The Independent Petroleum Association of America won an”impressive” victory when Congress amended the Energy Policy andConservation Act, a victory that may change where exploration andproduction development takes place in the future. The changes, saidIPAA at its recent annual meeting in San Antonio, require theDepartment of Interior to begin a comprehensive inventory ofgovernment-controlled lands on which oil and gas are found.
The EPCA amendments are “an important first step in achieving akey association goal — better access to natural resources.” Partof that access to natural resources already has opened up in theGulf of Mexico and has improved the bottom line for a lot ofindependents.
Advocating a continuation of royalty incentives to encouragemore drilling in the deepwater Gulf of Mexico, IPAA OffshoreCommittee Chair Robert S. Boswell of Forest Oil said the expiringDeepwater Royalty Relief Act needs to be extended. His sentimentswere echoed by Minerals Management Service director WalterRosenbusch, who praised the success of the soon-to-expire act,saying it had “turned the Gulf of Mexico from a Dead Sea into aworld-class producing province.”
But the improved Gulf production has done little so far to solvethe tight supply situation. In fact, the high demand for naturalgas in the United States has led to a predicted supply shortage andthe expectation of continued high energy prices — both beingcriticized not just by the public but by government officials aswell.
Pointing a long finger at the Clinton Administration, which hesaid restricted growth by limiting access to public lands, J. LarryNichols, CEO of Devon Energy Corp., said that for the past eightyears, the administration “was able to have its cake and eat ittoo.” and had not had to answer to anyone about restrictingexploration by limiting access. However, the public now wantsanswers — and solutions — as energy prices remain high andsupplies remain tight, he said.
Dynegy Inc. CEO Chuck Watson painted an even bleaker picture.
“When eastern cities with large populations start browning outand blacking out, people are going to start understanding this is areal problem.” Watson said that the demand was “real,” andpredicted it would become “real important politically.”
To reduce problems associated with exploration and developmentboth onshore and offshore, the Texas Justice Foundation also isconsidering a lawsuit to remove several species from the U.S.Endangered Species Act, which make oil and natural gas developmentdifficult.
MMS also is expected to appeal a federal judge’s decision inIPAA v Armstrong that a lessee can deduct transportation costs fromfederal natural gas royalty payments. IPAA’s Poe Legette toldattendees that the Interior Department royalty program managers mayuse the U.S. False Claims Act to attempt to find anyone who hastried to either avoid or reduce his royalty liability.
Companies and government leaders from across North America,including Canada and Mexico, were represented at the conference.Anglica Fuentes, Mexico’s natural gas IPAA president, said Mexico”likely would not become a net natural gas exporter any time soon.”Fuentes said that Mexico’s natural gas production cannot keep pacewith 4.7 Bcf of new demand, which means the country will have toimport 10% of its natural gas needs into the foreseeable future.
On a more positive note, Canada’s IPAA president, WilliamFriley, said that his country can supply 15% of U.S. gas demandbecause there is a “strong reserve base” there. Still, neighboringAlaska’s natural gas potential still faces problems getting theproduct to market. Choices still remain on transcontinental routesto ship the gas to U.S. and Canadian markets.
Predicting that natural gas was “going to lead the future forthe independent producer,” Dynegy’s Watson said he expected growthto be in peaking demand in the summer months instead of the wintermonths. “That’s pretty exciting because it allows us to use theexisting infrastructure we already have.”
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