[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
             THE IRAQI OIL FOR FOOD PROGRAM AND ITS IMPACT

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON ENERGY AND POWER

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 26, 1999

                               __________

                           Serial No. 106-27

                               __________

            Printed for the use of the Committee on Commerce


                                


                      U.S. GOVERNMENT PRINTING OFFICE
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                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
                                     BILL LUTHER, Minnesota
                                     LOIS CAPPS, California

                   James E. Derderian, Chief of Staff
                   James D. Barnette, General Counsel
      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                    Subcommittee on Energy and Power

                      JOE BARTON, Texas, Chairman

MICHAEL BILIRAKIS, Florida           RALPH M. HALL, Texas
CLIFF STEARNS, Florida               KAREN McCARTHY, Missouri
  Vice Chairman                      THOMAS C. SAWYER, Ohio
STEVE LARGENT, Oklahoma              EDWARD J. MARKEY, Massachusetts
RICHARD BURR, North Carolina         RICK BOUCHER, Virginia
ED WHITFIELD, Kentucky               FRANK PALLONE, Jr., New Jersey
CHARLIE NORWOOD, Georgia             SHERROD BROWN, Ohio
TOM A. COBURN, Oklahoma              BART GORDON, Tennessee
JAMES E. ROGAN, California           BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ALBERT R. WYNN, Maryland
HEATHER WILSON, New Mexico           TED STRICKLAND, Ohio
JOHN B. SHADEGG, Arizona             PETER DEUTSCH, Florida
CHARLES W. ``CHIP'' PICKERING,       RON KLINK, Pennsylvania
Mississippi                          JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York                (Ex Officio)
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)



                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Bole, David L., Corporate Research and Development, Randall 
      and Dewey, Inc.............................................    85
    Brown, F.W.``Pete'', Co-owner, Cimarron Production Company...    80
    Hakes, Hon. Jay, Administrator, Energy Information 
      Administration, Department of Energy.......................    21
    Sieminski, Adam E., Principal and Senior Oil Analyst, BT Alex 
      Brown......................................................    66
    Smith, Hon. Carl Michael, Secretary of Energy, State of 
      Oklahoma...................................................    26
    Taylor, Tom, Regional Vice President, Texas Independent 
      Producers and Royalty Owners Association...................    73
    Watkins, Hon. Wes, a Representative in Congress from the 
      State of Oklahoma..........................................     7
    Williams, Hon. Michael L., Commissioner, Texas Railroad 
      Commission.................................................    39
    Wood, Hon. William B., Principal Deputy Assistant Secretary, 
      Office of International Organizations, Department of State.    34
Material submitted for the record by:
    Larkin, Barbara, Assistant Secretary, Legislative Affairs, 
      letter dated April 16, 1999, on behalf of Wood, Hon. 
      William B., Principal Deputy Assistant Secretary, Office of 
      International Organizations, Department of State, enclosing 
      material for the record....................................    97

                                 (iii)



