Albion Monitor /Commentary


George Miller [D-Contra Costa]

March 30, 1995 Mr. Speaker, just when you might have thought you had heard it all about the limitless greed of the special interests for more subsidies and favors, along comes the oil and gas industry, bellying up to the bar for a few more billion from taxpayers.

This time, it's called a royalty holiday: Forgiving oil companies from paying royalties to taxpayers--who own the oil and gas--in cases where the lease is in deep water.

Now, you would logically assume that, absent some enticement or tax break, industry would be unwilling to sink an offshore well in deep water, thereby necessitating the royalty holiday to encourage exploration in otherwise unattractive areas. But you would be wrong. Indeed, the industry press is replete with reports of growing interest and activity by industry in deep water areas.

According to a March 13, 1995, article in the Oil and Gas Journal, written by senior editor A.D. Koen, "Improved economics, better technology, and growing experience are converging in the Gulf of Mexico's ultradeep water areas to fuel a new era of U.S. offshore development." The author describes the factors contributing to this surge in Outer Continental Shelf [OCS] development: "Companies taking the plunge into deeper water credit better economics with providing the impetus to begin exploiting discoveries. Lower finding, development, and production costs make some of the gulf's larger reservoirs in very deep water competitive with many other offshore prospects, United States or non-United States in any water depth."

Deep water reserves in the gulf are providing to be larger and more profitable than originally projected. According to a December 7, 1994, New York Times article, deep water reserves are thought to hold 50 percent more oil than the giant Prudhoe Bay fields in Alaska, as much as 15 billion barrels.

In the November 21, 1994, issue of Forbes magazine, Shell and British Petroleum officials stated that they could develop the first 500 million barrels from the 2,933-foot deep MARS field in the gulf at a cost of only $3 per barrel. Thus, even though the deep water fields are expensive, they are large enough that the per barrel production cost is exceedingly low, generating plenty of profit and reducing any justification for royalty relief or tax breaks.

Moreover, the technology is constantly improving, as noted in the Wall Street Journal on January 25, 1995: "Industry executives believe tension leg-platforms can be affordable in water as deep as 6,000 feet."

As a result of these disclosures, it was with some consternation that I read in the March 24, 1995, edition of The Energy Daily that some congressional leaders and some officials in the administration are supporting a proposal to reduce substantially royalties owed on deep water oil and gas leases on public lands in the Gulf of Mexico.

The new legislative proposal, S. 158, would provide a royalty holiday for producers that drill in deep waters in order to "revitalize the domestic oil and gas industry." Under this ill-conceived scheme, the U.S. Department of the Interior would forgive all royalty payments owed to the Federal taxpayer until all drilling expenses have been recovered.

This royalty relief, in addition to the extremely favorable tax treatment the oil and gas industry already enjoys, would make for a very generous gift during a time of fiscal constraint. According to a Congressional Research Service analysis provided to the Natural Resources Committee last year, the current effective tax rate for oil and gas companies is 17 percent, and independent oil and gas producers are estimated to enjoy an effective tax rate of zero, due to the benefits of depreciation, depletion allowance, alternative minimum tax, and other tax credits which the industry is allowed under current law.

Last week, many of us in this House were shocked when we heard Republican Members use animal analogies to justify cutting off aid to poor- and middle-class families. Not only were these arguments offensive, they highlight the hypocrisy in the Republican approach to Government.

If the majority truly want to end the cycle of dependence, why not do so for the richest in our society, not just for the poorest? Why, at a time when working people are increasingly living on the economic edge, do we need to give multibillion dollar tax breaks to multinational energy conglomerates to do what they are already doing: drilling for oil ?

And, never satisfied with a limited corporate tax break when a bigger one will do, some in Congress now are planning to expand the unneeded royalty relief to environmentally important waters in Alaska.

The American people are not interested in cutting social welfare programs in order to pay for corporate welfare. They are justifiably tiring of high-priced lobbyists securing lucrative tax breaks and special treatment from the Republican leadership while those too young, too poor, or too weak are told they must sacrifice more.

The oil industry is already proceeding with and profiting from deep water development without additional royalty relief. We shouldn't be bribing them to do what they are doing already.

The royalty holiday is a paid vacation for the oil industry, and a bad deal for the taxpayer.


Ernest J. Istook Jr. [R - OK]

March 22, 1995 Mr. Speaker, recently a column by fellow Oklahoman Paul Harvey was published which effectively highlights the problems faced by our Nation's domestic oil and gas enterprises. I commend this column to my colleagues in the hope that Mr. Harvey's wise words, born of experience, will be heeded as we consider legislation affecting this vital industry this session.


(By Paul Harvey)

Our nation's balance of trade with other nations is unbalanced in their favor largely because of all the foreign oil we are buying--needlessly.

While drilling rigs sit idle in Texas, Oklahoma and 28 other states, our country continues to import from other countries more than half of all the oil we use. Meanwhile, the administration persists in maintaining policies that make it impossible for stateside oil companies to compete.

Commerce Secretary Ron Brown has persistently refused even to consider a tariff on imports, which would "level the playing field." The White House has declined even to consider initiatives to bolster our own oil industry, to stimulate our own production.

Denise Bode, president of the Independent Petroleum Association of America, is outraged. She predicts "a fire storm" in the oil - and gas-producing states.

The American Petroleum Institute, convinced it will get nothing from the White House, is turning for help to Congress. The eight-member Oklahoma congressional delegation is seeking remedial legislation.

Sens. Bob Dole, R-Kan., and Don Nickles, R-Ponca City, are offering a parallel proposal to the Senate. What they seek is a $3-a-barrel tax credit for existing and new marginal oil wells, phasing out when the market prices hit $20 a barrel.

It can be argued that our nation is vulnerable again to being held hostage by Middle East potentates, who could cut off our oil within hours in the event of confrontation. That is so.

But a poor boy who grew up in Tulsa is more urgently anxious about the prospect of losing our nation's limited reserves forever.

Underground oil is not a "pool" of liquid. Mostly, it is suspended in sand or porous rock. Over time, even under applied water pressure, the flow dwindles, until one day, you have wells producing perhaps only three barrels a day.

After time, that three-barrel well will not pay its way because of cheap imports. If you plug that well, and later effort to re-drill the same well might cost $5 million, which is utterly unrealistic. So, that oil is gone forever.

Domestic United States oil production is the lowest it has been in 40 years--500,000 jobs have disappeared in the oil industry in the past 10 years. Twenty-two thousand have been eliminated in just the two Clinton years.

Considering those numbers, a tax credit to encourage production is one of the best investments our country could make.

Albion Monitor September 2, 1995 (

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