Oil and Gas Realities

1. Oil and Gas Realities Lisa Flavin American Petroleum Institute November 17, 2008

2. Overview • Key factors that affect world and US supply and demand • General information • Offshore development

7. Yes! We need to grow alternative and renewable sources of energy. But US energy demand by 2030 will increase by 19% and fossil fuels will play key role. (US EIA) We need to get off oil and use renewable and alternative energy instead

9. We HAVE plenty of Supply right here in the US

10. We can’t drill our way out of this problem because the US only has three percent of the world’s oil reserves. REALITY: Vast resources right here in the US AND the Technology to develop responsibly Offshore Prudhoe Bay => produced 15 billion so far Gulf of Mexico => 500% more than 80’s forecast. Onshore Bakken Formation => 25 times more than 1995 estimate.

12. We need everything – Oil and Gas is just part of a comprehensive energy policy • Oil • Natural gas • Coal • Nuclear • Biomass and Renewables • Hydro

13. Why is oil and natural gas important?We use it for everything. • Workplace, Agriculture and Commerce • Health and Safety • Household Products • Outdoor, Indoor and Family Recreation • Transportation

14. Some examples of what oil and natural is used to make • Computers • Fertilizers • Adhesives • Feedstocks • Heating and Cooling • Tools • Artificial hearts and pacemakers • Aspirin • Soft contact lenses • Bandages • Emergency and Surgical equipment • Antihistamines

15. Why is oil and natural gas important to NC? • NC Energy Plan (2005) noted that initiatives were needed to increase to natural gas supply. • Industrial uses comprise of 32% of energy consumption in state. • Natural gas is key component in processes and energy use of industry.

16. Oil and Gas offshore

17. No Moratoria for now -What does that mean?Will they come to NC? What will be the interest? • Short answer – it depends • Geology • Technology • Infrastructure • Does it make sense in the business portfolio? • Regulatory Certainty – MMS must have a sale scheduled

18. Offshore Historic Today – can go out 200 miles and 10,000 feet Around 1887 - 300 feet into the Pacific Ocean

19. Allowing oil companies to drill would ruin the environment on our lands and off our coasts. • Breakthrough technologies, sub sea completions and multi-directional drilling help protect the environment. • Can develop nearly 80 square miles

21. Offshore Challenges • Technological • Geological • Business/Financial • Political/Public

22. Offshore Issues • Public opinion/political will • Can we see it from shore? • Will it hurt our beaches? • Employment/jobs

23. Oil companies are not developing the leases they already own. Why would they want more? • Billions paid for those leases • 1 in 6 is produced; 1 in 100 is Commercially viable • 10 year terms for deepwater leases • If not developed, must be returned to the federal government. • Chevron’s Blind Faith example – 100 million barrels

24. Increasing Public Support • Public awareness of need to do something • Moratoria expired • Post election poll by DC Post - 68% support offshore development • Unclear what the Congress and Administration will do next year • Need a comprehensive Energy Policy

25. Can we see offshore development?

27. Will it hurt our beaches?

28. We take Environmental Protection Seriously • Since Santa Barbara oil spill companies have developed advanced technologies • 2005 Hurricanes Katrina and Rita AND 2008 Ike and Gustav tested our technology • MMS and the U.S. Coast Guard – no significant spills from offshore platforms • 17 major permits and 90 sets of federal regulations.

29. Spill Preparedness - Success Story • OCS leases produce 1.4 million barrels of oil per day • Less than 0.001% of the oil produced in the OCS has spilled. (MMS) > volume of GOM natural seeps. • Requirements under OPA 90 regulate oil spill prevention and response from E&P operations • Industry is required to test or exercise their response under the National Preparedness for Response Exercise Program. • Federal point of contact for any spill is the National Response Center staffed by the U.S. Coast Guard.

30. Employment/Jobs • Oil and natural gas industry in the US employs 6 million people either directly or indirectly • E&P employs almost 500,000 directly in every state in US (US Census Bureau, 2006) • Oil and natural gas are building blocks of consumer products thus important for economy.

31. Coastal Communities • In Louisiana – extraction industry produced over $24.6 billion in total income to the state. (LMOGA) • Rigs as Reefs - 22% of recreational fishing trips and 94% of diving trip in the Gulf were taken within 300 feet of a platform. (MMS, 2002) • $172.9 million was spent on trip-related costs and $640 on equipment • Expenditures led to 324.6 million in additional economic output supporting more than 5,500 jobs in the Gulf region.

32. History of NC Offshore Oil and Natural Gas Development • 1988 Mobil Oil Company proposed to drill a block 40 miles from coast. Lawsuit was filed and Mobil relinquished leases. • 1997 Chevron proposed to drill and filed a POE. 1998 – President Clinton withdraws areas not already included in Congressional moratoria. Chevron relinquishes leases. Conoco had an interest but also relinquishes in 2000. • Estimates were 5-6 Tcf.

33. Conclusion Policy Choices that are Needed to Ensure Future Energy Security

34. What can consumers and politicians do? • Conserve energy • Encourage energy efficiency • Reduce barriers to increasing domestic supplies • Encourage investment in long-term energy initiatives and advanced technologies • Rely on market forces to allocate products • Refrain from new taxes that make it more expensive to develop our domestic supplies • Do not isolate the US – participate actively in global energy markets.

36. Thank You! Lisa Flavin American Petroleum Institute flavinl@api.org