Restarting “the Engine”–Securing American Jobs, Investment, and Energy Security

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An IHS Global Insight and IHS CERA Report July 21, 2011

Restarting the Engine Securing American Jobs, Investment, and Energy SecurityThe Importance to the US Economy of Restarting the Offshore


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For more information, contact

Je Marn

Senior Manager Public Relations

[email protected]

(202) 463 8213

Jim Dorsey

Senior Manager Public Relations

[email protected]

(781) 301 9069

IHS Global Insight

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Washington, DC 20036

IHS CERA

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Copyright 2011 IHS Global Insight (USA) Inc. and IHS CERA Inc.

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2011, IHS Global Insight (USA) Inc. and IHS CERA Inc.


Restarting the Engine An IHS Global Insight and IHS Global Insight and IHS CERA Report

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PROjECT TEAM

Authors

Mohsen Bonakdarpou r, Director, Consulting, Manufacturing and Services,

IHS Global Insight

James Burkhard, Managing Director, Global Oil, IHS CERA

Jim Diey, Chief US Regional Economist, IHS Global Insight

David Hobbs, Vice President, Global Research, IHS CERA

Sang-Won Kim, Managing Director, Consulting, Energy and Natural Resources, IHS CERA

John W. Larson, Vice President, Consulting, Public Sector, IHS Global Insight

Michael N. Marinovic, Vice President, Consulting, Energy and Natural Resources,

IHS CERA

Candida Scott, Senior Director, Cost and Technology Group, IHS CERA

Leta Smith, Director, Exploration and Production Trends, IHS CERA

Contributors

Project Manager. Tabitha M. Bailey, Senior Associate, IHS Global Insight

Senior Account Executive. Linda Kinney, IHS CERA

Acknowledgments

We would like to thank all o the subject matter experts, technical experts, industry experts andanalysts that have contributed to this study. They are as ollows:

John Barrett, Meaghan Casey, Erik Darner, Bob Flanagan, Scott Fleming, Paul Gallo, KarimJeaarqomi, Ray Kizer, Imre Kugler, Maria Kulikova, Joseph Michael, Shane Norton, Taner Sensoy,and Colin Ward.

IHS offers an independent assessment of the importance of the offshore oil and gas industry

to the overall US economy. This research was supported by the Gulf Economic Survival Team

(GEST). IHS is exclusively responsible for all of the analysis and content contained herein. The

analysis and metrics developed during the course of this research is intended to contribute to the

national dialogue on the role of the offshore in terms of oil and gas production, employment,

economic growth, and energy security.


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No portion of this report may be reproduced, reused, or otherwise d istributed in any form without prior written consent.

Executive Summary ES-1

An IHS Global Insight and IHS CERA Report Restarting the Engine

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RESTARTING THE ENGINE: SECURING AMERICAN JOBS,INVESTMENT, AND ENERGY SECURITY

The Importance to the US Economy of Restarting the Offshore

EXECUTIVE SUMMARY

Energy security and job creation are both undamental to reinvigorating the American economy.Eorts that result in both adding jobs and increasing domestic energy production wouldhelp the US economy overcome such economic headwinds as high gasoline prices and highunemployment. Saely restoring oil and natural gas exploration and development levels in theUS Gul o Mexico is potentially one o the most signifcant sources o new jobs over the nexttwo years and could help sustain a nascent trend o rising US oil production and lower crudeoil imports. Failure to do so would have a major toll in jobs lost and lower energy security.The activity gap between proactive action and the pace o plan and permit approvals is theocus o our study.

Swit action to reduce the growing backlog o plans and increase the pace o plan and permitapprovals to explore or oil and natural gas resources in the deepwater Gul o Mexico wouldincrease employment opportunities in almost every state, boost tax and royalty revenues orgovernments, and help stabilize US energy security. And these benefts could materialize rapidly.Early alignment between the capacity to properly regulate oil and natural gas activities andthe pace and scale o investment opportunities would capture the largest possible share o theactivity gap, which in 2012 results in

230,000 American jobs

more than $44 billion o US gross domestic product (GDP)

nearly $12 billion in tax and royalty revenues to state and ederal treasuries

US oil production o more than 400,000 barrels o oil per day (bd) (equivalent toapproximately 150 million barrels in the ull year)

reducing the amount the United States sends to oreign governments or imported oil byaround $15 billion

The employment eects would not be limited to the Gul states. One-third o those jobs wouldbe generated outside the Gul region in such states as Caliornia, Florida, Illinois, Georgia, andPennsylvania.

These benefts will not materialize under the current trackthe Slow Recovery scenariothat is, the lower pace o permitting activity in the US Gul o Mexico since the moratoriumon oil and gas exploration and development drilling was lited last October. Since then, theprocess or regulatory approval has been dramatically slower compared with historical activitylevelsactivities that have added an average o 1 billion barrels per year to US oil reservessince 1998. Changes in the wake o the tragic Deepwater Horizon accident have resulted innew regulations to improve saety and to require industry to demonstrate its response andcontainment capabilities, as well as a new regulatory organization. However, the magnitude o


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ES-2 Executive Summary


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the slowdown indicates the need or regulatory capacity and responsiveness commensuratewith the level o investment that companies are prepared to commit to oil and gas explorationand production operations in the post-moratorium environment.