             THE IRAQI OIL FOR FOOD PROGRAM AND ITS IMPACT

                              ----------                              


                         FRIDAY, MARCH 26, 1999

                  House of Representatives,
                             Committee on Commerce,
                          Subcommittee on Energy and Power,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2322, Rayburn House Office Building, Hon. Joe Barton 
(chairman) presiding.
    Members present: Representatives Barton, Largent, Burr, 
Shimkus, Bryant, and Hall.
    Staff present: Catherine Van Way, majority counsel; and 
Rick Kessler, minority professional staff member.
    Mr. Barton. The Subcommittee on Energy and Power of the 
Commerce Committee hearing on the Iraqi Oil-For-Food Program 
will come to order.
    I would like to welcome everyone. I believe that this is an 
issue which impacts our national energy security and which 
everyone, not just individuals from the oil-producing States, 
should pay attention to.
    After Iraq's invasion of Kuwait in 1990, the United Nations 
imposed sanctions which prohibited all trade with Iraq. 
However, in April 1995, in recognition of the humanitarian 
needs of the people of Iraq, Security Council Resolution 986 
was passed, which authorized the sale of oil from Iraq to be 
used to purchase goods authorized by the United Nations 
Security Council.
    Under this program, Iraq is currently allowed to sell up to 
$5.2 billion worth of oil every 6 months. The money generated 
from the sale is deposited in the bank of the choosing of the 
government of Iraq and is supposed to be used to provide 
humanitarian goods to the Iraqi people under United Nations 
supervision.
    Under this program, Iraqi oil sales have risen over the 
past year from 1.47 million barrels per day to 2.1 million 
barrels per day. The revenue received for those sales has been 
approximately $3 billion every 6 months.
    The United States recently proposed that the Security 
Council consider lifting the ceiling on oil sales permitted 
under the Oil-For-Food Program. It is worth noting that the 
Oil-For-Food Program is not the only way Iraq currently sells 
its oil. Some oil is exported to Jordan under a long-standing 
program; some oil we are told is smuggled into Turkey and sold 
on the black market. In addition, other oil is exported through 
Iran and from seaports in the south, again for what we believe 
to be black market sales.
    Since the Oil-For-Food Program was begun, $2.75 billion 
worth of food, over $500 million worth of medicine, and $400 
million worth of supplies for things such as water, sanitation, 
electricity and education projects have been delivered to the 
people of Iraq. The program has been criticized for its 
slowness. In February of this year, the U.N. Secretary General 
reported that there are $275 million worth of medicine sitting 
in Iraqi warehouses that have been undistributed.
    All that being said, the question arises, is this a 
worthwhile program? Two-thirds of the world's proven reserves 
of oil reside in the Middle East. In fact, Saudi Arabia and 
Iraq are first and second in proven reserves of oil and Iraq, 
which is largely unexplored, might ultimately have more oil 
than Saudi Arabia. For the past several months, oil prices have 
languished at historic lows. The precipitous and sustained drop 
in oil prices have been attributed in part to the Asian 
economic crisis, which caused a drop in anticipated demand, 
while oil production has continued to grow. Many also attribute 
growing Iraqi oil exports as a factor for today's low oil 
prices. Some argue that Iraqi oil is not impacting prices, but 
I find it interesting that oil prices rose slightly this week 
because of an announcement by OPEC that its member countries 
would be cutting production by 2.1 million barrels a day. It 
may be a coincidence, but Iraq is exporting 2.1 million barrels 
a day.
    Low oil prices pose the greatest threat to domestic 
producers of oil and gas, because in the United States, our 
small independent oil and gas producers have the highest cost 
of production. We are beginning to see the impact as U.S. oil 
production has begun to decline in the wake of these sustained 
and abnormally low prices. The U.S. is now dependent on imports 
to meet more than 50 percent of our daily petroleum needs. That 
number is likely to grow dramatically as more marginal wells 
are shut in and domestic exploration activities are slowed in 
the wake of these continued low oil prices.
    I believe that we should not ignore the humanitarian needs 
of the people of Iraq, but I also believe that we should not 
ignore the needs of our own people here in the United States, 
and these low oil prices, which I believe are caused in part by 
the Iraqi oil production, are having an impact on our energy 
security.
    I will be most interested to hear from our administration 
witnesses today to see if they can explain this apparent policy 
disconnect.
    Finally, I want to note that I hope today's hearing will be 
the first of a number of hearings that this subcommittee will 
be having on the domestic oil and gas industry. I am deeply 
concerned that the current situation in the Oil Patch in the 
United States in the long term does cause a national security 
risk to our country. If we cannot maintain existing production 
and to some extent encourage new exploration for domestic 
resources, we will be in a situation where we are more and more 
dependent on foreign oil.
    I want to welcome everyone, especially our witnesses, to 
this hearing. I am sure they are going to find it very 
informative.
    With that, I would like to recognize the ranking member 
from Rockwall, Texas, Mr. Ralph Hall, for an opening statement.
    Mr. Hall. Mr. Chairman, I thank you, and members of the 
committee, I thank you for having this hearing, but not much to 
have it on Friday. I would have rather had it on Tuesday or 
Wednesday or Thursday.
    Mr. Barton. I understand.
    Mr. Hall. I see folks on the committee that would be 
strapped to an airplane right now.
    Mr. Barton. You and me, that's right.
    Mr. Hall. My folks over here, Democrats are poorer than 
Republicans, they all caught the bus out last night.
    Seriously, Joe, thank you for the good hard work you do and 
the very successful work you do as chairman of this committee. 
You do a great job and I am very proud to work with you as our 
chairman. Few live in the Oil Patch, as I do. It is, I guess, 
stunningly apparent to you that when you talk to anyone in or 
even near the oil business, that these days are about the 
toughest and the most frightening in the history of the people 
that are in the oil business. Regrettably, this is not an idle 
boast, considering the market calamities of the 1980's and the 
1950's, because we have some pretty bad times to compare it 
with.
    We are here today to examine one of the most often cited 
reasons for today's low oil prices, and the Iraqi Oil-For-Food 
Program, as the chairman has pointed out, is considered one of 
the big problems of it. I am a big believer in the unfettered 
operation of markets, and I also believe in being compassionate 
to people, particularly those who are unfortunate enough in 
life to have to live under a regressive regime of a Saddam 
Hussein. At the same time, it is important for us to think 
about this country and for us to examine how the world oil 
market is doing and whether or not it is working, and then to 
get our own assessment of how well it is working. If it is not 
working properly we need to make some changes in it, and we can 
only change that over which we have some control. So we have 
very good panelists today and I am sure we will know a lot more 
about it after we hear them.
    I, for one, am suspicious of this program. It seems to be 
borne out of an appropriate humane consideration, but it may be 
disruptive of the worldwide crude oil market and could spawn a 
lot of abuse.
    We have good witnesses here today who can help us better 
understand the impact of the Oil-For-Food Program. I want to 
extend a special welcome to my old friend, Congressman Wes 
Watkins, whose district lies just across the Red River from 
mine. I don't know of anybody that works harder, day and night, 
than Wes Watkins. You know, Wes was a Democrat at one time and 
we worked together then. He, when he switched over to the 
