REPORT

Offshore Shilling

An analysis of the economic studies justifying the Department of Interior's offshore drilling plan

The federal government is relying on economic predictions heavily influenced by the oil and gas industry as justification for its proposed offshore drilling program.

The program, formally announced in March 2016 in a 279-page publication by the Bureau of Ocean Energy Management (BOEM), controversially proposes leasing areas of the Gulf of Mexico and Arctic Ocean for oil and gas drilling, citing “increased wages, additional jobs, increased tax collection, revenue sharing, and proximity of supply and consumers economic” as its economic rationale.

BOEM’s economic analysis, however, appears to be overwhelmingly derived from reports either funded by the oil and gas industry itself or by think tanks, consulting firms, and dark money advocacy groups that draw money and leadership from the petroleum industry.

The government’s reliance on industry-tied reports as the justification for a contentious drilling proposal is a continuation of a trend, now known as “frackademia,” by which the oil and gas industry and its allies have funded and advanced flawed and misleading research promoting drilling as environmentally safe and economically beneficial. The Public Accountability Initiative has played a leading role in exposing this trend, publishing several reports on the phenomenon and maintaining a database of frackademic studies.

Such studies, which tend not to be peer-reviewed (as is the case with those referenced by BOEM), often rely on flawed assumptions and easily-manipulated computer models that can produce overly optimistic results.

Of the nine studies named in the economic analysis portion of the proposal, all but one came from industry-tied sources, nearly half were directly funded by oil and gas companies or lobbying organizations, and none had been subject to peer review.

Key Findings

  • Eight of the nine economic impact studies referred to in BOEM’s proposed offshore drilling plan come from industry-tied sources.
  • Four of the nine studies referenced were directly funded by oil and gas companies or lobbying groups.
  • BOEM referenced a study prepared by the largest oil and gas industry trade group, the American Petroleum Institute.
  • BOEM considered another study prepared by an industry-tied economist for a secretive front group led by Richard Berman, a notorious astroturf lobbyist.

BOEM’s plan to drill in the Arctic and the Gulf of Mexico

The oil and gas industry has managed to get an important audience for its self-serving research at an especially contentious moment for offshore fossil fuel exploration, as the federal government considers offering leases for exploratory drilling in highly sensitive Arctic habitats. Most of the potential lease sales on offer — 10 of 13 — are for exploration in the Gulf of Mexico, in an area stretching from the west Alabama coast to Southern Texas. The other three leases are located off the coast of Alaska, in the Beaufort Sea and Chukchi Sea to the north in the Arctic Ocean, and the Cook Inlet in the South, near Anchorage. The only company to ever drill an exploratory well in the Arctic, Shell, abandoned the venture last year.

The public comment period for the Proposed Program is open until May 2, and could be a critical window to halt lease offerings in the Arctic, according to 350.org; the Interior Department announced that it will consider public comments calling for “no new leasing, as well as other measures to protect natural resources and reduce conflicts with other ocean uses” off the coast of Alaska.

BOEM relied on industry-tied economic analyses to justify drilling plan

Chapter 8 of BOEM’s proposed drilling program outlines the economic benefits the agency predicts for regions where offshore drilling occurs. In a footnote at the beginning of the chapter, BOEM introduces its economic analysis by describing myriad independent sources studying the economic effects of drilling:

Many independent groups study the economic benefits associated with the oil and gas industry, representing the oil and gas industry, academia, environmental groups, trade associations, economic development associations, and more.

The bureau then lists “some of the studies BOEM has considered during its analysis” with the caveat that they are being presented “for information purposes” and that “none of the studies necessarily represent the views of BOEM or USDOI.”

All but one of the studies named by BOEM came from industry-tied sources. The industry-tied studies listed were produced by the American Petroleum Institute, the Center for Strategic and International Studies, the Interstate Policy Alliance, IHS Global Insight, Northern Economics, Quest Offshore, and the Thomas Jefferson Institute for Public Policy. BOEM also considered a study by the Natural Resources Defense Council in its analysis, the only study that does not have strong industry ties.

Moreover, four of the nine studies referenced were funded directly by oil and gas companies or their lobbying groups. Four studies that were not directly funded by the industry came from sources were prepared by think tanks, consulting firms, and dark money advocacy groups that draw money and leadership from the petroleum industry.

None of the studies considered were peer reviewed.

The studies referenced in BOEM’s proposal and the groups that funded and authored them can be seen in the map embedded below. Profiles of each study and the organizations behind them follow.