This assessment o the potential benefts rom better alignment between regulatory capacityand the responsible operational capacity o the industry is based on analysis by IHS CERAand IHS Global Insight. This analysis is ocused on the pace o oil and gas explorationand development activity in light o the changes in requirements or regulatory approvalsand permitting ater the liting o the moratorium. We compare the pace o plan and permitapprovals against what could be achieved with appropriate regulatory resources at a levelconsistent with restoring the Gul o Mexico as an engine or job creation, governmentrevenue, and energy security. This has allowed us to benchmark the impacts on investments,production, employment, and government revenues under a Proactive Recovery scenarioversus the trajectory implied by post-moratorium trends in the Slow Recovery scenario.Based on our analysis o data rom the Bureau o Ocean Energy Management, Regulationand Enorcement (BOEMRE), in the six months ollowing the liting o the moratoriumwe have ound that investment activity is proceeding at a much slower pace compared tohistorical trends.*

Number o pending plans up. The number o exploration and development plans thatare pending (plans submitted to BOEMRE but not yet received a fnal action) hasincreased by nearly 90 percent rom previous levels. The median days a plan is pendingprior to approval, however, have also increased, to 131 days rom the historical normo 36 days (see Figure ES-1).

Approvals taking longer. Exploration and development plan approvals are down bymore than 85 percent rom previous levels; approvals o drill permits covered by thoseexploration and development plans show a decline rom previous levels o nearly 65

percent (see Figure ES-2).

As industry is adapting to the regulatory changes, the signifcant growth in plans pendingand slower pace o plan and permit approvals demonstrates two issues:

There remains a strong commitment and desire on the part o industry to continue toinvest in the Gul and proactively work through and adapt to new saety requirementsand the new regulatory environment.

The revised regulatory process is not yet working smoothly as the regulatory systemstruggles with this growing backlog and implementation o new processes.

*The analysis in this report is based on data up to April 10, 2011six months ater the liting o the moratorium.IHS CERA and IHS Global Insight will issue a 12-month update, based on data through October 12, 2011, to provideinsight into changes in the pace o plan and permit activity.


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Executive Summary ES-3

An IHS Global Insight and IHS CERA Report Restarting the Engine

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The slower pace o approvals and regulatory uncertainty makes the Gul o Mexico lessattractive when competing with other investment opportunities and as a result assets andcapital will move to other prospective areas o the world. A sustained slowdown in the Gulo Mexico is already having a negative impact on job creation and domestic oil production,and will do so even more in 2012.

The potential opportunities associated with a proactive approach by regulators to successullyrestart the Gul o Mexico engine are signifcant (see Table ES-1).

This report presents the key fndings o our analysis. We will release a companion volumethat will provide a detailed explanation o the methodology employed and the ull results o

the analysis. We hope the metrics developed during the course o this research will contributeto the national dialogue on the role o the oshore in terms o production, employment,economic growth and energy security.


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ES-4 Executive Summary


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Table ES-1

US Potential Opportunites Associated with the Activity Gap

Projected

Category Unit 2011 2012 2013

Production Thousand barrels per day 198 438 186

Capital Investment Millions of dollars (2011 $) 9,504 6,143 3,635

GDP Impacts Millions of dollars (2011 $) 23,826 44,243 27,658

Total Taxes Millions of dollars (2011 $) 5,544 11,864 7,658

Total Employment Workers 108,486 229,131 198,593

Source: IHS CERA and IHS Global Insight.

Our analysis demonstrates that the slower pace o plan and permit approvals (regardless othe cause) is resulting in lower activity levels than the operational capacity o the industry.Successully restoring the activity levels in a sae and environmentally responsible ashionwill have signifcant benefts or Americas energy independence and continued economicrecovery.


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An IHS Goba Insight and IHS CERA Reort Restarting the Engine

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RESTARTING THE ENGINE: SECURING AMERICAN JOBS,INVESTMENT, AND ENERGY SECURITY

The Imortance to the US Economy of Restarting the Offshore

INTRODUCTION

US economic growth has decelerated in recent months as the economic headwinds have becomemore brisk. In May and June a precipitous drop in job growth relative to earlier months pushedunemployment up to 9.2 percent. That 9.2 percent gure is not just a percentage, however; it isa number about people. It means there are more than 14 million individual Americans lookingor jobs.* Added to this economic headwind are rising commodity prices, high gasoline prices,and rising ood costs.

National, state, and local scal diculties are compounded by rising unemployment that isshrinking the revenue tax base. In act, states continue to ace one o the most signicant scalchallenges since the Great Depression, with total projected budget gaps o nearly $105 billion

or 2012.** Furthermore, the US Congress and President Barack Obama are engaged in a criticaldebate on the debt ceiling and long-term solutions or reducing the annual budget decits inthe ace o a total national debt currently standing at $14.3 trillion.

