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Jim Adams Testimony Before Energy & Power Subcommittee

March 17, 2011

James L. Adams
President and CEO
Offshore Marine Service Association

Energy & Power Subcommittee
Energy & Commerce Committee
United States House of Representatives

THE AMERICAN ENERGY INITIATIVE

March 17, 2011

Mr. Chairman and Members of the Subcommittee:

As the President and CEO of the Offshore Marine Service Association (OMSA), I am grateful for the opportunity to describe the devastating economic impact of the Obama Administration’s deliberate policies to curtail oil and gas production in the Gulf of Mexico. OMSA represents more than 250 companies, including approximately 100 firms that own and operate marine service vessels in the Gulf of Mexico. These vessels connect America with its offshore energy resources, providing every pipe, wrench, computer, barrel of fuel, and gallon of drinking water to offshore rigs and platforms. When the industry is fully functioning, our members transport tens of thousands of workers to and from offshore facilities.

Mr. Chairman, let me begin by expressing the deep appreciation of my members for the attention that you and your Subcommittee have given to the dire situation facing our industry in the Gulf of Mexico. And, in particular, we want to acknowledge the heroic efforts of Congressmen Steve Scalise and Gene Green of this Subcommittee, both of whom have used every available opportunity to ensure that this industry’s voice is being heard at the highest levels of our Federal government.

Mr. Chairman, after the Macondo tragedy in April of last year, Secretary of the Interior Ken Salazar famously said that he “would keep his boot on the neck of BP.” We quickly learned that his real intention was to keep his boot on the neck of every business owner and worker engaged in the offshore oil and gas industry. With the full support and guidance of the White House, he has effectively and ruthlessly shut down our industry – an industry that is vital to the economic health of this country. Drilling rigs sit idle, offshore supply vessels are moored to the dock, and layoffs mount. President Obama and Secretary Salazar say that they support domestic oil and gas development in this country. But, we all know better. Every day for the past 11 months, jobs have been lost and companies threatened because of the casual indifference of this Administration towards our industry and the families that depend on it. We are witnessing the systematic decapitalization of a strategic domestic industry.

We often ask ourselves – what will it take to turn this Administration around? What will it take for this Administration to let our people go back to work? Maybe unrest in North Africa and the Middle East will spur them to action. Or, maybe the specter of $4 per gallon gas at the pump will cause them to change course. Maybe another recession caused by a huge spike in energy costs will do the trick. Not likely. The Obama Administration’s “solution” is to suggest tapping the Strategic Petroleum Reserve and investigate price gouging. I am sure that will come as reassuring news to the thousands of hard-working Americans who have lost their jobs all across the Gulf Coast as a result of the post-Macondo policies of this Administration. We all know what the real solution is. The real solution is to reverse the job-killing, illegal and unjustified policies of this Administration and get the offshore oil and gas industry back to work in the Gulf of Mexico.

Mr. Chairman, some have suggested that this is a partisan issue. But, Democrats and Republicans alike have called for an immediate end to the belligerent treatment of our industry by this Administration. Former President Bill Clinton, Senator Mary Landrieu, Senator Mark Begich, and Congressman Gene Green, all proud Democrats, have called on this Administration to stand down. They understand, like many of their Democratic and Republican colleagues, that our industry is vital for economic growth. They understand that we cannot continue to rely so heavily on foreign sources for oil and gas – particularly in the face of the escalating turmoil in Libya and other oil-producing countries. They understand that our national security is put at risk when we dismantle an industry that forms the basis for much of America’s security at home and abroad.

Before the Macondo incident, my members operated over 1,200 vessels that serviced the 33 deep water rigs, nearly 50 shallow water rigs, and almost 4,000 fixed platforms in operation in the Gulf of Mexico at that time. Those vessels collectively provide approximately $4.6 billion annually in wages, and represent an investment by the offshore service industry of over $18 billion. Those vessels and the shipyards that build and repair these vessels had direct employment of at least 29,000 workers. Additionally, approximately 103,160 jobs are supported by the economic activities of these U.S. shipbuilders and offshore vessel operators with an average salary of almost $44,000 plus benefits. The Federal government collected nearly $1.4 billion annually in taxes directly and indirectly in 2008 due to the operations of these two industries. With the massive reduction in vessel and shipyard revenue and employment, these tax payments will certainly be reduced in 2010.