American Petroleum Institute

Study referenced by BOEM:Offshore Access to Oil and Natural Gas Resources.” (Though BOEM refers to a report from October 2014, that version does not appear to be available any more. This link points to a report of the same name dated March 2016.)

This study documents the potential economic impact of drilling in various parts of the U.S. Outer Continental Shelf.

Industry ties: The American Petroleum Institute (API) is the primary oil and natural gas trade association with over 600 dues-paying member organizations. From API’s website:

Our corporate members, from the largest major oil company to the smallest of independents, come from all sectors of the industry. They are producers, refiners, suppliers, pipeline operators and marine transportation companies, as well as service and supply companies that support all segments of the industry.

Membership dues are calculated company-by-company based on their production and provided API with a $211 million budget in 2013, according to its latest 990 tax document.

API considers itself the “unified voice” of the oil and gas industry and spends millions on lobbying expenditures. Over the last five years API has spent an average of $8.4 million annually on lobbying contracts.

In addition to lobbying and producing their own research, API is a major funder of industry friendly research and scholars, which the Public Accountability Initiative has covered extensively in previous reports. In fact, API funded both of the Quest Offshore studies referenced by BOEM.

Interstate Policy Alliance

Study referenced by BOEM:Economic and Environmental Impacts of Oil and Gas Development Offshore the Delmarva, Carolinas, and Georgia.” September 2014.

This study assesses the economic impacts of drilling in the Atlantic.

Industry ties: This report was prepared by University of Wyoming economist Timothy Considine for a group called the Interstate Policy Alliance. The Interstate Policy Alliance (IPA) is one of a network of front groups established by the right-wing public affairs specialist Richard Berman. Berman is notorious for his attack and misinformation campaigns on behalf of anonymous corporate sponsors in the restaurant, tobacco, and food industries.

In late 2014, after Berman-funded economic studies supporting fracking began showing up in the op-ed sections of regional newspapers, the New York Times reported that Berman had been taped giving a keynote address to the Western States Petroleum Association in which he told the gathered oil and gas industry representatives that they were engaged in an “endless war” against fracking opponents and that they could “either win ugly or lose pretty.” He encouraged companies to donate to his groups, promising that their funding would be kept secret:

“People always ask me one question all the time: ‘How do I know that I won’t be found out as a supporter of what you’re doing?’ ” Mr. Berman told the crowd. “We run all of this stuff through nonprofit organizations that are insulated from having to disclose donors. There is total anonymity. People don’t know who supports us.”

Timothy Considine, the author of the IPA report referenced by BOEM, has produced several studies for Berman’s front groups arguing for increased drilling. Considine has a long history of producing economic studies favorable to fossil fuel industries – including oil, gas, and coal – on commission for those industries. His Marcellus Shale studies, funded by a Pennsylvania natural gas lobbying group, famously influenced that state’s decision to embrace hydraulic fracturing, and a misleading, error-filled study he wrote for the State University of New York at Buffalo’s Shale Resources and Society Institute resulted in the institute’s closure amid an investigation into its funding by the SUNY board of trustees.

PAI has been reporting on Considine’s oil-and-gas-sponsored work for nearly four years. In 2010, the dean of the Penn State College of Earth and Mineral Sciences retracted a report published by Considine for failing to disclose its funding by the Marcellus Shale Coalition, a Pittsburgh-based fracking lobbying group and for crossing “the line between policy analysis and policy advocacy.” That study, part of a series published from 2009 through 2011, was reissued with a disclaimer about its funding.

In 2012, PAI analyzed Considine’s report published by the SUNY at Buffalo Shale Resources and Society Institute and found that its central conclusion had been produced by an arithmetic error and that several sections had been lifted, without attribution, from other reports Considine had authored for API and the Manhattan Institute, a pro-drilling think tank.

PAI also reported on a 2014 op-ed column by Considine advocating fracking in the Monterey Shale in California that was rendered moot a week after its publication when the US Geological Survey downgraded its recoverable resources estimate for the region, and the appearance of the first of Considine’s Berman-sponsored studies, which was funded by one Berman front group and cited by a second in several op-ed columns published in Rocky Mountain regional newspapers.

Northern Economics

Study referenced by BOEM:Economic Analysis of Future Offshore Oil and Gas Development: Beaufort Sea, Chukchi Sea, and North Aleutian Basin.” March 2009.

The study analyzed the economic impact of offshore development in the Beaufort Sea and Chuckchi Sea.