Against this stark economic backdrop, the need to reignite the economy and return Americansto work is recognized across the country. There is an immediate opportunity to create jobsthat would not require any additional ederal government stimulus but that would, in contrast,generate additional government revenues. That opportunity is to restart the economic engine othe Gul o Mexico under the revised regulatory system.

On May 30, 2010, the US government declared a moratorium on oshore drilling activityollowing the tragic Deepwater Horizon accident and subsequent spill. In doing so, the governmenttemporarily halted an important part o the oshore oil and gas industryexploration anddevelopment. Our estimate is that at ull capacity, the industry can generate an additional 230,000 jobs. The liting o the moratorium on Oct. 12, 2010 was accompanied by the subsequentannouncement o a planned institutional reorganization o the Minerals Management Service(MMS), the primary regulator or oshore oil and gas activities. Under this reorganization, theBOEMRE has replaced the MMS as the new regulating agency. In addition to these institutionalchanges, rules governing the requirements o plans and permits or exploration, development,and production activities have also been modied.

Since the liting o the moratorium, concern has been expressed about the pace at whichBOEMRE has been approving plan and permit applications to return the Gul to work underthe new regulatory and institutional environment. BOEMRE ocials have observed that theagency is meeting all statutory timelines or processing applications. Yet the data indicate thatthe process o granting applications has almost ground to a halt. This means that the importantgrowth engine or the US economyinvestment in the Gul o Mexicohas stalled. Restarting

*Bureau o Labor Statistics, Table A-1 Employment status o the civilian population by sex and group http://www.bls.gov/news.release/empsit.t01.htm**Center on Budget and Policy Priorities: States Continue to Feel Recessions Impacts; McNichol, Elizabeth; Oli, Phil,and Johnson, Nicholas; June 17, 2011 http://www.cbpp.org/cms/?a=view&id=711
http://www.bls.gov/news.release/empsit.t01.htmhttp://www.bls.gov/news.release/empsit.t01.htmhttp://www.cbpp.org/cms/?fa=view&id=711http://www.cbpp.org/cms/?fa=view&id=711http://www.bls.gov/news.release/empsit.t01.htmhttp://www.bls.gov/news.release/empsit.t01.htm


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it requires that oil companies have the condence their plans and permits will be approved.They will be unlikely to redirect investment and rigs back to the Gul rom elsewhere untilit is clear that they can put them to work without delay. The Gul o Mexico does not existin a vacuum and must compete or investment like all other oil and gas basins.

IHS CERA and IHS Global Insight analyzed the pace o regulatory approvals ater theliting o the moratorium and its resulting impact on activity levels. We compared this trendagainst what could be achieved with appropriate resources to match the eective capacityo the industry to operate. This has allowed us to benchmark the impacts on investments,production, employment, and government revenues under a Proactive Recovery scenarioversus the trajectory implied by the slow recovery observable in postimoratorium trends.

In this report we shall

outline the regulatory process and how it interacts with oil and gas investmentcycles

analyze BOEMREs data on the pace o permit applications and approvals

compare the post-moratorium levels o permitting activity by regulators with whatcould be achieved under a more proactive approach (the activity gap)

conduct an economic impact analysis to quantiy the activity gap

In the companion volume to this report, explain the methodology employed andprovide a more detailed discussion o the results o the analysis

Overall, the data demonstrate that, owing to the slowdown in approvals or plan and permitapplications, activity levels are lower than historical levels and relative to the capacity o

the industry to operate. This activity gap has a signicant cost to the US economy.

OIl FIElD DEVElOpMENTOVERCOMING THE ODDS

The upstream oil and gas business can appear complexlarge investments are made with longlead times and, at various stages, ace signicant nancial risk. The recent report by QuestOshore (sponsored by the American Petroleum Institute and the National Ocean IndustriesAssociation) describes the process o exploration, appraisal, development, and production ooil and gas in a manner that is accessible to readers at any level o expertise.*

In this section we outline the plan and permit approval process that overlays the industry

exploration and development cycle, as described in the Quest Oshore report.** It is importantto understand how the pace o regulatory approvals controls the pace o investment activityand thus the benets to the US economy.

*United States Gul o Mexico Oil and Natural Gas Industry Economic Impact Analysis; July 11, 2011. QuestOshore (http://www.noia.org/website/staticdownload.asp?id=45798)**Ibid.
http://www.noia.org/website/staticdownload.asp?id=45798http://www.noia.org/website/staticdownload.asp?id=45798


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Exploration and production companies invest their capital pursuing the possibility o

nding oil and gas. In the Gul o Mexico they identiy lease blocks that they believe tobe prospective and competitively bid to secure the exclusive rights to explore these blocksduring the lease term. They drill exploration wells in the locations where they hope to ndhydrocarbons and, i successul, drill appraisal wells to delineate the size o the discovery.This is a costly process.

