NGI The Weekly Gas Market Report
Energy Secretary Bill Richardson last week announced the Clintonadministration will allow producers with offshore federal leases topay part of their royalties with oil for a limited time rather thanwith cash. This action would help to draw down the oil oversupplythat has been depressing prices and provide some relief, if onlytemporarily, to small oil and gas producers. Richardson indicatedthe department will disclose further initiatives this week to boostlagging oil and gas production in the United States.
Under the program, the federal government will accept up to 28million barrels of Central Gulf of Mexico oil to replenish theportion of Strategic Petroleum Reserve (SPR) stockpile that it soldoff in 1996 and 1997 to pay for the reserve’s operations. TheInterior Department’s Minerals Management Services (MMS), whichcollects royalties from production on federal property, will beable to accept 100,000 barrels per day in lieu of royalties.
DOE spokesman Tom Welch said the program will take effect inApril and will last about nine months, during which time theTreasury Department is expected to take in $300 million less inroyalty 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 independentproducers stay in business,” said Gil Thurm, president of theIndependent Petroleum Association of America (IPAA). “While DOE’sannouncement is aimed at oil, it will also help maintain domesticnatural gas production. Our companies are set up so that both fuelsmust carry their own weight. As a consequence, low oil prices aredragging natural gas down, too.”
DOE’s proposal builds on the congressional efforts to purchaseoil for the SPR and, in turn, prop up prices. This year legislationhas been introduced by Rep. Lamar Smith (R-TX) and Rep. MacThornberry (R-TX) providing for SPR acquisitions. In fact, theDOE’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 providelimited tax relief to producers when oil and gas prices hitcritical levels. Also relief measures are being addressed for statetaxes in Texas and Oklahoma.
“We are hopeful DOE’s action will lead to direct action byPresident Clinton to call a White House Conference on the impact oflow oil prices on America’s critical domestic production. We’verequested a meeting, and are confident that with PresidentClinton’s help we can speed up enactment of a number of excellentrelief bills that have been introduced in the House and Senate.”
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