Republican Party, they asked me about it. We have a mutual 
television station that comes into Oklahoma and Texas and they 
asked me about Wes. And they said well, what do you think about 
him switching over to the Republican Party? I said, well, I 
would be for him, and he could win even with the laundry 
ticket. And they tell me that he used that for a commercial. 
But I got a few ugly letters from Democrats. But I got my 
friend back up here, and I am glad to work with Wes.
    I also want to welcome a fine group of Texans. The newest 
member of the Texas Railroad Commission, Mike Williams, whom I 
had the pleasure of having lunch with yesterday. He is on the 
Railroad Commission, and I think that is one of the most 
dignified and prestigious offices that we have in the State of 
Texas, and the most important. Tom Taylor, who represents 
TIPRO, and Dave Bole of Randall and Dewey. We have good, 
outstanding--Joe, you invited some good Texans up here, and I 
am proud of you.
    Mr. Barton. There is no such thing as a bad Texan, though.
    Mr. Hall. Well, I don't know.
    I thank the chairman. I thank you for having them here, and 
I hope this hearing is only one of however many it takes to 
determine what remedies exist to deal with the current price 
situation. It is a situation that is helping to destroy the 
domestic onshore petroleum industry, even as we sit here today. 
And while we have seen some upward pressure on prices lately, 
we need not to be lulled by any underlying factors which remain 
unchanged that we can change.
    I guess that is the testimony we are going to hear today. 
Seriously, thank you for having this hearing. It is a very 
important hearing, and it can yield an awful lot to folks that 
are hurting. Thank you.
    Mr. Barton. Thank you, Congressman Hall. I might point out 
we wanted to do this hearing yesterday, but we had a full 
committee markup of the satellite bill, and Chairman Bliley 
thought that we ought to do the markup.
    Mr. Hall. Well, I haven't had anything to fuss at you about 
this year yet, and this gave me a first shot.
    Mr. Barton. Okay. But you and myself and Mr. Largent are 
normally on the first plane out of town after the first vote, 
so we are all in the same boat on that.
    The chairman recognizes the distinguished gentleman from 
Illinois, Mr. Shimkus, for an opening statement.
    Mr. Shimkus. I would like to ask permission to submit my 
statement for the record and just say that it seems like we are 
in a Catch-22 where consumers all love the low oil prices, but 
what it does is shut down marginal wells. I have the two 
largest fields in Illinois in my district. Most of the 
operating wells are in my colleague David Phelps' district, and 
we all know what this does is it closes down those wells, the 
low prices, thus making us more dependent on foreign oil. And 
national security and energy security is one of my main focuses 
on this subcommittee.
    So I appreciate this, and I am also looking forward to 
talking with the folks from the administration, with the, Iraqi 
intransitives on the inspections and stuff. I think it is time 
that we reopen this debate on this program, and I look forward 
to this hearing.
    I yield back my time.
    Mr. Barton. Good. We thank you, Mr. Shimkus. Without 
objection, his statement will be inserted in the record in its 
entirety.
    We welcome Mr. Largent from Oklahoma to give an opening 
statement. Congressman Largent has put a lot of emphasis in the 
last year or so on this issue and is one of our congressional 
experts on it.
    Mr. Largent for an opening statement.
    Mr. Largent. Thank you, Mr. Chairman. I, too, will submit 
my entire statement and just make some brief opening remarks. 
First, I want to thank you for having this hearing. I wish we 
could draw even more attention to this issue, because as you 
know, it is very serious. I also want to recognize two 
Oklahomans that are also on our panels today. Mike Smith, who 
is our Oklahoma State Department of Energy Secretary, and Pete 
Brown, an independent producer from Oklahoma City. Thanks for 
coming.
    There is a number of questions that I hope that we can get 
some answers to, and I would like to verbalize those right now. 
One is, why is the Iraqi oil export quota measured on a revenue 
basis, currently $5.2 billion worth of oil over 6 months, 
rather than measured on a quantity basis? The second question I 
would like to ask is what assurances do we have that the money 
is being spent in the manner intended; in other words, for 
food, and are we relying on Iraqi government entities to verify 
this. I am glad to see that there is somebody from the State 
Department that hopefully will answer that question for us 
today.
    Why are the funds allowed to be spent by the Iraqis for oil 
production equipment? Has this policy been revisited since we 
began responding to the Iraqi military aggression by bombing 
their missile defenses on almost a daily basis? And what about 
the 5 percent of the Oil-For-Food funds that are going to fund 
the U.N. investigations and costs. Currently, as we know, there 
are no inspectors there. Also, I think it would pose an 
interesting question to try to figure out why one of the 
military targets, when we are exchanging oil for food, why one 
of the military targets in the latest round of bombing was an 
oil refinery in Iraq. That seems a small irony to me. Can the 
U.S. truly determine what the oil production export capacity of 
Iraq is, given their ability to sell oil on various black 
markets? And how can the U.S. propose that the U.N. Security 
Council could consider lifting the ceiling on oil sales 
permitted under the Oil-For-Food Program while conceding that 
increased U.S. dependence on foreign oil imports is a threat to 
our national security?
    Mr. Chairman, one thing that I think that is imperative for 
this Congress and this administration to come to terms with, we 
had a vote last week on the import of steel, and I think many 
of the arguments that were made during that debate were about 
the importance of the steel industry for national security 
reasons. If we don't have the ability, the capacity to make 
steel in this country anymore, we can't build tanks and 
airplanes and ships to protect this country, and the same is 
equally true of our ability to produce energy domestically.
    I know that back in the 1980's there was a push to develop 
a national energy policy, and included in that was to say that 
we should cap imports at 50 percent, this was back in the 
1980's, because anything beyond that would pose a very critical 
national security risk. And now, as you know, we have well 
exceeded 50 percent, it has even gone up as high as 58 percent 
in recent years, and I think this is a very important question 
that Congress, the American people, the President, and the 
Pentagon need to address, is that at what point, what is the 
threshold that we are going to say enough is enough. How much 
oil can we import without severely and critically undermining 
our national security interest?
    Mr. Chairman, I appreciate you having this hearing, and 
hopefully, this is the first in many steps toward resolving a 
number of these questions. I yield back.
    [The prepared statement of Hon. Steve Largent follows:]
Prepared Statement of Hon. Steve Largent, a Representative in Congress 
                       from the State of Oklahoma
    I want to thank the Chairman for holding this hearing on the impact 
of foreign oil imports on our domestic oil industry, specifically the 
Iraqi Oil for Food Program.
    At the outset, I want to acknowledge the Chairman's efforts to 
include two Oklahomans on the panels of experts testifying today. I 
doubt that there is anybody more qualified to speak on the current 
state of our domestic oil industry and the impact of increased U.S. 
dependence on foreign oil than Secretary Mike Smith of the Oklahoma 
Department of Energy and Pete Brown, an independent oil and gas 
producer from Oklahoma City. I would encourage the committee to pay 
close attention to their testimony because I believe it will shed some 
light on the seriousness of the state of our domestic oil industry.
    It is my hope that the hearing today on the Iraqi Oil for Food 
Program will address some concerns I have about the goals and merits of 
the program. These concerns include:

