and you get upwards of $400 billion in cost to us alone. Now, the areas we are focused on there go back more to the first two dimensions I mentioned earlier, the specific provisions related to us, and then those other provisions that would impact company taxation overall. It is very clear that anytime you add cost to the cost of doing business, it has implications. These numbers have the potential to destroy jobs and to discourage development of energy in the United States. In fact, analysis shows that you are better off, if you will, to create the opportunity to develop oil and gas resources, particularly those on federal lands, because the value back to the government from royalties, from bonus bids and other things is significantly better than trying to extract value or money, if you will, from the industry upfront. So we think the best approach if they are looking for government revenue is to encourage energy development, which we think we need more of and secondarily as a natural result of that, to generate royalties and revenues to the governmental entities. A recent analysis and study we have shows that there is a potential of upwards of $1.7 trillion that would come to federal, state and local coffers if that pro-development type approach were taken. 27:25 MS. TVERBERG: It seems to me like that 30 billion that you were talking about particularly hits the small producers, as I recall earlier. And so some of these small both gas and oil producers, stripper wells and small and natural gas producers might get hit harder than others even. 27:44 MR. GERARD: Well, Gail, to that point, the thing we need to remember – there are some who would like to distinguish, you know, big company, small company, et cetera. It all boils down to the cost of doing business. And if you discourage a large company and put added cost to them, obviously, it makes it more difficult for them to hire people and develop the energy resource. I will say particularly in some of those smaller entities, particularly the real small maand-pa operations, that many of them live on a cash flow basis that makes it very difficult to

keep the operation going if you add much cost at all. Some of them operate in marginal areas, on marginal reserves and opportunities. And so it clearly has an impact on them. And these are the people that, obviously, they’re employing lots of people across the country. They might be smaller entity, but they are very, very important small business to the overall health of our economy. John, do you want to add anything to that? 28:48 MR. FELMY: That is right, Jack. That is exactly right. I mean, if you look at some of the provisions that they talk about such as the amortization, which really affects your cash flow, clearly that will be a big impact. Others that affect the smaller firms that don’t affect large firms are the percentage depletion. So there is no question that this is moving in a wrong direction for all firms. And if you have a weaker cash flow, that is going to affect you more. And, you know, there is a situation where, right now, with the existing credit markets the way they are, it just compounds the situation in terms of being able to get additional credit for the small firms. 29:25 MS. TVERBERG: Thank you. 29:27 MS. VAN RYAN: More questions? 29:30 MR. KING: This is Byron. Can you follow up a few comments on the proposal to eliminate the royalty-in-kind since we are talking about royalties as well? Maybe get a little bit into the history, how long it has been going on and one or two points of, you know, why it has been a good idea and why it is not a good idea to get rid of it. 29:50 MR. GERARD: Yeah, we have got Doug Morris here with us who works on the upstream side. You probably heard yesterday the secretary’s announcement that they were going to repeal it – do away with it administratively. It is unfortunate. There were some very unfortunate events that occurred out of the regional office. And, you know, that clearly is a management issue that needs to be dealt with and needs to be dealt with quickly, which it has been. But to do away with a program that I believe even the MMS has suggested operates efficiently and it keeps us from some unnecessary litigation, we think is an overreaction to that. And so we would hope the secretary would think twice as he moves forward here. Let me turn it to Doug who knows more about the history of royalty in kind. Doug? 30:38 DOUG MORRIS: Well, it has been tried for a few years, but I guess 2005, EPACT is really when they formalized a system. So it doesn’t have a long history. As Jack mentioned, they have had some management problems. But we like it. We think it is a very good program, has great potential. It is efficient. It streamlines the process and it means less litigation. I think it is a win-win for both leasees and the government. And we do hope that the secretary reconsiders that decision he made yesterday.

