Government Overreach Continues to Harm Energy Industry

May 3, 2012

There is political spin and then there is intentional misrepresentation. We have come to expect a little of both in American politics, especially in an election year. As gasoline prices soar and we look for answers, it is important to distinguish between fact and fiction, a distinction that is becoming increasingly difficult as the disparity between words and deeds grows larger.

There are real-life consequences to what was discussed during President Barack Obama’s recent visit to Cushing. For starters, it is important to set the record straight on the size of America’s oil reserves. In a misuse of unrelated data, Mr. Obama compares U.S. oil reserves as a percentage of worldwide reserves and then claims that we consume a disproportionate share of world production. The truth is that most of the data being quoted are essentially irrelevant, and our huge resources are the focus of increased drilling and production. The growth in reserves that could be realized by proper energy policy could make the entire North American continent much more energy independent.

Likewise, there is no need to thank the government for advances in drilling technology. The shale gas revolution has been spurred not by government actions, but by innovative American entrepreneurs. Not only have these companies been able to marry horizontal drilling with hydraulic fracturing, but industry pioneers are also risking billions of their own dollars to perfect and apply this technology. Because of their resourcefulness—pun intended—America’s recoverable oil reserves grow every day, whether the president wants to admit it or not. Energy companies are growing and finding success in spite of government overreach, and increased government involvement will only hurt the industry. Imagine what could happen if government got out of the way.

Companies like Oklahoma’s own Devon Energy routinely reinvest more than they take in from the sale of their oil and gas production. For example, in 2011, Devon reported net earnings of $4.7 billion compared to $7.8 billion in total capital expenditures. Therefore, punitive tax increases and misguided regulatory schemes result in companies being forced to cut their investments, reduce production and jobs, and drive up consumer prices. Failed government policies have drastic results. If the goal is higher gasoline prices (as suggested by some but denied by others in the Obama Administration), the blueprint looks like this: single out the oil and gas sector, remove normal business deductions for costs of drilling wells, or selectively increase corporate tax rates on energy companies by doing away with deductions available to all other manufacturers. If these anti-energy policies sound familiar, it is because they have either been tried or suggested by this administration. Reduced drilling, less production, and higher prices are the natural consequences if these policies continue.

Obama says that U.S. oil and natural gas production is up, but the truth is that most of the increase relates to leasing and permitting decisions made before he took office. In fact, combined oil and gas production from all federal areas (land and water)—where the administration actually has control—was down in 2011 compared with 2009, according to U.S. Energy Information Administration data. Recent increases in U.S. oil and natural gas production—up almost 29 percent for oil and 22 percent for natural gas—have materialized only because of growing production on state and private lands. This is an important distinction because it shows just how harmful the federal government’s policies are in areas where they have a say.

Nearly a dozen federal agencies are planning, proposing, or implementing new programs or regulations to become involved everywhere in energy regulation, and permitting of oil and gas activity on federal lands is slow and getting worse. For example, Utah Gov. Gary Herbert recently expressed concern over new federal regulatory requirements. Gov. Herbert is rightly uneasy because an application for a permit to drill on federal lands in his state takes eight months to process, compared with 30 days for a state permit. But even with a track record like that, the U.S. Department of the Interior is now proposing to regulate hydraulic fracturing on federal lands instead of having producers continue to follow existing state rules that have led to a stellar environmental record.

Rather than let these states continue to do what they have shown they can do effectively, this administration prefers federal involvement. Besides inherent federalism problems, this idea makes very little sense in light of the federal government’s record on regulation. In two of the current investigations by the Environmental Protection Agency into whether hydraulic fracturing caused water contamination, agency incompetence has shown that the facts are actually what have been contaminated. Testing will need to be redone in one of those cases, and the other case is tainted by falsified evidence of burning water. Federal agencies like the EPA persist in undermining the environmental benefits of natural gas by overestimating methane emissions from natural gas wells—by more than 1,000 percent—despite having evidence that its numbers are leading to erroneous research and policy conclusions.

There is a common theme in all this information: the stark contrast between the prosperity brought by the free market and the ridiculous, bureaucratic mess created when government chooses winners and losers in the marketplace. The economic growth and optimism in Oklahoma City and in Oklahoma is a result of private-sector initiative and solid partnership with local and state governments, not punitive taxes and over-regulation.

Brian Bush (J.D., University of Oklahoma) is OCPA’s executive vice president.