On the journey to rst production, a company will have navigated a complex regulatoryprocess that involves

acquiring the lease

creating and applying or approval o an exploration plan

applying or approval o exploration drill permits (or specic wells outlined in theexploration plan)

The Imortance of Exoration and Deveoment to Maintaining production

Without continuing exploration to fnd new resources and development o both existing anduture discoveries, it is inevitable that production will decline in the Gul o Mexico.

The lead times rom exploration and development to frst production may be as long as seven

to ten years. Thereore the impact o reduced exploration levels is not immediately evident.But i development activity alls, the impact is clear more immediately. Our analysis indicatesthat, without the activity gap, oil production in the Gul o Mexico would be 400,000 bd higherin 2012, mostly rom allowing developments already under way to move orward.

Exploration carries signifcant riskonly one in seven wells fnd economically viable reserves,and it is thereore important to maintain high levels o exploration to ensure that there is acontinuing supply o development candidates. For every barrel produced today, at least onebarrel must be discovered and developed in order to maintain current production.

The Imortance of lease Saes

As the frst step in the journey to production, lease sales play a critical role in allowing operatorsto bid or opportunities to explore and, i ound, commercially develop natural resources. Basedon historical lease sales, the government has an opportunity to recognize $7.3 billion in bonusand rental payment between 2011 and 2013.* However, lease sales are currently suspended,which, with no clear path toward resumption, places these potential revenues at risk. Moreimportantly, even i or when lease sales resume, the current lack o clarity, uncertainty aroundthe plan and permit approval process, and the observed levels o activities may signifcantlyreduce the bid amounts or the new leases.

*Ofce o Natural Resources Revenue. From 2005 to April 2010 the ederal government leased more 17 million acres,generated more than $13.4 billion rom the Guls lease bonuses$2.2 billion per year, and $6.6 billion over the frstthree years o the period analyzed. Finally, operators payments or renting the leased areas, over the same period,amounted to $1.36 billionor $227 million per year.


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designing and applying or approval o a development plan

applying or approval o development drill permits (or specic wells outlined inthe development plan)

The regulatory ramework o applications and approvals in place prior to the Deepwater

Horizon incident remains intact today. But in response to the accident, the ederal governmenthas adopted more specic regulations and operating requirements to ensure that there couldbe no repeatan objective shared by the entire oil and gas industry. These regulatory changesincluded the ollowing two major aspects:

Institutional reorganization. In May 2010 the Department o Interior announcedthe reorganization o the US MMS. As part o this reorganization the department isin the process o creating three new entities (Bureau o Ocean Energy Management,Bureau o Saety and Environmental Enorcement, and the Oce o Natural ResourcesRevenue) to replace MMS and segregate what the department called the governmentsconficting missions around oshore energy development.

New saety and environmental regulations. BOEMRE has developed andimplemented two major regulations and guidance documents aimed at achievingdrilling saety and preventing major oil spills and their environmental impact. Thisresulted in new requirements:

a corporate compliance statement on and access to equipment capable ocontaining the worst-case spill volumethe latter requirement being metby contracts with either the Marine Well Containment Company or the HelixWell Containment Group

new drilling saety requirements

new Saety and Environment Management Systems requirements

In addition to these regulatory requirements, the agency launched a ull review o itsinterpretation o the National Environmental Policy Act, specically limiting the use oCategorical Exclusions and requiring that additional assessments be conducted even or anoperation that had already been appropriately analyzed.

The smooth operation o this revised regulatory process is a goal shared by the regulatorand industry, but the process is clearly not yet working in that way. Many o these approvalsteps require long lead times. The growing backlog o plans pending and slower pace o

permit approvals, in conjunction with regulatory uncertainty, make the Gul o Mexico lessattractive when competing with other investment opportunities. Furthermore, i companiesare not condent on the timing o approvals, they will be hesitant to contract or rigs andmay not order long lead time equipment and services until they have achieved an approvalmilestone; and this will urther extend investment timelines.


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The rate at which applications are made and approvals are granted is the pacing actorin determining how much investment there will be and what benets will fow to the USeconomy. In the subsequent sections o this report, we present analyses o the pace opermit approvals and the consequential impacts on investment, production, employment,and scal revenues.

plAN AND pERMIT ANAlYSIS

Plan and permit approval activity levels are leading indicators o the pace o investmentby the oshore oil and gas industry in the Gul o Mexico. The pace and volume o theseactivity levels directly contribute to near-term production and development activities. However,current activity is also critical to uture production in the longer term, which results romnear-term exploration (and subsequent development o new nds rom these explorationactivities).

IHS CERA conducted an empirical benchmarking analysis to assess the pace and volumeo plan and permit applications and approvals, comparing the levels under the new revisedregulatory ramework relative to pre-moratorium levels o activity. The results o the analysis,presented below, are based on an examination o publicly available BOEMRE data on planand permit approvals rom January 1, 2005, through April 10, 2011.