We do know that the MMS apparently was going to issue some regulations that put a few more details into the program to kind of pin it down a little bit. And so we don’t know the status of that right now. But they were proceeding forward with assuming that there was going to be a program and there was going to be a little more substance to it. 31:34 MR. KING: Well, do you know or is there a place to look to find out how much of the strategic petroleum reserve – how much the volume of that is royalty-in-kind oil as opposed to, you know, like purchased oil because didn’t a lot of that strategic petroleum reserve stuff come from RIK? 31:51 MR. MORRIS: Yes. Some of it is taken and given to the SPR. I know there is a CRS report. We can get that information to you. 32:05 MS. VAN RYAN: Additional questions? 32:07 MS. TVERBERG: I was just going to ask, so exactly what is the status on this? This is just an administrative rule that they can change whatever they feel like without hearings or what? 32:16 MR. GERARD: Well, yesterday at a hearing in the House Natural Resource Committee is when the secretary announced that he was there to testify on Chairman Rahall’s proposed bill that goes through a number of administrative functions. And it was there that the secretary announced it was his intent to do away with the program. Now, Doug, I don’t know if that requires rulemaking or not. 32:39 MR. MORRIS: No, it is really discretionary. It is up to the secretary. Now, he has got contracts they are going to follow through on. But afterwards, it is up to the secretary to determine whether or not he wants that program or not. 32:54 MS. VAN RYAN: Any follow-up questions on royalty-in-kind? Yesterday a number of you received an e-mail that I sent out regarding the deadline period for the MMS comment period on the plan. I know some of you have looked at that e-mail. I am not sure everybody has. Did any of you have questions about the process by which the Minerals Management Service leases land offshore? We have a number of people here in the room that could address that for you. (Pause.) Wow. You guys are quiet today. You must have your – 33:32 MS. TVERBERG: Maybe you can explain it a little bit more to us. Some of us don’t know quite enough to ask the right question. 33:39 MS. VAN RYAN: Ah, that could be. Doug, do you want to address that because you talked about that in the Rahall hearing this morning, about that basic process that you – by the MMS for the leasing of offshore property.

33:51 MR. MORRIS: The Interior has a very complex process for issuing a 5-year plan. There is no leasing offshore unless an area is included in a 5-year plan. So every couple years, the secretary begins a process where he issues a proposed plan. It receives public comments. There are several stages. He has a draft proposal, which we are at right now. And he has it out for comments. That comment period closes in a week or so. 34:28 MS. VAN RYAN: I think it is Monday. 34:29 MR. MORRIS: And afterwards, the secretary will review those comments and they will issue a proposed plan and also do an E-I-F and they will put it out for additional public comment. So again, this process ensures that the secretary receives a lot of input from all sides, receives all the scientific and technical data that he needs before he issues a final plan. We hope the secretary will move forward timely with this process and include some of the areas that were kept off limits for 20 years. 35:06 MS. VAN RYAN: Doug, I wonder if it would be helpful to the folks that are on the line today to also talk about what you testified about at the Rahall hearing this morning. For those of you who maybe haven’t caught up with all of this, there was a hearing for the House National Resources Committee today to look at a bill that proposes to consolidate the Minerals Management Service with the Bureau of Land Management for the purpose of changing the way that land is leased for energy development. And there is some – there are a couple of interesting provisions there. I don’t know, Doug, if you want to get into that. 35:41 MR. MORRIS: Well, essentially, it is a hodgepodge of issues, which adds layers of bureaucracy, I think, to the current system. And the latest concern we have is the formation of some regional councils that would be formed. They would be essentially duplicating what the secretary currently does. They are going to go in there and look at ecosystems, pros and cons of offshore development. And they come up with their individual plan. These plans could trump the current 5-year plan process. So we have concerns A, that this doesn’t add anything to the mix. It is just duplication of what the secretary is currently doing. And B, there is an opportunity for a backdoor moratorium through the various regional councils. 36:36 MS. VAN RYAN: Any comments, questions on that? 36:39 MS. TVERBERG: So, okay, so that you are in the middle of hearings on this, which is basically something they can go ahead with without actually any kind of legislation then or how does that work? I mean, if they are going to add the traditional layers, does that have to go through some formal approval process or not? 37:02 MR. GERARD: The process and what the hearing was about was on the chairman’s proposal. Chairman Rahall of West Virginia has made the proposal that was