1) Why is the Iraqi oil export quota measured on a revenue basis 
        (currently $5.2 billion worth of oil over 6 months) rather than 
        measured on a quantity basis?
2) What assurances do we have that the money is being spent in the 
        manner intended? Are we relying on Iraqi government entities to 
        verify this?
3) Why are funds allowed to be spent by the Iraqis for oil production 
        equipment?
4) Has this policy been revisited since we began responding to Iraqi 
        military aggression by bombing their missile defenses on almost 
        a daily basis? What about the 5% of the Oil for Food funds that 
        are going to fund the U.N. investigations and costs?
5) Can the U.S. truly determine what the oil production and export 
        capacity of Iraq is given their ability to sell oil on various 
        black markets and transport it by other than pipeline means?
6) How can the U.S. propose that the U.N. Security Council consider 
        lifting the ceiling on oil sales permitted under the oil for 
        food program, while conceding that increased U.S. dependence on 
        foreign oil imports is a threat to our national security?
    Our domestic petroleum industry is currently facing a severe 
crisis: one that if not addressed expeditiously could prove disastrous 
economically, yet more importantly, threatens our national security. 
Since October of 1997, it is estimated that our domestic oil and gas 
industry has lost 57,000 jobs--5 times the number of jobs lost in the 
American steel industry! And each barrel of domestic oil lost will be 
replaced by imported oil.
    In December of 1994, the Secretary of Commerce issued the results 
of an investigation conducted under the Trade Expansion Act which 
studied the impact of crude oil imports on the national security of the 
United States. The investigation determined that oil imports threaten 
to impair our national security.
    In February of 1995, President Clinton concurred with the Commerce 
Department's finding that ``the nation's growing reliance on imports of 
crude oil and refined petroleum products threaten the nation's security 
because they increase U.S. vulnerability to oil supply interruptions.'' 
At that time (1995), imports comprised about 50 percent of the United 
States consumption. In 1998, gross imports had risen to 53 percent!
    Unfortunately, little has been done over the past four years to 
heed this ominous warning. Now, the domestic petroleum industry faces a 
more complicated and potentially devastating set of problems than it 
did four years ago. According to recent figures released by the 
Independent Petroleum Association of America (IPAA), preliminary 
employment data for the exploration and production sector of the oil 
and natural gas industry, as of December 1998, stood at 309,300, 
compared to 339,800 in the same month last year. Since the early 
1980's, roughly half a million jobs relating to the oil and natural gas 
industry have been lost. And rather than attempting to decrease our 
reliance on foreign imports--the U.S. has become more dependent on 
imported oil.
    The hardest hit by this latest crisis has been the independent 
producer. The Energy Information Agency recently released a report that 
indicated that about 60 percent of oil production in the lower 48 
states comes from independents, a percentage that increased by ten 
percent over the past ten years. This reflects an irreversible trend. 
Major oil companies are leaving the onshore lower 48 states. They have 
concluded that these wells do not produce the volumes they need to meet 
the return on capital that they seek. Majors now operate in the United 
States primarily offshore and Alaska, but more and more they are 
seeking their new production overseas. At current prices, most--if not 
all--of the onshore lower 48 production is at risk of loss.
    If we lose our independent producers, our reliance on foreign oil 
will likely increase from about 55 percent to over 70 percent. If we 
continue on this course, we will systematically degrade our ability to 
produce a sufficient amount of oil to maintain a secure energy source 
vital to our national security policy.
    Simply put, we can't fight a war, even a defensive war, if we are 
counting on Saddam Hussein to ship us oil to fuel our tanks, aircraft 
and ships. And notwithstanding the fact that domestic oil producers are 
suffering now because of low oil prices, once they are gone we cannot 
revive their wells or industrial expertise or hope the market will 
rebound. It will not. The national security impact of losing our 
ability to produce oil domestically is no different than losing our 
industrial base to build nuclear submarines. If more than half of our 
nuclear submarines were imported from foreign countries, I think we 
could agree that the United States would be in grave danger.
    I look forward to the testimony of our expert panelists today. Our 
domestic oil industry, and the current impact of Iraqi imports, must 
begin to appear on the nation's radar screen so all Americans can 
understand the threat that exists. I am committed to making this case 
so that we can move quickly to look for viable solutions to a very real 
problem.

