Tax Credits for Producers Sought on Capitol Hill
In an effort to reduce U.S. dependence on foreign oil, Sen. Kay
Bailey Hutchison (R-TX) introduced legislation last week that would
offer tax credits to domestic producers of marginal oil and natural
gas wells. Although the credits would not become effective until
the prices of oil and gas fell significantly, they would provide a
sort of financial safety net to encourage marginal well producers
to reopen shut-in wells in the face of a volatile market.
The bill is identical to two, unsuccessful measures that she
previously introduced in the 106th Congress to shore up producers
when crude oil prices were in the basement. Hutchison quickly
resurrected the bill last week after President Clinton in his radio
address pledged to support, among other things, tax incentives to
encourage domestic oil and gas production in the wake of rising
home heating oil and gasoline prices.
"This is the time to do this," an aide to Hutchison said. "We
hope to put it on a fast track" through the Senate and to the
president's desk. "We think we have a good shot this time," the
aide told NGI. The prior proposals failed primarily because they
were part of larger legislative packages, and the nation's
attention wasn't as focused on energy as it is now. he noted. But
the situation has changed immensely, with escalating gasoline and
heating oil prices making the daily headlines. Also, Hutchison has
offered her bill as a stand-alone measure this time.
The Texas lawmaker said her tax-relief legislation would help to
reopen about 75,000 oil wells, inceasing domestic production by
250,000 barrels per day. "Boosting our domestic oil and gas
production is the only permanent solution to today's high
[gasoline] and home heating oil prices," she said in a prepared
"We must regain control over our own economic destiny. An energy
policy that requires us to go hat-in-hand to foreign oil producers
is not a short-term cure --- it is an embarrassment.....," noted
Hutchison, who has been a sharp critic of the Clinton
administration's energy policy. She urged the president to support
More than 150,000 domestic oil and gas wells were closed during
1997-98 when crude oil prices dropped below $10 per barrel, cutting
U.S. production by about 500,000 barrels per day. Although prices
are much higher now, many independent producers still are reluctant
to incur the high costs associated with reopening their wells
without assurances that they will not face additional financial
losses if prices should again fall below break-even levels.
Hutchison believers her bill will provide that safety net for small
At the heart of her bill is a $3 per barrel tax credit for
marginal oil wells --- which produce less than 15 barrels per day
--- that would be triggered when oil prices dip to $14 per barrel
or below. The credit would apply to the first three barrels of
daily oil production, which means the maximum daily credit an oil
producer could receive would be $9. The credit would be phased out
when prices hit $17 per barrel.
On the natural gas side, Hutchison's bill would provide a tax
credit of up to 50 cents for the first 18,000 cubic feet of daily
gas production from marginal wells, which produce less than 90,000
Mcf per day. The tax credit would kick in when gas prices fall
below $1.59/Mcf, and would phase out at $1.89/Mcf.
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