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&P) incentives
and other economic reforms to boost the ailing oil and gas
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
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.