Industry ties: The study was done under contract with Shell Exploration & Production, Inc. In its analysis of potential offshore drilling in the Chukchi, Beaufort, and North Aleutian basin Planning Area, the authors of the report estimated that the total value of wages and salaries associated with offshore oil and gas development would amount to $72 billion over a 50 year period.

Northern Economics refers to itself as an “objective” economics consulting firm. In addition to townships, state and federal agencies, its clients have included numerous private companies, including Exxon, Shell, and Texaco.

In 2010, Shell used this same study to press its case for drilling in the Arctic, specifically citing the $72 billion figure. Trade groups and other pro O&G sources continued to cite the figure in 2015, three years after the federal government revoked Shell’s permission to drill in the Chukchi Sea because of basic operational and safety oversights. Although the Obama administration again granted Shell a permit to drill in the Chukchi in August 2015, the company abandoned its venture a month later, citing myriad complications.

Quest Offshore Resources

Studies referenced by BOEM:United States Gulf of Mexico Oil and Natural Gas Industry Economic Impact Analysis.” June 2011. “The Economic Benefits of Increasing U.S. Access to Offshore Oil and Natural Gas Resources in the Atlantic.” December 2013.

These studies examine the economic effects of drilling in the Gulf of Mexico and in the Atlantic seaboard respectively.

Industry ties:
These studies were prepared by the consulting firm Quest Offshore on behalf of the American Petroleum Institute (see API section above for more information on this lobbying group) and the National Ocean Industries Association, two trade groups that lobby for the oil industry.

Quest Offshore is a “global advisory firm to the oil & gas industry” and counts Shell, ExxonMobil, GE Oil & Gas, Total, BP and Chevron among its clients. It hosts an annual conference on deepwater resource development sponsored by major oil and gas companies across the world.

Paul Hillegeist is the co-founder, president and COO of Quest Offshore. He got his start in oil and gas at the firm that is now called IHS, another consulting firm referenced by the BOEM in its Proposed Program. Hillgeist’s LinkedIn profile says he was hired by a Super-PAC in 2012 to “engage & advise one US Presidential Candidate on North American energy policy and key offshore oil and gas issues.” He has also provided expert advice to the “buy side energy space including leading global hedge funds, institutional and private equity investors such as BlackRock and T. Rowe Price.” His active Twitter account indicates he is a personal booster of increased offshore drilling.

Hillegeist’s firm, Quest Offshore, drafted several of the most recent reports on the economic benefits of offshore drilling featured on National Ocean Industries Association’s website. The association is “the only national trade association representing all segments of the offshore industry.” In April 2015, NOIA released a booklet summarizing its case for removing regulatory barriers to offshore drilling, directly referencing Quest Offshore research:

A report from Quest Offshore Resources shows that providing access to these areas for oil and natural gas development could spur a flurry of investment and economic activity that could put hundreds of thousands of Americans to work, provide billions of dollars for federal and state treasuries, and further strengthen our energy security.

The NOIA booklet cites Quest Offshore more than any other single source.

IHS Global Insight

Study referenced by BOEM:The Economic Impact of the Gulf of Mexico Offshore Oil and Natural Gas Industry and the Role of the Independents.” July 2010.

This study argues the economic benefits of offshore drilling in the Gulf of Mexico.

Industry ties: IHS Global Insight is a subsidiary of the global consulting conglomerate IHS Inc, which derives a considerable portion of its revenues from the energy industry. According to IHS’s most recent annual report with the SEC, the firm brought in more than $796 million from its energy offerings in 2015 – 36% of its total revenues.

The firm has published numerous studies for oil and gas lobbying groups such as the American Petroleum Institute, the American Gas Association, and America’s Natural Gas Alliance (which has since merged with the API). Several industry-funded reports by IHS and their oil and gas industry ties can be seen in PAI’s database of “frackademic” studies.

IHS Vice Chairman and IHS Cambridge Energy Research Associates founder Daniel Yergin has numerous personal ties to the oil and gas industry. He is a member of the National Petroleum Council, a “Wise Man” of the International Gas Union, a member of the Russian Academy of Oil and Gas, an Adjunct Professor at the China University of Petroleum in Beijing, and an advisor at Accelergy, a company that converts biomass, natural gas, and coal into motor fuel.

PAI has covered IHS’s role in frackademia in previous reporting, including the report Frackademia in Depth, which looked at a set of industry-tied studies used by the Independent Petroleum Association of America-backed grassroots lobbying group Energy in Depth to encourage local lawmakers to lease land for gas drilling.