    Mr. Barton. I thank the Congressman from Oklahoma for that 
statement.
    We would now like to hear from our first panelist, the 
Honorable Wes Watkins from the great State of Oklahoma, 
representing very well with a distinguished career the Third 
Congressional District.
    So, Mr. Watkins, if you will come forward. We will put your 
statement in the record in its entirety, and being from 
Oklahoma, which we think is a great State, we will recognize 
you for such time as you may consume.

  STATEMENT OF HON. WES WATKINS, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF OKLAHOMA

    Mr. Watkins. Thank you, Mr. Chairman. I appreciate the 
distinguished members being here. Even though short in number, 
I know we are high in quality, and I can also tell the States 
that are hurting out there and the districts that are hurting 
concerning not only this policy that we are talking about 
today, but the entire failed policy of this administration and 
the U.N. Security Council dealing with the Oil-For-Food Program 
and all. I want to acknowledge that I know each of you well and 
I know some of the things that you are working on, and I 
appreciate the commitments you have made.
    My colleague from Oklahoma, Congressman Largent, Steve, you 
asked some very logical questions. It reminds me of a guy who 
says, you know, common sense is not common anymore, you know, 
and there is not much of it around, and this is something that 
I think the Oil-For-Food Program is not a--Ralph, my good 
friend across the river, it is not one of those things that our 
people in our area find that has much common sense, and I would 
like to talk about that a little bit.
    I call it a failed policy because the sanctions, you might 
as well not have them. My members of the committee, I will say 
to friends that I work closely with, Saddam Hussein has won. 
Saddam Hussein has won. We are bombing Iraq. At the same time, 
we have opened up for him, for his people, a lot that we are 
not willing to do for ourselves. Today it is at $5.2, it is 
actually at about $10.5 billion/year worth of oil that can be 
sold, and it is a question why net barrels. That is more oil 
than Iraq exported before the Gulf War in 1991. It is not just 
being utilized on food or hospitals and medicine, it is being 
used to help rebuild their infrastructure. Our CRS reports have 
pointed that out. So when you look at the system we have there 
and the policies that we have, and I wonder why we are not 
willing to do it as a State Department, as a country, as the 
U.N. Security Council, why don't we insist that they abide by 
what is legal in what they sell.
    You know, I have never understood that. We close our eyes 
just to illegal things that go on. And there is around 300,000 
barrels a day that is being sold illegally over the black 
market to Jordan and to Iran, Syria, and Turkey. And you know, 
also part of the fallacy of this lack of common sense that I 
look at and wonder about, on the emergency programs that just 
passed yesterday, it had $100 million in there for Jordan, but 
Jordan is also buying about $100 million of illegal oil from 
Iraq. It is hard for me to explain why the policy of this 
administration is to allow that to happen that way, destroying 
our oil patches, destroying our means of making a living. I 
hear in their voices the pain of people I have never heard 
before, the fact that they are losing everything. I know in my 
area the oil patches are a war zone. They are yanking up pipe, 
they are closing down oil wells, and there is going to be a lot 
more of that, and I cannot stand idly by, and I know you cannot 
either. I know every one of you right here are the same way I 
am. We have to try to do something. I don't understand the 
administration and our country willing to go along with that.
    In the last 14 months, we have allowed Iraq to go from 
700,000 barrels a day up to 2.3 million barrels a day. Mr. 
Chairman, as you rightly said, the irony is that the OPEC is 
dropping production, and I was going to be at OPEC Tuesday. 
They have dropped, have a policy of 2.1 million drop per day in 
the oil, and Iraq has gone up about 2.1. Now, I may not be a 
rocket scientist, but let me tell you, it doesn't take much 
more than common sense to recognize the fact that literally, 
OPEC has staggered the market and it has gone up a little bit 
when they dropped to 2.1 or even the discussion that that is 
what is happening. We know that it hasn't gotten there yet, but 
it has cut production, and it has increased the price. Does it 
stand to reason that the 2.1 million that Iraq has increased 
affects the market the same way? Am I thinking, Ralph, wrong? I 
mean is that logic there? Is that is wrong, if 2.1 over here on 
OPEC affects it like we have seen it, is the 2.1 in there, or 
are we just seeing something a lot differently? I think we need 
to look at that. We have allowed it. It is common sense to me.
    If our policy, if our policy in the United States in 
dealing with Iraq is to allow a dissatisfied group of people in 
Iraq, the Iraqis, to overthrow Saddam Hussein, we have gone 
about it the wrong way. Because our reports show that they are 
basically importing anything and everything they want to, and 
why worry about it? In fact, as I tell them, we have a mental 
institution in Oklahoma, and the old boy told me one time, he 
said I have proof that I am sane, that I have got good sense. I 
submit to you Iraq has got it better than OPEC, OPEC should be 
mad, we should be mad. They are having to come down; Iraq is 
out of the box. Even though they belong, they don't have to 
abide by that reduction.
    In fact, I am going to follow up on the statement that as I 
prepared for this, under the new program they have a standard 
or a statement I saw there, I want to check it out, they have a 
higher price they are going to be able to get. I hope that is a 
wrong statement I am reading, because I think that also is 
something we need to be concerned about.
    Let me share with you and close on two things, and I think 
we have to reevaluate this. It is again something that deeply 
disturbs me. Thomas Pickering, the Under Secretary, said this 
is in the newspaper of March 18, told the Senators, that is the 
Senators across on the other side, as we all know, ``The 
humanitarian needs of the Iraqi people must be addressed. The 
Oil-For-Food Program,'' he said, ``has had a tremendous 
positive impact on the conditions of the average Iraqi.'' I 
don't disagree with that.
    With regard to the program's effectiveness on crude prices 
and domestic energy industry, Pickering agreed with Richardson, 
our Secretary of Energy, that Iraqi's exports are just one 
factor. Well, yeah, it is just one factor. It is 2.1 million 
barrels a day. They said the policy toward Iraq has never been 
linked to the world oil market. I don't care. ``Allowing oil 
price consideration to drive our sanctions decisions or seeking 
to use sanctions to target oil prices would undermine our 
ability to provide for the humanitarian needs of the Iraqi 
people.''
    I don't think I am looking in the face of any person here 
that is not against trying to help with some humanitarian aid. 
But I want to know how much is for their military buildup, how 
much money are they using there? How much money are they 
getting from illegal sources?
    The infrastructure, I have infrastructure needs, I think 
many of you know, in my district, and I have a need to try to 
rebuild that area.
    Then I read over here, in closing my statement, a statement 
that--you know, it is kind of like our welfare program, a 
failed program. It is kind of like a giveaway program. What it 
states here, supporters of increased oil sales, on the other 
hand, say that the tactic would reduce suffering among Iraqis 
and make it more difficult for the Iraqi government to maintain 
anti-government, or anti-American and British sentiment because 
of being in favor because we give them stuff.
    You know, members of the committee, there is one man who 
stands between us and the Iraqi people and his name is Saddam 
Hussein. Do you think we are going to have favor of being able 
to do all of these things, or Saddam Hussein? We are dealing 
with failed policy that is coming from our administration and 
the U.N. Security Council and we have to correct it. It is not 
taking any consideration in for the American people.
    I thank you so much for letting me come by to just share 
with you a little bit, because we need the common sense of this 
committee at work in trying to shape, Mr. Chairman, some of the 
policy. I too plan to be strapped on that airplane heading 
toward Oklahoma, but I delayed it until about 1 o'clock because 
of wanting to come here and be with you. I just thank you so 
much.
    [The prepared statement of Hon. Wes Watkins follows:]
