In an attempt to reduce U.S. dependence on foreign oil, Sen. KayBailey Hutchison (R-TX) introduced legislation yesterday 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 providesecurity for marginal well producers facing market uncertainty.

The bill is identical to two measures that she previouslyproposed in the 106th Congress to shore up producers when oilprices were in the basement. Hutchison quickly resurrected the billthis week after President Clinton in his radio address lastSaturday pledged to support tax incentives to encourage domesticoil production in the wake of rising heating oil and gasolineprices.

“This is the time to do this,” an aide for 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 two prior proposals were unsuccessful primarilybecause they were part of larger legislative packages, and thenation’s attention wasn’t as focused on energy as it is now, henoted. But the situation has changed immensely, with 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, increasing 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.

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 dailyproduction from marginal wells, which produce less than 90 Mcf/d.The tax credit would kick in when gas prices fall below $1.59/Mcf,and would phase out at $1.89/Mcf.

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