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Producers Seek 'Crude Awakening' in D.C.

Producers Seek 'Crude Awakening' in D.C.

Unconvinced that the latest uptick in domestic oil prices signals a turnaround, domestic producers last week descended on the White House and Capitol Hill to make a direct pitch for marginal well tax credits, exploration and production (E&ampP) incentives and other economic reforms to boost the ailing oil and gas industry.

Producers, particularly independents, weren't encouraged in the least by the slight rise in the price of West Texas Intermediate (WTI) crude stemming from the announced production cuts by the Organization of Petroleum Exporting Countries (OPEC). They urged the Clinton administration and Capitol Hill lawmakers not to be lulled into thinking that the price blip meant that reforms for the domestic oil and natural gas industry were no longer needed.

"Certainly some people look at that [price rise] and say 'well your problem is solved because OPEC's going to announce production cuts.' We support restraint from the suppliers of oil around the world. The problem is that even after the announced cuts, the price of oil is still at about $14 a barrel. That translates into prices in the field from about $8 to $12 a barrel," said George Yates, chairman of the Independent Petroleum Association of America (IPAA). The price of WTI crude hovered at the $15 mark last week.

"When you see it at $17 or $18 and headed north, you know that the oil industry can start getting back to work. The price [impact] as a result of the OPEC announcement is still extremely low. OPEC still does not seem to have any credibility in the market. And we are not going to let that be used as an argument against major legislative reform," he told reporters during a press conference on Capitol Hill last Thursday.

The briefing came at the end of IPAA's week-long "Crude Awakening Campaign," during which independents met with top-ranking administration officials and then with Senate and House lawmakers representing energy-producing states. They presented an "Oil Price Crisis Relief Resolution" signed by more than 50,000 producers and the local political/business interests urging the federal government to take a number of steps, such as continuing to fill the Strategic Petroleum Reserve with oil purchased from domestic producers and to support marginal well tax credits, to lift oil and natural gas producers from their currently depressed state.

The IPAA showed its support for the efforts of Sen. Kay Bailey Hutchinson (R-TX) and Rep. Wes Watkins (R-OK), who have been the "primary sponsors" of marginal well tax relief legislation in Congress. It also backed a comprehensive measure sponsored by Sen. Pete Domenici (R-NM), which incorporates the "concepts" of the Watkins and Hutchinson measures and proposes a number of other forms of relief.

IPAA's Yates emphasized that the relief was being sought for both oil and gas. "This is not an oil industry and separately a gas industry." He said the industry shrunk by 15% last year in terms of jobs, and that production was down 8% in one year, or 565,000 barrels/day. The gas market, Yates believes, could be the biggest victim of downsized production capacity. "We're [being] called upon by the administration in the next several years...to meet a tremendous growth in demand for natural gas. That's going to be very difficult to do as that [production] infrastructure erodes."

Several Senate and House lawmakers from both sides of the aisle - Senate Energy Committee Chairman Frank Murkowski (R-AK), Sen. Jeff Bingaman (D-NM), Reps Kay Granger (R-TX), Lamar Smith (R-TX), Max Sandlin (D-TX) and Watkins, to name a few - made appearances at the IPAA briefing to show their support for independent producers. "The oil industry...has lost almost 50,000 jobs since the price collapse began in November 1997. Why isn't the White House supporting them and why isn't Congress passing tax incentives and relief for the domestic oil and gas industry?" asked Smith, who added these were long "overdue."

Independent producers and lawmakers called on the federal government to offer price support to the oil and gas industry similar to that which was extended to the domestic steel industry to offset the effects of the dumping of foreign steel in the U.S. "The U.S. imports twice as much oil as steel," yet "steel prices are high while oil prices are low," Smith said. "We can't stand by...while foreign governments pick off our basic industries one by one by one. And that's what's happening to the oil and gas industry," noted Rep. Sandlin.

Watkins said he was "taking a full court press" to the problems facing producers. In addition to his tax-relief proposal for marginal well producers, he noted he intended to propose the Environmental Equalization Act, which would subject foreign producers who import oil into the U.S. to the same environmental restrictions - and costs - that domestic producers face. "I think that in all fairness the imported oil brought into this country from other areas should also be confronted with that situation."

Earlier in the week, both independent and major producers met with key administration members at the White House. Although no specific policy changes were promised, Clinton officials agreed to set up a high-level working group to "look at all the issues," including the prospect of tax relief and other forms of economic aid.

Gene Sperling, director of the National Economic Council, "will play an important role" in the working group, as well as White House Chief of Staff John Podesta, Yates said. Also, the panel possibly could include officials from "relevant departments or agencies," such as Energy, Treasury, Commerce and Interior, noted IPAA President Gil Thurm. "I didn't get a sense that there wasn't any timeframe for this," according to an association spokesman, "but we would hope that it [the group] would be formed quickly."

The White House meeting "was designed to raise the awareness level of the administration" with respect to the plight of domestic oil and gas producers, many of which have closed their wells due to uneconomic crude prices. "We think that was accomplished. The administration officials proved to be good listeners," Thurm noted.

Among those at the session, which lasted more than one hour, were Podesta, Treasury Secretary Robert Rubin, Energy Secretary Bill Richardson and representatives from four major petroleum industry associations - the IPAA, the American Petroleum Institute, the Domestic Petroleum Council and U.S. Oil and Gas. Industry officials praised Richardson for organizing the meeting.

Susan Parker

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