Key ndings around the observed change in the pace and volume o plan and permit activityinclude

Signifcant and growing backlog o plans pending approval. The number o pendingdeepwater exploration and development plans (the main engine o Gul o Mexicoproduction growth) has increased by more than 250 percent, up rom an historicalaverage o 18 plans pending to nearly 65 plans pending.

Signifcantly ewer plan approvals. Deepwater exploration and development planapprovals have dropped rom an annual average o nearly 130 per year to an annualizedpace o ewer than 30 per year, down nearly 80 percent. Shallow water explorationand development plan approvals have dropped rom an annual average o more than240 per year to an annualized pace o about 25 per year, down nearly 90 percent.

Declines in drill permit approvals. Deepwater exploration and development drillpermit approvals have also declined by approximately 80 percent, down rom an averageo nearly 160 per year to a pace o only 30 per year. Shallow water exploration anddevelopment drill permit approvals have also dropped by over 50 percent rom an

average o nearly 390 per year to a pace o ewer than 180 per year.

Although it is dicult to discern the exact causes behind the signicant variations romhistorical patterns, the results o the BOEMRE data analysis oer two important insights:

Is the process working? The pace o plan and permit approvals is signicantlybelow historical norms and indicates that the process appears not to be working asit was intended.


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What does the backlog signiy? There is a growing backlog o pending plans,which could suggest two possible conclusions:

The growing number o plans pending approvals refects industrys continuedappetite or investment in the Gul; but operators are struggling to understandor ulll the precise regulatory requirements.

The regulator is struggling to keep pace with the numbers o plan andpermit applications.

The growing backlogs o plans and the net reduction in overall plan and permit approvalsindicate that the regulatory process is signicantly constraining operators ability to investcapital, thereby hindering the generation o jobs and reducing production in the oshoreGul o Mexico.

OIl pRODUCTION IMpACTS

IHS CERA developed a Gul Activity Model to simulate uture production and capitalinvestment decisions, constrained by levels o plan and permit activity. This was to assesshow a reduction in the pace and volume o plan and permit activity maniests itsel inproduction and in the capital investment decisions o the industry.

The analysis o two scenariosone based on current Slow Recovery trends and anotherbased on a Proactive Recoverydemonstrates that there are signicant opportunitiesassociated with returning the pace o plan and permit activities to levels consistent withindustry investment appetite. The gap between these two scenarios shows that, over athree-year period, the combined benet on both shallow water and deepwater productionrepresents 300 million barrels (equivalent to an average o nearly 275,000 bd o oil) that

could be added to domestic production.

In 2012 alone the proactive scenario path identies additional production rom the deepwaterGul o Mexico o 411,000 bd more than under the slow recovery scenario or approvalstheresult o allowing eld developments already under way to move orward to production. This

One Year later, One Biion Barres Down?

Since 1998 new discoveries in the deepwater Gul o Mexico have, on average, contributed

more than one billion barrels o additional oil reserves each year. Although the moratorium wasofcially lited on October 12, 2010, the pace o permitting since then has been considerablyslower than beore the moratorium. In the more than 12 months since the imposition o themoratorium there were no new discoveries. The lack o substantial exploration during those 12months does not necessarily equate to the loss o a billion barrels o oilit may simply delaythe discovery o that oil. But discoveries that might have been made would be contributingto production or uture years. The felds that started producing in 2009, or example, werediscovered between 1988 and 2004. However, this recent gap in exploration activity will havesignifcant implications or uture supplies rom the Gul o Mexico.


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represents an annualized production gain o 150 million barrelsve times the amount thatPresident Obama announced on June 23, 2011, would be released rom the US StrategicPetroleum Reserve.*

Table-1 represents the production opportunities associated with the rst three years oproactively restarting the Guls approval engine.

As already noted, the near-term production opportunity derives primarily rom the immediateimpact o permitting the currently stalledbut well advanceddeepwater developmentprojects and allowing them into production. The longer-term impact results rom returningexploration plan and permit approvals in the near term to the level necessary to supportuture discoveries and subsequent production growth in Gul o Mexico oil. Although theproduction resulting rom exploration today may only be realized in seven to ten years, thelonger the delay in the pace and volume o exploration activities, the greater the challengein sustaining current production levels in the uture and the greater the risk o losinginvestments to other regions around the world.

CApITAl INVESTMENT IMpACTS

The incremental oil production opportunity stems rom increases in capital investment. Whilemost operators (both majors and independents) remain committed to the Gul, the lowercurrent levels o plan and permit approvals have orced many to consider redeployments oequipment, people, and capital expenditures to more promising opportunities. Our analysisindicates that more than $19 billion in pent up capital investment over the next three yearscould be reinjected into the economy i approvals rose to the proactive scenario level (seeTable 2).**

Nearly 95 percent o the combined activity gap capital investment opportunities are attributableto deepwater exploration and development opportunities. And as with the production impacts,the greatest opportunities arise early on in the outlook horizon. In order to saely restart theGul o Mexico engine o growth, the regulatory system requires the capacity to process plansand restore the pace o permit approvals consistent with operator investment capacity.

