Oil and gas in Washington
Congress got a message from the oil patchWashington is still in a state of confusion as a result of the continuing scandals in the White House and its occupants. The President and the leadership in Congress have been chanting, "Let’s put that behind us and get on with our work." But that’s not going to happen any time soon. The deep partisan wounds from the impeachment fight will make passage of major legislation more difficult in the coming months. Oil and gas spokesmen lay it on the line in Congress. As the Senate heard about the serious economic woes of the oil industry (reported here last month), independent oil and gas producers were also making Herculean efforts to bring a similar message to Washington. They pointed out the frightening economic conditions in which the domestic oil patch currently finds itself. IPAA started its efforts by sending a shock wave through Congress and the administration earlier this year, via an industry-wide oil crisis survey. The survey results show that the industry lost more than 40,000 jobs, and shut in more than 136,000 oil wells and 576,000 natural gas wells, since crude prices crashed in November 1997. IPAA President Gil Thurm said, "America’s oil and gas production base is eroding, and if action is not taken immediately, the Y2K computer problem predicted in 2000 will look like a stroll in the park, compared to what Americans will face without a functioning domestic oil and gas industry." The House Ways and Means Oversight Subcommittee held a hearing on the plight of the industry late in February. Independent producers told the committee, that a good starting point for revitalizing the industry would be a package of federal tax relief measures to save their businesses, and to keep America’s oil and gas-producing industry alive. On the other hand, Donald Lubick, the Treasury Department’s assistant secretary for tax policy, said the tax code has "gone almost as far as it can go" to offer tax breaks for oil and gas producers. He claimed that 75% of those producers pay no corporate income tax. That statement got a quick reaction from producers, who questioned the truthfulness of that 75% figure. Rep. Wes Watkins (Republican-Oklahoma) reminded Lubick that most marginal well operators pay taxes as individuals, rather than as corporations. Wide support from producers for tax relief bills in Congress. When oil prices are low, a bill (H.R. 53) proposed by Rep. Watkins would offer a $3/bbl tax credit for the first 3 bopd and 50 cents/Mcf for the first 18 Mcfgd produced from marginal wells. Another bill (H.R. 423) introduced by Rep. Bill Thomas (Republican-California) provides for a five-year "carry-back" for net operating losses attributed to oil and gas production. Other potential measures suggested by producers included relief from alternative minimum tax and lifting constraints on the use of percentage depletion, because these limitations tie up their resources. Gus Fliakos, a senior oil analyst with Merrill Lynch, told the members that assumptions by many people in America, that oil will remain abundant and cheaply priced forever, were dangerous and ill-founded. Action needs to be taken now, he said, to avoid future oil price shocks. He went on to point out, that a bad investment climate has been eroding the nation’s capacity to produce oil. OIL ROYALTY MORATORIUM EXTENDED TO OCTOBER 1. This item is so important, that I put it in capital letters to call it to readers’ attention. The Senate Appropriations Committee approved language extending the moratorium on proposed oil royalty valuation rules until Oct. 1, 1999. This action was taken on March 4, shortly after Interior Secretary Bruce Babbitt announced plans to re-open the comment period on the proposal for 30 days. Babbitt said that he only wants to hear about "new, not previously considered ideas that can help move the process forward while still ensuring the public receives fair value for production of its resources." The existing moratorium prohibiting the Minerals Management Service (MMS) from issuing the final royalty valuation rule until June 1 was required by the FY ’99 emergency supplemental appropriations bill. The oil and gas industry has been asking MMS to re-open serious negotiations, but this has been resisted repeatedly by the Babbitt Band. On March 1, a group of industry trade associations wrote a letter to an Interior official, John Berry. They offered to work with the department to "craft a fair and workable crude oil valuation rule" that would ensure the federal government and the American taxpayers received accurate royalty payments in a certain regulatory environment. Such a negotiated settlement could avoid implementation of a rule that would raise industry costs at a time when U.S. wellhead prices are at their lowest point, in inflation-adjusted dollars, since the Great Depression. Oil patch lawmakers excoriated Babbitt’s Band
for the proposed oil valuation rule. At a recent Senate hearing on Interior’s
FY 2000 budget, Energy and Natural Resources Committee Chairman Frank Murkowski
(Republican-Alaska) questioned Babbitt’s request to recoup $66 million in alleged
outstanding oil and gas royalties, when the industry is hurting so much. Sen. Don Nickles
(Republican-Oklahoma) warned Babbitt, that if he did not cooperate and allow continued
negotiations, oil patch senators would push for another moratorium, as well as hold up
Interior’s budget requests. Nickles also said that Interior may find itself paying more
in litigation costs.  Charles D. Matthews is president of Charles Matthews & Co., consultants and advocates on government relations, Arlington, Virginia.
Copyright © 1999 World
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