 Prepared Statement of Hon. Wes Watkins, a Representative in Congress 
                       from the State of Oklahoma
    Chairman Barton, Ranking Member Hall, I would like to thank you for 
calling this hearing and allowing me the opportunity to testify before 
the Subcommittee on Energy and Power. Those of us from oil producing 
states need to do a better job of educating the American public about 
the importance of our domestic oil industry. I believe this hearing is 
a step in the right direction, but we need to do more. I would like to 
encourage our colleagues in the Congress and the Administration to 
reduce Iraqi oil sales to pre-Persian Gulf War levels--not increase 
them.
    As we all know, we are facing a crisis in our domestic oil and gas 
industry. World oil prices have dropped from above $20 a barrel in 1997 
to less than $9 a barrel this year. When adjusted for inflation, these 
are the lowest prices seen since the Great Depression. This crisis is 
having a devastating effect on our domestic industry. Since October of 
1997, our domestic oil and gas industry has lost 57,000 jobs. That is 
more than five times the number of jobs lost in the American steel 
industry.
    This subcommittee knows that the backbone of our domestic oil and 
gas industry is the small, marginal well. Marginal wells are defined as 
those wells which produce less than 15 barrels a day. At these low 
prices, it is impossible to keep many of our small, marginal wells 
open. These marginal wells account for 1.3 million barrels of daily 
production--equivalent to the amount of oil the Unites States imports 
from Saudi Arabia. Marginal wells also contribute 80,000 jobs and 
generate close to $14 billion each year in economic activity. However 
at these low prices, it is becoming impossible to keep many of our 
marginal wells open. When we lose these marginal wells, the backbone of 
our domestic oil industry, we become more dependent on foreign oil. We 
must not lose sight of the fact that the economic health and national 
security of our country are tied to the strength and stability of the 
domestic petroleum industry.
    There is a general consensus that the current crisis in the 
domestic oil patch has been caused by a combination of several factors. 
Certainly the Asian financial crisis, warmer than expected winters, and 
increased oil production by certain countries have played an important 
part in driving down prices. However we should not minimize, as some 
have done, the impact that the resumption of Iraqi oil sales under the 
oil-for-food program has played in driving down prices.
    We are here today because the Clinton Administration is currently 
considering asking the United Nations to remove the U.N. imposed 
ceiling on Iraqi oil sales. I am strongly opposed to this proposal 
because, I believe it would severely damage our already devastated 
domestic oil and gas industry and would not accomplish the objective of 
alleviating the suffering of the Iraqi people. Iraq should not be 
allowed to sell greater quantities of oil then they were prior to the 
Persian Gulf War, as they are doing now. The extended period of below 
cost prices is causing more and more of our small, independent 
producers to plug their marginal wells. Allowing Iraq to sell 
additional quantities of oil on the world market will only drive down 
these already depressed prices and force our marginal producers to plug 
their wells. Once these wells are plugged, we have basically lost this 
valuable resource for secondary recovery.
    It is important that Members understand the flaws inherent in the 
oil-for-food program's structure and how that effects the amount of oil 
Iraq can sell on the world market. Iraq's quota is based on a dollar 
amount rather than on quantitative limits. Currently, the oil-for-food 
program allows Iraq to sell $5.2 billion worth of oil every six months. 
As the price of oil fell through late 1997 and 1998, Iraq was allowed, 
under this flawed structure, to drastically increase its production. 
Under this expanded oil-for-food program, Iraq has increased its daily 
oil production from around 700,000 barrels to 2,300,000 barrels during 
the last 14 months. This excess Iraqi production has exacerbated the 
current glut on the market and caused the price of oil to slide even 
lower. In fact, the 2.3 million barrels a day more than offsets the 
recent decision by the Organization of Petroleum Exporting Countries 
(OPEC) to reduce oil production by 2.1 million barrels a day in an 
effort to prop up prices.
    The Administration will likely argue today that Iraq is already 
producing at capacity and therefore increasing the amount of oil Iraq 
is allowed to sell will not have an effect on world prices. This 
argument is flawed in several aspects. First, if Iraq is already 
producing at capacity, then there is no need to raise the dollar 
ceiling on Iraqi oil sales because Iraq cannot sell any more oil than 
it is currently selling. Second, while Iraq is currently producing at 
capacity, the UN allows Iraq to use $600 million annually from the oil-
for-food program (which is supposed to be for humanitarian supplies) to 
improve its oil production capability. This will allow Iraq to improve 
its production facilities and to further flood the world market with 
cheap oil.
    I am also opposed to this proposal because I do not believe that 
expanding the oil-for-food program would help alleviate the suffering 
of the Iraqi people. Iraq has failed to meet the conditions of the 1991 
cease-fire agreement and the 1996 oil-for-food program. I am concerned 
that the oil-for-food program itself is flawed and that many Iraqis 
will never see the benefit of the oil sales. The State Department has 
acknowledged that Iraq has not distributed much of the humanitarian 
supplies they have already acquired through the oil-for-food program. 
According to U.S. officials cited in the press, ``Iraq has kept large 
supplies of food and medicine in storehouses, refusing to distribute 
them to the needy'' (Associated Press Wire, 1/4/99). State Department 
Spokesman Jamie Rubin was quoted in the January 14, 1999 State 
Department Briefing as saying:
        ``The facts are that (the Iraqis) are failing to order and 
        distribute food and medicine as quickly as they could. The 
        facts are that they are failing to order and distribute food 
        and medicine that would alleviate the problem, and that Iraq 
        plans to order less food and medicine for the Iraqi people than 
        in previous times. So those are the facts.''
    Why would the Administration even consider a policy which would 
further damage our domestic oil industry and, according to their own 
spokesman, do little to alleviate the suffering of the Iraqi people?
    I also have concerns about the manner in which humanitarian 
supplies are distributed. If the Iraqi people are starving, as Saddam 
Hussein claims, why is the oil-for-food money being spent on oil field 
and telecommunications equipment. Are these not the same 
telecommunications facilities we have bombed because they are an 
important part of Saddam Hussein's command and control complex? I am 
also concerned that Iraq is allowed to use $600 million annually in its 
oil-for-food receipts for oil production equipment. If Iraq can allow 
food and medicine to sit in warehouses, than why should we allow the 
Iraqis to expand their oil production and further flood the world 
market with cheap oil? The oil-for-food program also allows Iraq to 
spend $250 million to rehabilitate the agricultural sector. While I 
have nothing against the Iraqi people growing their own agricultural 
commodities, does anyone honestly believe that Saddam Hussein will use 
those crops to feed the Iraqi people at the expense of his treasured 
military?
    The Administration will likely say that Iraq's increased production 
is necessary to lessen anti-American and anti-British sentiments among 
the Iraqi people. However, does anyone believe that Saddam Hussein and 
his regime will allow the United States to claim credit for these 
humanitarian supplies? I believe it is more realistic to expect that he 
will continue to let food and medicine sit in warehouses while the 
Iraqi people starve. Instead, we are rewarding Saddam Hussein for his 
lawlessness. We are rewarding him for shooting at our planes. We are 
rewarding him for illegally smuggling oil through Turkey, Jordan, and 
Iran and we are punishing hard working American families in the 
domestic oil patch.
    Mr. Chairman, a tremendous disconnect between a policy where we 
bomb Iraq on almost a daily basis yet remain the largest consumer of 
Iraqi oil. That is why I, along with our colleague from Texas Mr. 
Thornberry, have introduced H. Con. Res. 39. This resolution urges the 
Administration to oppose the unmerited expansion of the oil-for-food 
program.