*http://www.energy.gov/news/10393.ht**Sum o Combined net capital expenditure increases during 201113

A Ca for Energy Security

On March 30, 2011, President Obama called or a one-third cut in oil imports by 2025 to reduceUS reliance on oreign oil. Again, on May 14, 2011, recognizing the important role the Gul oMexico can play in reducing oil imports by one-third by 2025, President Obama announced

he would open up more areas or leasing in the Gul o Mexico and Alaska.
http://www.energy.gov/news/10393.htmhttp://www.energy.gov/news/10393.htm


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Tabe 1

Guf of Mexico potentia Oi production Oortunities

Associated with the Activity Ga(thousand barrels per day)

2011 2012 2013

Shaow Water

Proactive Recovery Scenario 232 216 173

Slow Recovery Scenario 227 189 156

Activity Ga 5 27 17

Dee Water

Proactive Recovery Scenario 1,647 1,921 1,984

Slow Recovery Scenario 1,454 1,510 1,815

Activity Ga 193 411 169

Combined



Activity Ga 198 438 186

Source: IHS CERA.

Tabe 2

Guf of Mexico: potentia Caita Investment Oortunities

Associated with the Activity Ga(millions o dollars [2011 dollars])

2011 2012 2013

Shaow Water

Proactive Recovery Scenario 1,379 1,052 840

Slow Recovery Scenario 780 829 894

Activity Ga 599 223 (54)

Dee Water


Slow Recovery Scenario 2,656 7,259 12,551 Activity Ga 8,905 5,920 3,689

Combined



Activity Ga 9,504 6,143 3,635

Source: IHS CERA.


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ECONOMIC IMpACTS

Production activities and capital investments on the part o industry will have ar-reachingimplications or the Gul o Mexico regional economy. However, the economic impacts extendar beyond the Gul shores into the heartland o the US economy and across the country.Increased investment and resulting production will have a positive impact on employment,

tax receipts, and general economic activity in the ways we now outline based on IHS GlobalInsights economic analysis.

Emoyment Imacts

Table 3 presents the potential employment gains during the initial three-year comparisonbetween the scenarios. In 2011 alone nearly 110,000 jobs would be created or retained iinvestments return to normal levels. In 2012, the peak year or job perormance relative tothe slow recovery scenario, that number climbs to nearly 230,000 jobs, which exceeds theworldwide employment o General Motors.* Put another way, the incremental employmentin 2012 would, on a monthly basis, exceed the recent jobs report o only 18,000 seasonally

adjusted nonarm jobs. Increasing activity in the Gul o Mexico can meaningully movethe needle on the entire US employment picture.**

More importantly, these employment impacts are not just isolated to the states immediatelybordering the Gul o Mexico. In act, more than one in every three jobs will be oundoutside the region. These indirect and induced impacts cascade nationally through theeconomy because the oil and gas industry purchases supplies; equipment; and high-technology,geological, and other services rom vendors in every corner o the United States. (This doesnot include the impact outside o the Gul o investments in securities held by individuals,institutions, and pension unds across the country).

*Employment numbers cannot be summed.**www.bls.gov

Tabe 3

US potentia Emoyment Oortunities

Associated with the Activity Ga(workers)

2011 2012 2013

Direct 23,080 26,587 13,772

Indirect 48,620 61,594 30,664

Induced 36,786 140,951 154,157

Tota 108,486 229,131 198,593

Source: IHS Global Insight.
http://www.bls.gov/http://www.bls.gov/


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Federa, State, and loca Government Tax Revenue

Beyond employment impacts, restarting the Gul o Mexico will increase government taxrevenues paid by oil and gas producers, their employees, the energy industrys extensive supplychain, and other companies in ancillary industries. As depicted in Table 4, IHS Global Insightestimates that a total o $25 billion o additional royalty payments along with corporate and

personal tax revenues could be realized by ederal, state, and local governments i industryactivity in the Gul ollowed the path described in our Proactive Recovery scenario. Thisunderscores the importance o saely returning to pre-moratorium drilling levels. Givenunprecedented ederal and state budget decits, a recovery in drilling represents one elementin a multistep approach in resolving the nations current scal crisis.

These increased scal revenues can be better understood in the context o programs theyund and services they provide. The nearly $12 billion in additional revenues identied in2012 would be enough to ully und the Department o Labor or Department o Interior ora year or und nearly 50 percent o the annual budgets o the Department o Agricultureor Department o Energy.

Gross Domestic product Imacts

To quantiy the size o the near-term opportunity or US GDP, IHS Global Insight comparedthe Slow Recovery Scenario with the Proactive Recovery Scenario. In Figure 1 GDP growthunder the Proactive Recovery Scenario is higher in 2011, 2012, and 2013.

