Copyright 2000 Federal News Service, Inc.
Federal News Service
April 12, 2000, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 1553 words
HEADLINE:
PREPARED TESTIMONY OF JERRY JORDAN ON BEHALF OF THE INDEPENDENT PETROLEUM
ASSOCIATION OF AMERICA AND THE NATIONAL STRIPPER WELL ASSOCIATION
BEFORE THE HOUSE COMMITTEE ON RESOURCES
BODY:
Mr. Chairman, members of the committee,
I am Jerry Jordan, President of Jordan Energy, Inc. of Columbus, Ohio. Today, I
am testifying on behalf of the Independent Petroleum Association of America, the
National Stripper Well Association, and 32 cooperating associations of the IPAA
that represent state and regional interests. These organization represent
independent oil and gas producers, the segment of the industry that is damaged
the most by the lack of a domestic energy policy that recognizes the importance
of our own national resources. NSWA represents the small business operators in
the oil and natural gas industry, producers with "stripper" or marginal wells.
This Committee's jurisdiction is fundamental to addressing one of the
key issues facing the domestic oil and natural gas industry in improving
domestic oil and natural gas production access to natural resources. However,
before I address this specific issue it is essential to understand the current
state of domestic energy and its production. We have an economy that is based on
energy - from transportation to manufacturing to the Internet. More
specifically, it is based on petroleum - crude oil and natural gas. And, like it
or not, despite all the efforts to change the mix of energy sources, petroleum
remains the predominant source and will continue to do so for the foreseeable
future. Domestically, we import about 56 percent of our crude oil demand. The
issue is how to try to limit our foreign dependency and to emphasize the most
reliable of our foreign suppliers. Natural gas - on the other hand - is largely
a domestic resource, and imports are mainly from other North American sources.
In the future domestic oil and natural gas production will be more and more
dependent on a healthy independent exploration and production industry - major
oil companies began shifting their new production from the United States after
the oil price crisis in 1986, and this pattern will continue.
Clearly,
Saddam will use his country's oil resources to try to extricate Iraq from the
straight jacket of UN sanctions. Many knowledgeable experts already want to end
the sanctions. If Iraq withdraws its oil from the market, it could erode what
little resolve exists in the world to constrain his actions. Then, Iraq will be
in a position to sell as much oil as needed to rebuild its oil industry, its
armaments, and worst of all, to terrorize the world with its weapons of mass
destruction.
Taken together, this shows that this important factor of
our economy is in the hands of foreign rulers. We end up relying on a kingdom in
Saudi Arabia to work with a radical Iranian government to stabilize oil prices.
We have effectively handed Saddam Hussein the control of world oil prices that
he sought when he invaded Kuwait.
These policies make no sense. But, if
not these policies, what should we do? There is no single answer.
First,
we must continue to work with foreign producer nations to move toward oil
policies that produce the stability needed to maintain and enhance our domestic
production. And, as we do, we cannot assume that other countries are willing to
sacrifice their national incomes to meet our expectations that product prices
should be low in the U.S.
Second, we must develop better policies to
enhance and maintain domestic oil and natural gas exploration and production -
we need both. Frequently, oil and natural gas are discovered and produced
together. We must begin treating domestic oil and natural gas production as a
critical element of national economic security. To do this at the federal level
we must direct our efforts at the two areas where they can have the greatest
effect - access to capital and access to domestic natural resources from
government controlled lands and waters.
At the same time it is equally
important to recognize that a larger aspect of access to natural resources
involves opening access to that which is not now available and halting the trend
of further embargoes of western lands. Unfortunately, the Administration avoids
dealing with the clear need to open federal lands to exploration and production.
It hides behind an environmental sensitivity argument that is proven wrong by
its own DOE report. It focuses on arguments against opening ANWR and avoids
dealing with access issues offshore and in the Rockies where its own National
Petroleum Council Natural Gas study concludes that over 200 trillion cubic feet
of natural gas is either off limits or difficult to permit.
It is
important to understand that access issues differ between these areas. ANWR and
offshore activity off of California, the Eastern Gulf of Mexico, and the
Atlantic are constrained by policy decisions, both executive and legislative,
through prohibitions and moratoriums. These are based on outdated reactions to
spills occurring in the past. The Administration's own study, Our Ocean Future,
concluded unequivocally that offshore oil and natural gas production is a
success story. We need to move into the 21st century and make enlightened
decisions to use these critical national resources.
Access in the
Rockies won't be resolved by a single act. Here, we are dealing with a mosaic of
limitations. Some involve land that is completely excluded from oil and natural
gas exploration and production. The Antiquities Act of 1906 has been used to
declare areas as national monuments placing land completely off limits. In other
areas, the Department of Agriculture is proposing to expand roadless
areas in national forests that will preclude oil and natural gas
development.include the Endangered Species Act and the Fish and Wildlife
Service, the Clean Water Act that can involve both the Environmental Protection
Agency and the Corps of Engineers when wetlands are concerned, and even the
Clean Air Act. For example, many areas in the Rockies are limited during certain
times of the year because of management plans designed to protect various
species. While each plan individually provides opportunities for resource
development, collectively, they interact to effectively prohibit oil and natural
gas extraction.
If we are to provide the country with the domestic
energy it deserves, we need to create national policies that allow
environmentally sound development of these resources. No one can expect that
this mosaic of limitations can be instantly revised, but we need to start the
process.
First, we can determine where the most likely resources lie.
Congress should compel the development of such an inventory, an action advocated
by this committee. When actions like this have occurred in the past, they allow
the disputes to be better focused. They allow the issues to be discussed in a
real rather than hypothetical context. And, this can lead to real solutions for
specific areas.
Second, we need a clear understanding of the impediments
that we are encountering. We need to know how many laws, regulations,
conflicting management plans, and whatever else are in play. This perspective is
essential to provide a real sense of how these actions can result in effectively
foreclosing any development. A recent assessment of one area of the Rockies
showed how a mixture of management plans for various species effectively
foreclosed any oil or natural gas development, but no single plan would result
in such denial (a graphical presentation is attached to this testimony). A
5-year net operating loss carryback; Eliminating the net income limitation on
percentage depletion for marginal wells;
- Eliminating the 65 percent
net taxable income limit on percentage depletion; and,
- Creating a
countercyclical marginal wells tax credit.
All of these have been
introduced or passed in some form over the past two plus years. Most recently,
Senator Kay Bailey Hutchison introduced S. 2265 incorporating the expensing
proposals and the marginal wells tax credit in one bill. We are at a rare
juncture. Both Congress and the Administration are moving in the same direction
regarding tax reforms for domestic oil and natural gas exploration and
production. Both are looking toward such provisions that will encourage
exploration. Both are looking at ways to extend the life of domestic marginal
wells our true strategic petroleum reserve. Now is the time to act.
Will
these steps guarantee that domestic production will rebound? Nothing is certain
but it will guarantee that more capital will get into this industry when it is
needed. And it will avoid the mistakes of 1986 when Congress enacted Alternative
Minimum Tax provisions, just as the industry needed capital to rebound from low
oil prices. This was one of many factors that have resulted in the loss of about
2 million barrels per day of domestic production from 1986 to 1997.
This
is not all that we need to do. We should also look at other tax reforms that can
help bring capital to this industry like modification of the AMT. And, we should
look at federal financial instruments like the PADDIE MAC concept that would
create a FANNIE MAE-like program to help lower the capital costs to the smaller
producers so essential to maintaining the nation's marginal wells.
But,
right now, some of the keys are available to improve the status of domestic oil
and natural gas production. And, we should use them.
END
LOAD-DATE: April 14, 2000 