    Mr. Barton. Does that conclude your oral statement?
    Mr. Watkins. I have a lot more to say, but I better 
conclude.
    Mr. Barton. I thought you were a little bit moderate today, 
Congressman. I have heard you be in the Republican Conference 
what we would call excited. We appreciate your moderate tone.
    We are a real high-tech committee, so this is our timer. It 
is a little egg timer. The Chair is going to recognize himself 
for 5 minutes. I don't think I will take the 5 minutes.
    I want to make sure I understand you, though, Congressman 
Watkins. You are not opposed to food supplies and medicines 
going to the people of Iraq, isn't that correct?
    Mr. Watkins. I do not. I do not like the attitude about 
saying they are not going to buy American food with it. It is a 
slap in our face again. We are hurting the farmers, as well as 
the oil patches. It is a double whammy.
    Mr. Barton. Your problem is the producers in your district 
and in the State of Oklahoma, some of the small, marginal 
producers that are going out of business, and it doesn't appear 
that anybody in the U.S. Government cares about that?
    Mr. Watkins. That is correct. I feel strongly about it. I 
have a tax credit bill coming through my committee, and I hope 
the leadership and the administration will back that in order 
to help us have some kind--as we all say, greater national 
security.
    Mr. Barton. So if we could come up with a program that 
maintains the current level of humanitarian supplies to Iraq, 
but cutoff the oil exports, or if not totally cut it off, 
substantially reduced it, you would support such a program?
    Mr. Watkins. Yes, I would. I think we need to definitely do 
that. The food, I don't think it should be more than the 
essential food and medicine. If our policy is for a 
dissatisfied society over there that would overthrow Saddam 
Hussein, we have the wrong policy. He is laughing, he is 
laughing at us.
    Mr. Barton. I would assume that there are corn growers and 
wheat growers and cattle producers in Oklahoma that would be 
willing to provide that food for a reasonable price to the 
people of Iraq.
    Mr. Watkins. I am quite sure we would be happy to do that.
    Mr. Barton. I am going to yield back the balance of my time 
and recognize the gentleman from Texas, Mr. Hall, for 5 
minutes.
    Mr. Hall. Thank you, Mr. Chairman. I will try to be brief, 
too, because I know we have other witnesses that we are very 
anxious to hear from, and perhaps soon the gentleman from the 
Department of State will be able to give us a little more input 
as to some of the whys of what has taken place.
    As I said in my opening statement, I am troubled and 
suspicious of this program. I am not unlike anyone else in that 
I care about little children and old people, but you know, 
MacArthur made a great statement one time. He said ``The object 
of war is victory,'' and I think the President right now today 
while we are here dispatching men and women of our armed forces 
to inflict pain and hopefully disgrace on the Yugoslav 
leadership over there, Milosevic, in an effort to cause the 
people to drive him out, the easier you make it on people, the 
more you help the people that need the leadership of even a 
dictator, the longer he is going to be there. The program 
doesn't make that much sense to me. But, who cannot feed little 
hungry kids? And of course, you know, Hiroshima and Nagasaki 
would have been a lot better off if they had given them a 
couple of weeks notice to move all the young people and old 
people offshore and just put the folks that were fighting the 
war there under the bomb, but that is not the way it works, not 
the way it can work, not the way it works over there today.
    I asked George Bush one time why they didn't destroy Iraq's 
ability to produce war, and he said well, it wasn't totally his 
decision, it was a U.N. decision. Besides, they were afraid of 
Iran. Didn't want to weaken Iraq and then have Iran. And I said 
well, while we are over there, why can't we take care of them 
too while we are there. Of course, that is not the way we do 
it. I think we missed out when Iran and Iraq were fighting each 
other, why we didn't just arm the hell out of both of them.
    How can we impress on people that are voters and are 
interested citizens the importance of people outside the 
producing areas that they ought to care about domestic oil 
producers? If everyone could hear you speak today, that would 
get through to them. But how do we get that message over to 
them?
    Mr. Watkins. Are you really asking me that question?
    Mr. Hall. Yes, yes.
    Mr. Watkins. If I knew the answer to that, we would solve 
all of our problems. Because right here, the members who are 
not here are the ones that need to be listening and hearing 
your feelings and the chairman's and other members from the Oil 
Patch. We do bring in national security.
    But I went to Venezuela. I went down and met with the new 
President the week before, a couple of weeks before, who is 
probably one of the most dynamic men I ever met in my life. I 
mean he can look you right in the eye. And I talked to him 
about the oversupply of production, and he is sincere in 
wanting to lower it in helping the price, and I think he has 
followed up on that. There is a lot of hope there. There is 80 
percent poverty in Venezuela.
    I want to get to this point, right to what you are talking 
about. There is a lot of hope in Venezuela, but they don't know 
anything about the new President. All they know is that 6 years 
ago he tried to overthrow their government and he ended up in 
jail for 2 years. Less than 2 years ago, we would not even give 
him a visa to come to this country.
    Now, he has his hand on the spigot of the greatest supply 
of crude oil to the United States. He chased out the president 
for PdVSA, but yet we have now relied more on Venezuela and 