Tabe 4

US potentia Tax Revenue Oortunites Associated with the Activity Ga(million dollars)

Taxes and RoyatiesUnited States Cumulative

2011 2012 2013 201113

Federa Taxes 2,483 5,108 3,953 11,544

Personal Taxes 1,814 3,844 3,185 8,842

Corporate Taxes 670 1,264 768 2,702

State and loca Taxes 1,586 3,324 2,163 7,073

Personal Taxes 178 394 342 913

Corporate Taxes 1,408 2,930 1,821 6,160

Tota, Federa, State, and loca Taxes 4,069 8,432 6,116 18,617

Royaties Retained by Federa Government 1,460 3,398 1,527 6,384

Royaty Distributions to States 15 34 15 64

Tota Royaties 1,475 3,432 1,542 6,449

GRAND TOTAl 5,544 11,864 7,658 25,066



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The near-term gain in GDP is $24 billion in 2011 and reaches a maximum o $44 billionin 2012, ollowed by another increase o $27 billion in 2013.* It is important to note thatactual GDP is not contracting in 2013 rom the peak impact in 2012, but rather that the gapbetween the two scenarios is narrowing as the Slow Recovery scenario reaches convergencewith the Proactive Recovery scenario. As such, plan and permit levels or 2013 are closerto pre-moratorium levels than in 2012, and thereore the opportunity or gap to capture iscomparatively smaller in 2013. The signicant, short-term economic benets underscore theurgency o saely returning the Gul o Mexico back to work as there is a narrow windowo opportunity. Failure to act switly will ensure these economic gains are missed.

Summary Economic Imacts by State

Finally, to understand how these economic impacts cascade through the broader US economy,IHS has conducted a state-level analysis o key economic indicators such as employment andtax revenues. From an employment perspective, our analysis ound that the most signicant

job improvements outside o the Gul will be in states such as Caliornia, Florida, Illinois,Georgia, and Pennsylvania.

*These gures refect IHS Global Insights dynamic modeling, and the year-by-year totals are not additive on acumulative basis.


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To estimate these impacts, the components o the activity gap are converted into dollars andcombined to calculate the aggregate activity gap. To ll the estimated activity gap, eachindustry in turn requires additional labor and value-added inputs through the entire supplychain or direct and indirect impacts.

In addition to the IMPLAN model, IHS Global Insight used its propriety state-o-the-artmodeling systems, multilateral trade, and business demographics databases (includingTransearchTM,Business Market InsightTM, US Macroeconomic Model, and US Regional Model)to track the sources o additional indirect and induced impacts by industry and state.

Table 5 provides an examination o the employment and tax revenue impacts or selectstates, ranking the states based on the employment impact numbers or 2012.

State ImactsA Coser look

Louisianas potential incremental revenues o $1.3 billion would allow the state to close morethan 80 percent o its current $1.6 billion budget shortall. Additionally, IHS Global Insightestimates Louisiana would gain $2.78 billion in revenue over the frst three years o the recovery

period. This is about the size o annual higher education budget o Louisiana and over hal ostate annual allocations or education. Over the initial three-year period described under thescenarios, this sum would und 264,000 public school students, based on the 2009 average perpupil expenditure o $10,533. Or, looked at another way, each household in Louisiana wouldhave to generate an additional $530 o state and local taxes per year, during those three years,to make up or the $2.78 billion.

Further down the rankings o states, Pennsylvania would gain an additional $61 mill ion in stateand local tax revenues in 2012 and a total o $140 million over the frst three years o ProactiveRecovery scenario. The frst year o state tax revenue gains are about 50 percent o the currentstate public library subsidy. Alternatively, the sum o the tax revenue increases identifed in thefrst three years o the scenarios could und 11,000 public school students, based on the 2009average per pupil expenditure o $12,512.


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CONClUSION

The current pace o regulatory approvals is a constraining actor on the oil and gas industrysability to make its contribution rom the Gul o Mexico to restoring growth and employment inthe US economy. The results o the BOEMRE data analysis oer two important insights:

The process constrains benefts The current pace o plan and permit approvals issignicantly below historical norms and indicates that the process is not workingsmoothly.

Industry is ready.

The growing backlog o plans awaiting approval indicates thatthe industry remains ready to invest as quickly as it is permitted to do so.

This study quanties the gap between industrys capacity to operate and governmentscapacity to regulate. It denes the scale o the opportunity or government and industry towork together or the benet o the US economy and its energy security and, at the sametime, to assure compliance with the saety standards that are needed.