described by Doug. And it would have to pass the committee and obviously pass the entire Congress including the Senate and be signed by the president for the final adoption. But one of our concerns is as you look at these proposals, some of what is going on here is we believe further delay and further bureaucracy at a time when we need more energy, at a time when we are going to need more access to energy. So again, we think some of the leadership is going in the wrong direction. There is no new energy in this bill that they call an energy bill. There is no new opportunity for that, oil access, gas access, or frankly any other. In fact, this morning one of the witnesses was opposing the provision they had stuck in to discourage uranium production in the United States. And he testified that we are now 90 percent dependent upon outside sources for all uranium, which obviously feeds into our nuclear electricity creation. So again, those are the types of provisions that are being put forward as public policy, which we believe are clearly counterproductive to where we need to be going by expanding opportunities for energy development in the United States. 38:39 MS. VAN RYAN: Any additional questions? Okay. Well, then I guess we will stop a little early. 38:47 MR. STYLES: Hey, Jane? 38:48 MS. VAN RYAN: Yes? 38:49 MR. STYLES: This is Geoff. Can I take us back to Waxman-Markey? I have got kind of a technical question on Waxman-Markey. Jack mentioned the 44 percent of emissions statistic earlier. And one of the things that I have been struggling trying to interpret just going through the bill on my own is, you know, clearly the gap between the free emission allocations to the refining sector and what the sector would ultimately be responsible for is very large. But it is hard to get a clear sense of just how large it is, whether it is the 33 percent of emissions associated with transportation fuels plus refining’s own emissions, which I take to be something like 4 percent of total emissions. But then there is the 44 percent associated with all petroleum use in the U.S., which would presumably include upstream production as well. To what degree do upstream producers, particularly – maybe I would assume most are producing or emitting more than the 25,000 tons per year threshold. To what degree do they get tagged with at least a portion of those emissions as opposed to the refining sector being left to pick up the entire value chain’s emissions? 40:09 MR. GERARD: Let me turn to Kyle who does some of our policy analysis. We can address it generally and then we can get back to you if you need more details. 40:17 KYLE ISAKOWER: Yeah, I don’t have a specific figure for upstream emissions. What I can tell you, though, when you look at that 44 percent, the bulk of the remainder that you are not calculating in terms of what is not coming out of the tailpipe and what is not coming out

of the refinery, that is primarily other stationary sources that use petroleum products. Think heating oil as your primary user of that other category. 40:49 MR. STYLES: Right. And there is clearly an allocation to industrial users, presumably some of whom are consuming petroleum as well. But it would definitely be interesting to see, you know, how much of this does the refining sector actually get left with? And how much of it would end up in other – you know, in the hands of other parties who either have free emission allocations or don’t? 41:13 MR. GERARD: Well, I think to that question, let me try to address it generally. What is interesting about it – that is a good question, one that we grapple with a little bit internally. But remember, they specifically excluded the refinery sector under the energyintensive trade-exposed provisions. And so really what they are saying is that they are trying to put that whole cost on them. And from our perspective, of course, you look at some of those industries that are left. If there is any industry that is trade-exposed and affected globally, it is the refinery industry. And yet, there was a specific effort to exclude us from that. So if there is a little bit of crossover or bleed, if you will, between the different styles of allowances, I am not sure they even thought to address that when they were developing the legislation. But clearly, their intent was to put as much costs as they possible could on the refinery sector without very little ability to transition them. 42:23 MR. ISAKOWER: The other point there when you are talking about that 44 percent. That 44 percent, that is the refinery obligation under Waxman-Markey. So upstream, any emissions from our existing wells would not necessarily be included. That would be treated like any other manufacturing. So it would not be included. The 44 percent is specifically the refining obligation, not oil and gas as a whole. 42:54 MR. STYLES: Okay. That is very helpful. 42:58 MS. VAN RYAN: Any other questions? One other point I will make, too, is that if you are not asking a question, please put your phone on mute by hitting *6. And then when you want to unmute it, you can hit #6. 43:07 MR. STYLES: Yeah, that wasn’t me doing the heavy breathing. (Laughter.) 43:12 MS. VAN RYAN: Any other questions today? (Pause.) I think the problem today is there are so many issues that make it difficult for people to formulate questions. All right. Well, then I think we will quit a little bit early for today. Thank you all for joining us, as I mentioned. 43:33 MR. GERARD: Thank you very much. And we appreciate the opportunity to interact with all of you. Thanks. 43:38 Thank you.

43:40 MS. VAN RYAN: We will put this up on the Energy Tomorrow website. Probably have it up – I am hoping early tomorrow afternoon – and I will send you an e-mail with the link. Thanks, everybody. 43:51 Thank you. Bye bye. 43:53 Thank you for listening to this installment of Energy Conversations with API. For more information or to join the conversation, visit energytomorrow.org. That is www.energytomorrow.org. (END)

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