We were preparing to build even more vessels and hire more crew members as projections indicated that as many as 45 deep water rigs were to have been in operation in the Gulf of Mexico by the end of 2011. But, as we all know, in an unprecedented step, this Administration issued in May of last year a drilling moratorium bringing to an immediate halt all shallow and deep water drilling activities in the Gulf. Afterwards, the Administration, with great fanfare, told the public that the shallow water moratorium was ‘lifted’ after 30 days. It subsequently announced in October that the deep water moratorium was also ‘rescinded’. Does anyone think that these pronouncements by this Administration were designed to lead to a renewal of drilling activity in the Gulf? Not likely. In fact, in direct contradiction to its numerous assurances to the public, this Administration simply imposed a de facto drilling moratorium that kept drilling activity at a virtual standstill.

Like any market, the number of vessels and employees engaged in the offshore service industry will expand or contract based upon customer demands. In this case, the Department of Interior dictated that our customers’ activities in the deepwater exploration sector should shrink from 33 rigs to none for ten months. In the shallow water sector, the Administration reduced normal exploration activities by over two-thirds. As a result, we are seeing industry-wide vessel utilization rates that are about 50% of the industry’s capacity and that have resulted, for the time being, in overall employment reductions of 25%. It is important to point out that while employment reductions have trailed vessel utilization rates, this ratio will not last. Business owners who are struggling to retain highly-skilled employees for as long as possible will be forced into making more layoffs in the coming months. Without exploration permits, the market will further contract. Due to the Administration’s policies, we are witnessing the de-capitalization of the American offshore industry.

The moratorium is already responsible for exporting some of our most expensive and technologically capable U.S.-flag vessels to serve in foreign markets. To date, approximately 50 larger vessels that employed over 1,100 American crew members have left the Gulf of Mexico. On the highly technical vessels, those crew members enjoyed the highest compensation levels in our service industry, averaging over $75,000 per crew member.

The human toll on employees and their families who depend on this industry is simply enormous. These are the same families that struggled mightily to recover from the devastating Gulf hurricane season of 2005. Many were just getting back on their feet financially, only to be taken down again, taken down by the Obama Administration’s de facto drilling moratorium. The economics of this situation are pretty simple. When there are no drilling rigs operating in the Gulf, there is no work for our offshore service vessels and there are no jobs for our crews. When no rigs are operating in the Gulf, the very existence of the offshore service sector is threatened.

Mr. Chairman, after having watched this horrible scenario unfold, several prominent members of OMSA brought suit in Federal court against Secretary Salazar seeking to set aside his destructive de facto drilling moratorium. Judge Martin Feldman, having carefully reviewed the facts and the law, promptly issued an injunction prohibiting the Administration from enforcing its moratorium. But, with his boot still firmly planted on our neck, Secretary Salazar defied the Judge’s order and issued a second, virtually identical moratorium. This defiant act led Judge Feldman to find Secretary Salazar in contempt. But, notwithstanding the Judge’s orders, the de facto moratorium continues in full force and effect. Secretary Salazar is brazenly ignoring a Federal court order and very few drilling permits are being issued.

Production in the Gulf of Mexico is clearly headed downward. The futures markets and the prices at the pump do not reflect past production levels. They instead reflect on the likely future supplies from exploration and development activities occurring today. Energy Department estimates show that the average Gulf of Mexico production levels are now falling at a precipitous rate. The Administration has dictated that the Gulf will produce less oil and gas, and the market knows it. Pressure from Federal court orders and Congressional oversight to date has yielded some, but not enough, progress to restore drilling operations in the Gulf. The industry requires certainty in order to commit sufficient capital and other resources to drilling new wells and undertaking other offshore development.

So, Mr. Chairman, I am here to request that your Subcommittee and this Congress act immediately to get the Gulf of Mexico back to work. We urge you to move legislation at the earliest possible date that would streamline the drilling permit process and remove the ability of this Administration to frustrate the timely and appropriate issuance of drilling permits. We understand that additional safeguards need to be implemented in the wake of last year’s disaster. But, a complete shut down of the process is unconscionable and unacceptable. We therefore believe that legislation is desperately needed to open up that process and get our vessels and our people back to work. Our members and others in this industry would be pleased to work with you and the Subcommittee on this important initiative.

Mr. Chairman, it is time for the blockade of the oil and gas industry to stop. Our industry creates thousands of good-paying jobs for hard-working Americans. We provide reliable and affordable energy supplies. We generate billions of dollars in tax revenue for Federal, state and local governments. And, above all, we enhance the national security of this country by reducing our dependence on unreliable and often unfriendly foreign sources of oil. We are ready with drilling rigs, vessels, and experienced personnel to restore high levels of oil and gas production in the Gulf of Mexico – and to do it safely and efficiently. President Obama’s moratorium needs to end because it is killing jobs, raising the price of energy and making our country vulnerable to unpredictable international political forces.

Mr. Chairman, thank you for inviting me to appear before your Subcommittee today. I will be pleased to answer any questions that you or members of the Subcommittee may have.


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