Center for Strategic and International Studies

Study referenced by BOEM:Arctic Economics in the 21st Century: The Benefits and Costs of Cold.” July 2013.

This study examines the potential economic impact of drilling in the Arctic.

Industry ties: The Center for Strategic and International Studies (CSIS) is a prominent US think tank that has published several studies favorable to the oil and gas industry, to which it has strong ties among its funders and its board of trustees. The principal author of CSIS’s Arctic study, Heather A. Conley, formerly worked for a consulting firm run by a current CSIS trustee for oil and gas clients.

According to its website, CSIS brought in at least $1.4 million in corporate donations from 18 oil and gas companies in 2015, including donations of at least $200,000 each from ExxonMobil and Chevron. Other major oil and gas donors to CSIS include ConocoPhillips, Shell, and Statoil.

The CSIS board of trustees also includes several executives from oil and gas companies. Richard L Armitage, a director of ConocoPhillips, John B Hess, CEO of Hess Corporation, Ray Hunt, the executive chairman of Hunt Consolidated, and Rex Tillerson, CEO of ExxonMobil, all sit on the board. James L Jones Jr, a former Chevron director and an advisor to the American Petroleum Institute, also sits on the CSIS board of trustees, as does Stanley Druckenmiller, a hedge fund manager who has a long history of oil and gas investment. Chairman Sam Nunn is a former director of Chevron, Hess, and General Electric.

Heather Conley, the principal author of the CSIS Arctic study, is a former employee of Armitage International, a consulting firm run by CSIS trustee and current ConocoPhillips board member Richard Armitage (though she worked for Armitage before he joined the ConocoPhillips board) . According to her CSIS biography, Conley’s clients at Armitage International “included major oil and gas firms.”

Thomas Jefferson Institute for Public Policy

Study referenced by BOEM:Oil and Gas Potential Off Virginia’s Coast.” September 2014.

This study reviews the potential economic benefits of drilling in the Atlantic, off the coast of Virginia.

Industry ties: This report was written by Michael W Thompson, the chairman and president of the Thomas Jefferson Institute for Public Policy (TJI). TJI is a member of the State Policy Network, a Koch-tied consortium of right-wing think tanks that share resources and are fueled by a dark network of funders.

Robert J Brulle of Drexel University identified the Thomas Jefferson Institute as a member of the burgeoning climate counter-movement in his seminal paper, “Institutionalizing delay: foundation funding and the creation of U.S. climate change counter-movement organizations.” The institute has received funding from numerous foundations that fund organizations that work to undermine climate science and advocate against government policies that address climate change. The foundations identified by Brulle that also fund TJI include DonorsTrust/Donors Capital Fund, Jaquelin Hume Foundation, The Roe Foundation, JM Foundation, and Chase Foundation of Virginia.

The Thomas Jefferson Institute’s energy programming is sponsored by and promotes industry insiders. In 2014 their annual “Leadership roundtable on energy and environmental stewardship” was sponsored by the Koch-backed Freedom Partners, and featured talks by representatives from Devon Energy, Consumer Energy Alliance, and Peabody Energy. The conference also featured a presentation on political landscape from GOPAC, a political action committee that trains and funds up and coming Republican candidates. GOPAC Chairman Frank Donatelli is married to TJI board member R Rebecca Donatelli.

Additionally, TJI hosts federal policy dinners where attendees can hear opinions on policy topics while dining on crabcakes and “petite filets.” Last year’s dinner featured Marc Morano, a notorious climate change-skeptic, who was featured in Merchants of Doubt, a documentary about scientists and public relations professionals who work to undermine climate science. He is the Communications Director for the climate change-denying Committee for a Constructive Tomorrow, which has received funding from ExxonMobil and shares several donors with TJI including DonorsTrust and Chase Foundation of Virginia.

In addition to their pro-industry funding and programming, TJI has industry representation on its board of directors with James W Beamer, Managing Director for Legislative Outreach – i.e. a lobbyist – at Dominion Resources Services.

About the Public Accountability Initiative

The Public Accountability Initiative (PAI) is a non-profit, non-partisan research and educational organization focused on corporate and government accountability. In addition to publishing research on critical public accountability issues, PAI maintains LittleSis.org, an involuntary facebook of powerful people and tool for power research that was used to compile date for this report. PAI’s work is funded by a variety of non-profit sources. PAI’s research on the oil and gas industry and fracking is funded by the 11th Hour Project of the Schmidt Family Foundation and the Park Foundation.

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3 Responses to Offshore Shilling

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