The “catastrophic” impact of anemic crude oil prices on domesticoil and gas producers requires Congress and the Clintonadministration to take “extraordinary” measures to revive an”industry that is on its knees,” lawmakers on the Senate Energy andNatural Resources Committee said Thursday.

Although they conceded there was little they could do to correctthe supply-demand imbalance that has caused the depressed oilprices, the senators outlined a number of proposals that could helpto ameliorate the affect of the low oil prices on producers – suchas tax credits for marginal well production, expensing ofexploration costs, greater access to public lands for drilling anda better formula for calculating federal royalties.

Sen. Pete Domenici (R-NM) told a committee oversight hearing thepetroleum industry was in such dire straits that only major changescould help it re-gain vitality. “As of this morning, bottled watersells for more than oil. Our industry is not [just] depressed, itis shrinking. Wells are being abandoned, [and] little explorationand development is taking place. Frankly, I think that we’re in asituation where some extraordinary things have to be [done].”

To help producers, he suggested it might be time for Congress totake a look at a number of tax measures – such as the “losscarryback, carryforward rules” for unused alternative minimum taxcredits, the exploration and development tax credit and restorationof the percentage depletion allowance for marginal oil and gaswells.

Senate and House lawmakers already have moved in the 106thCongress to introduce legislation that would give tax credits tomarginal oil and gas producers. Sen. Kay Bailey Hutchison (R-TX) onThursday offered a measure that would provide, among other things,a $3 tax credit on the first three barrels of daily oil productionfrom marginal oil wells, and a 50-cent/Mcf credit on the first 18Mcf of daily gas production. The tax credits would phase in whenoil prices are between $14-$17, and gas prices are between$1.56-$1.89. Hutchison’s initiative also would give producers a taxexemption for restarting inactive marginal wells. Marginal wellsaccount for up to 20% of domestic oil and natural gas production.

Hutchison said her legislation presently has 17 co-sponsors,including “most of the members” of the Senate Energy Committee.Although many of her proposals will fall under the jurisdiction ofthe Senate Finance Committee, she urged the energy panel to “takethe lead in fashioning a program that will help this industrythrough its hard times.”

On the House side, Rep. Wes Watkins (R-OK) proposed a similarbill that would provide tax credits for marginal production whenoil and gas prices hit a critical level. The tax credits would beeligible for a ten-year carryback, which would enable producers tooffset losses incurred this year against previous or futureprofits. Rep. William Thomas (R-CA) also has introduced atax-relief bill for small producers. It would allow producers todeduct operating losses from their regular and alternative minimumtaxes during the past five years.

Energy Committee Chairman Frank Murkowski (R-AK) called forCongress to focus attention on some non-tax issues as well, such asgiving industry greater access to onshore and offshore federallands, urging the Interior Department to give a blanket extensionfor leases on federal lands and ensuring that the MineralsManagement Service (MMS) crafts a “fair rule” for determiningfederal royalties.

Earlier in the day Murkowski told U.S. and Canadian producersthat the administration’s plan in its developing electricrestructuring legislation for a 5.5% mandate for renewables “istotally unrealistic.” The technical ability is not available toachieve that level and a mandate for renewables will exacerbate theoil oversupply problem, he added.

Sen. Don Nickles (R-OK) chastised the administration forplanning moves to further harm the industry, such as bringing backexcise and Superfund taxes, eliminating the exploration andproduction waste exemption, preventing exploration and productionof public lands, as well as proposing a “new, inaccurate formula”for calculating royalties.

Some support from Congress and the Clinton administration willbe necessary soon, given that the Energy Information Administration(EIA) doesn’t expect domestic crude prices to rebound in the nearterm. West Texas Intermediate (WTI) will reach $15/barrel by theend of 1999, but won’t return to its historical $17-$21 tradingrange until the end of 2000 or 2001, EIA Administrator Jay Hakestold the Senate committee.

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