Michael Harness is no stranger to adversity. After successful stints at Amoco and Texas Eastern, he found himself in Houston without a job. So he did what any unemployed engineer would do – he started his own company.

Fast-forward 20 years, and Harness now is the chairman, president, and CEO of Osyka Corp., a Houston-based independent oil and gas company with assets in Texas and Mississippi. Osyka has no unconventional or offshore assets; rather, it specializes in relatively low-risk, low-margin fields.

And the sabre rattling in Washington has Harness worried. Even before the disastrous oil spill in the Gulf of Mexico (GoM), the Obama administration was planning to repeal the expensing of intangible drilling costs, which Harness said will certainly have an impact on small independents. Since the spill, it has only gotten worse.

“I am perhaps more fearful of the long-term environmental compliance issues resulting from the offshore spill,” he said. “I would almost have to imagine that, although (the Macondo well blowout) happened offshore, some of the guidelines and regulatory reforms that are being suggested will end up affecting the onshore players as well.”

Already, onshore companies are concerned about possible regulation of hydraulic fracturing, which, since the resource plays have become popular, is undergoing increasing scrutiny at the state and federal levels. Harness anticipates that new regulations regarding fracturing will drive operating costs up across the board, making his company’s profit margins even slimmer.

“The saving grace right now is that we have a pretty strong oil price environment that gives us a strong margin,” he said. “But it’s going to require that pricing environment to stay relatively strong for us to continue to enjoy a good profit margin on some of these stripper assets.”

He also is concerned that some of the independents currently operating in the GoM might decide to move back onshore, creating even more competition.

I asked him what alternatives he might offer legislators, and he said the industry is doing fine onshore. As regulators investigate the unconventional plays and become more knowledgeable about the technology, he added, they will be less likely to suggest overkill legislation. “I think Congress and people in the regulatory environment need to become more acquainted with the technologies so that they can offer legislation that’s going to be compatible with how we operate,” he said.

One change he recommends is to treat natural gas as an “alternative energy.” “Natural gas is becoming our abundant supply resource in the US, and it’s a clean-burning fuel,” he said. “If we could get Congress to view it as an additional supply source, there wouldn’t be as much pressure to come up with other alternative fuels. Solar, nuclear, and coal all have their limitations, and on a per-barrel basis, it’s going to be a while before the US will become non-dependent on fossil energy.”

Harness added that while lobbying groups are doing a good job bringing the message to Capitol Hill, he would like to see them reach across party lines and involve more Democrats in the discussions. “This is an excellent time for Congress and the regulatory agencies to come together in a comprehensive way and put together a policy that is not a knee-jerk type of policy but one that can benefit the American citizens as well as be workable to the members of the oil and gas sector,” he said. “There is a win-win. We just need all stakeholders to sit down and be willing to work on that.”

So what is a tiny independent to do? Harness said that Osyka has been working within the local schools to promote and explain the industry. Other companies have held town hall meetings in the regions where they operate, particularly as concerns about fracturing have come to the forefront.

It would behoove operators of all sizes to make their voices heard loud and clear, not just through their trade associations, but through any means available – op-ed pieces in the newspaper, letters to Congressmen, ads in the public media. About 5,000 companies drill 90% of the US oil and gas wells and have operated safely and responsibly for decades. Without some changes in the proposed regulations, they will be harshly punished for their efforts.

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