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Richardson Will Fill SPR With Royalty Oil

Richardson Will Fill SPR With Royalty Oil

Energy Secretary Bill Richardson last week announced the Clinton administration will allow producers with offshore federal leases to pay part of their royalties with oil for a limited time rather than with cash. This action would help to draw down the oil oversupply that has been depressing prices and provide some relief, if only temporarily, to small oil and gas producers. Richardson indicated the department will disclose further initiatives this week to boost lagging oil and gas production in the United States.

Under the program, the federal government will accept up to 28 million barrels of Central Gulf of Mexico oil to replenish the portion of Strategic Petroleum Reserve (SPR) stockpile that it sold off in 1996 and 1997 to pay for the reserve's operations. The Interior Department's Minerals Management Services (MMS), which collects royalties from production on federal property, will be able to accept 100,000 barrels per day in lieu of royalties.

DOE spokesman Tom Welch said the program will take effect in April and will last about nine months, during which time the Treasury Department is expected to take in $300 million less in royalty payments. Both DOE and Interior will oversee the program. Welch declined to predict the impact on crude oil prices.

DOE's plan will provide "a first step in helping independent producers stay in business," said Gil Thurm, president of the Independent Petroleum Association of America (IPAA). "While DOE's announcement is aimed at oil, it will also help maintain domestic natural gas production. Our companies are set up so that both fuels must carry their own weight. As a consequence, low oil prices are dragging natural gas down, too."

DOE's proposal builds on the congressional efforts to purchase oil for the SPR and, in turn, prop up prices. This year legislation has been introduced by Rep. Lamar Smith (R-TX) and Rep. Mac Thornberry (R-TX) providing for SPR acquisitions. In fact, the DOE's initiative is almost a mirror image of Thornberry's "Strategic Reserve Replenishment Act."

But "much more remains to be done," said Thurm. In past months, the IPAA has backed a number of moves in Congress to provide limited tax relief to producers when oil and gas prices hit critical levels. Also relief measures are being addressed for state taxes in Texas and Oklahoma.

"We are hopeful DOE's action will lead to direct action by President Clinton to call a White House Conference on the impact of low oil prices on America's critical domestic production. We've requested a meeting, and are confident that with President Clinton's help we can speed up enactment of a number of excellent relief bills that have been introduced in the House and Senate."

Susan Parker

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