Tabe 5

State-eve potentia Emoyment and Tax Revenue Oortunities

Associated with the Activity Ga for States with Greatest Emoyment Oortunity

Employment Opportunities State Tax Revenue Opportunities (thousand $)

State Rank 2011 2012 2013 2011 2012 2013Alabama 11 1,680 3,353 3,330 12,088 27,443 22,347Caliornia 3 6,139 14,292 12,756 84,391 181,625 151,238Florida 5 3,252 7,497 6,671 21,618 43,816 34,060Georgia 10 1,788 3,975 3,462 17,107 34,910 28,336Illinois 6 2,772 6,069 5,276 41,963 79,155 59,755Louisiana 2 37,323 68,319 52,218 677,010 1,317,887 784,704Mississippi 7 2,790 5,440 4,765 18,871 32,296 22,538Missouri 14 1,206 2,935 2,506 12,050 25,887 19,945New Jersey 17 512 1,249 1,859 5,721 14,326 10,756New York 4 3,584 8,809 8,076 48,439 106,193 91,757North Carolina 12 1,202 3,347 3,166 12,544 31,256 27,871Ohio 9 1,915 4,539 4,246 5,316 12,510 12,560Oklahoma 16 1,118 2,073 1,653 10,584 18,720 14,069Pennsylvania 8 1,978 5,214 4,893 27,751 61,413 50,591Tennessee 15 1,332 2,810 2,493 10,503 19,501 15,156Texas 1 33,784 73,944 58,816 539,448 1,205,981 723,108Virginia 13 1,239 3,248 3,015 11,065 25,503 21,473Rest oUnited States 4,853 12,021 19,392 29,503 85,549 72,876

Tota 108,466 229,134 198,594 1,585,973 3,323,971 2,163,141


Notes: Ranks are based on employment opportunities or 2012. States wi th 2012 employment opportunities below 1,000 workers are

aggregated into "Rest o United States.


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Increasing the pace o approvals will provide widespread and substantial nancial returnsto the US taxpayer, measured in billions o dollars o scal revenues over the coming threeyears. Furthermore, the economic stimulus that such an investment would create, along withthe private sector investment it would precipitate, can be measured in hundreds o thousandso jobs and billions o dollars o contribution to GDP.

Restarting the stalled economic engine o the Gul o Mexico would help meet the urgentnational needs o job creation, increased tax revenues, and higher economic growthaswell as increased energy security. n


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Aendix

State-eve potentia Emoyment and Tax Revenue Oortunities

Associated with the Activity Ga

Employment Opportunities State Tax Revenue Opportunities (thousand $)State Rank 2011 2012 2013 2011 2012 2013

Alabama 11 1,680 3,353 3,330 12,088 27,443 22,347

Arizona 26 195 604 1,066 605 3,429 3,210Arkansas 27 497 593 306 5,012 6,502 3,745Caliornia 3 6,139 14,292 12,756 84,391 181,625 151,238Colorado 25 269 694 1,096 1,309 3,988 3,292Connecticut 30 182 546 928 2,048 6,236 4,997DC 39 38 144 269 185 1,300 1,216Florida 5 3,252 7,497 6,671 21,618 43,816 34,060Georgia 10 1,788 3,975 3,462 17,107 34,910 28,336Illinois 6 2,772 6,069 5,276 41,963 79,155 59,755Indiana 20 275 769 1,297 1,731 6,098 5,472Iowa 33 172 426 700 1,330 4,193 3,645Kansas 31 299 489 671 2,286 3,919 3,028Kentucky 23 356 714 939 2,796 5,727 4,302Louisiana 2 37,323 68,319 52,218 677,010 1,317,887 784,704Maryland 28 159 559 1,054 522 4,352 4,239Massachusetts 19 240 808 1,459 1,929 7,120 6,211Michigan 18 423 900 1,751 2,121 4,413 5,038Minnesota 21 257 753 1,283 1,912 7,484 6,438Mississippi 7 2,790 5,440 4,765 18,871 32,296 22,538Missouri 14 1,206 2,935 2,506 12,050 25,887 19,945Nebraska 35 107 276 459 723 2,123 1,807Nevada 34 156 377 586 19 67 59New Jersey 17 512 1,249 1,859 5,721 14,326 10,756New Mexico 36 101 242 364 1,019 2,180 1,653New York 4 3,584 8,809 8,076 48,439 106,193 91,757

North Carolina 12 1,202 3,347 3,166 12,544 31,256 27,871North Dakota 40 47 113 179 396 924 694Ohio 9 1,915 4,539 4,246 5,316 12,510 12,560Oklahoma 16 1,118 2,073 1,653 10,584 18,720 14,069Oregon 32 155 453 760 946 3,709 3,287Pennsylvania 8 1,978 5,214 4,893 27,751 61,413 50,591South Carolina 29 219 549 844 959 2,993 2,519South Dakota 41 33 103 179 4 18 17Tennessee 15 1,332 2,810 2,493 10,503 19,501 15,156Texas 1 33,784 73,944 58,816 539,448 1,205,981 723,108Virginia 13 1,239 3,248 3,015 11,065 25,503 21,473Washington 22 224 721 1,282 267 1,353 1,245West Virginia 38 55 187 325 403 1,653 1,398Wisconsin 24 211 696 1,262 808 4,857 4,588Wyoming 37 162 230 192 73 108 65Rest o United States 18 75 141 99 804 712

Tota 108,466 229,134 198,594 1,585,973 3,323,971 2,163,141


Notes: Ranks are based on employment opportunities or 2012. States with 2012 employment opportunities below 100 workers are aggregated

into "Rest o United States.

Restarting “the Engine”–Securing American Jobs, Investment, and Energy Security

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