In an effort to reduce U.S. dependence on foreign oil, Sen. KayBailey Hutchison (R-TX) introduced legislation last week that wouldoffer tax credits to domestic producers of marginal oil and naturalgas wells. Although the credits would not become effective untilthe prices of oil and gas fell significantly, they would provide asort of financial safety net to encourage marginal well producersto reopen shut-in wells in the face of a volatile market.

The bill is identical to two, unsuccessful measures that shepreviously introduced in the 106th Congress to shore up producerswhen crude oil prices were in the basement. Hutchison quicklyresurrected the bill last week after President Clinton in his radioaddress pledged to support, among other things, tax incentives toencourage domestic oil and gas production in the wake of risinghome heating oil and gasoline prices.

“This is the time to do this,” an aide to Hutchison said. “Wehope to put it on a fast track” through the Senate and to thepresident’s desk. “We think we have a good shot this time,” theaide told NGI. The prior proposals failed primarily because theywere part of larger legislative packages, and the nation’sattention wasn’t as focused on energy as it is now. he noted. Butthe situation has changed immensely, with escalating gasoline andheating oil prices making the daily headlines. Also, Hutchison hasoffered her bill as a stand-alone measure this time.

The Texas lawmaker said her tax-relief legislation would help toreopen about 75,000 oil wells, inceasing domestic production by250,000 barrels per day. “Boosting our domestic oil and gasproduction is the only permanent solution to today’s high[gasoline] and home heating oil prices,” she said in a preparedstatement.

“We must regain control over our own economic destiny. An energypolicy that requires us to go hat-in-hand to foreign oil producersis not a short-term cure — it is an embarrassment…..,” notedHutchison, who has been a sharp critic of the Clintonadministration’s energy policy. She urged the president to supporther legislation.

More than 150,000 domestic oil and gas wells were closed during1997-98 when crude oil prices dropped below $10 per barrel, cuttingU.S. production by about 500,000 barrels per day. Although pricesare much higher now, many independent producers still are reluctantto incur the high costs associated with reopening their wellswithout assurances that they will not face additional financiallosses if prices should again fall below break-even levels.Hutchison believers her bill will provide that safety net for smallproducers.

At the heart of her bill is a $3 per barrel tax credit formarginal oil wells — which produce less than 15 barrels per day— that would be triggered when oil prices dip to $14 per barrelor below. The credit would apply to the first three barrels ofdaily oil production, which means the maximum daily credit an oilproducer could receive would be $9. The credit would be phased outwhen prices hit $17 per barrel.

On the natural gas side, Hutchison’s bill would provide a taxcredit of up to 50 cents for the first 18,000 cubic feet of dailygas production from marginal wells, which produce less than 90,000Mcf per day. The tax credit would kick in when gas prices fallbelow $1.59/Mcf, and would phase out at $1.89/Mcf.

Susan Parker

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