Mexico and Canada and of course Saudi Arabia. The Saudi 
Arabians will produce as much oil as we consume or we produce 
out of our marginal wells, 1.3 million barrels a day.
    So if people understand, we have become more dependent than 
ever before in the history of our country. And I thought about 
that when we celebrate Independence Day. I said, we are not 
independent anymore.
    Mr. Hall. You were here when we tried to get an import fee 
put on, and we have not been able to muster the votes, and the 
reason given by those that voted against it was the hardship of 
the people in the Northeast for their heating oil and things 
like that, and you know, they had a good, sensible argument 
there. The effort was made at one time by Charlie Cooke back 
here that worked for me and worked with the committee back at 
that time to try to produce a paper that would be a good 
position for one of the Presidential aspirants to use on 
supporting an oil import fee, and I think Charlie had to write 
about 300 pages, and that is not good for a one-line quip for a 
Presidential runner. Finally, we decided that there ought to be 
an import fee on all oil-related goods. You can imagine how 
long that takes to put together and explain, and finally the 
Presidential aspirant was told just to forget it. He didn't put 
part of that in his program. Yes, it was Al Gore. He wasn't 
running too fast then. I don't know how he is going to do now, 
but he hasn't asked us to put that together for him again, and 
I doubt that he will.
    I thank you. You know, once again I will leave you with 
this. This is not a question that you can answer. People 
outside the Oil Patch want cheap gasoline. People in the Oil 
Patch want to make some money producing the basic ingredient.
    Mr. Watkins. Just trying to make a living this time.
    Mr. Hall. I thank you, Wes. Appreciate it.
    Mr. Barton. I recognize the gentleman from Illinois for 5 
minutes.
    Mr. Shimkus. Thank you, Mr. Chairman, and Wes, welcome. As 
you know, I am a cosponsor of your bill and I appreciate all 
the good work you do.
    One question that hasn't been asked, and we have been 
talking about it in Illinois, the problem with the base 
closings and the people who say there is a savings, we never 
take in the environmental cost of cleanup. When we have 
marginal wells that are going bankrupt, the State has to assume 
the cost of cleanup, not only in closing down the well, but 
also the cleanup of the surrounding area, and that is also a 
taxpayer issue in Illinois that with these historically low 
prices, because of the oversupply, that we will have to address 
as citizens of the State of Illinois. Is that a similar effect 
on the taxpayers in your district and the State of Oklahoma?
    Mr. Watkins. I am delighted with the vision and commitment 
and dedication of our independent oil producers in Oklahoma. We 
established the first checkoff program per barrel, which helps 
a great deal with environmental and also educational matters. 
Even in Oklahoma we try to educate the people about the value 
and the importance, et cetera, of the oil industry. But also, 
it helps a great deal in matching some money, but also helping 
in the environmental cleanups. And it has been very good, 
because the industry itself is helping clean up old wells that 
they have no connection with.
    So I know exactly what you are saying. It is costly to plug 
a well. It is very expensive, the environmental requirements to 
do that today. As well as if you ever tried to open one of them 
back up, it becomes--a marginal well, it is not conducive.
    I would just say, I do have--I am cosponsoring with Charlie 
Stenholm, or we offered it together and are working on it right 
now, is the Environmental Equalization Act, trying to do 
exactly what Ralph was talking about. It is a fee. I don't know 
how we want to work it, but we may want to try to say all the 
money coming in from this goes to offset the heating oil cost 
or we do something like that, but it helps us get maybe the 
offset of $3 to $4 where we are paying for the environmental 
requirements put upon us in this country, but the other 
countries do not have to do that. They just shift oil to us. 
And there should be some equalization to that. We should look 
back also, I might say, at some research in the 1950's and 
1960's, where we had a tariff against Venezuela, we had one 
against Mexico and also Canada. We don't talk about tariffs 
nowadays basically, but I think as late as the 1960's, in the 
research, Mr. Chairman, I think we had some tariffs on.
    Mr. Shimkus. My last question is I am really concerned with 
our foreign policy with respect to Iraq and Saddam Hussein. The 
fact that we bombed them and now we have no inspectors in the 
area, so they can continue to develop their weapons of mass 
destruction, nuclear, biological and chemical, and I fully 
believe that they are doing that.
    Mr. Watkins. It is crazy.
    Mr. Shimkus. How do we know that the revenue generated from 
the Oil-For-Food Program is not going into those developmental 
programs?
    Mr. Watkins. I think, I believe and feel, the research I 
have done indicates some of it is. Let me say the money has 
been agreed to by the U.N. Security Council to go into an Iraqi 
bank of their choice. I just think about that just a little 
bit. Also, if we look at it and see the breakdown, they can 
have chemicals and everything like this they can buy for 
agriculture, fertilizers. The biggest bombing ever in this 
country in domestic is Oklahoma City and it is from fertilizer, 
and moneys from this program is going to do exactly that. You 
have every right to be concerned, and I hope you will just get 
as mad as I am about this thing, because it is the wrong 
policy. It is a failed policy for our people and for our 
country.
    Mr. Shimkus. Thank you. Mr. Chairman, I yield back my time.
    Mr. Barton. The gentleman from Oklahoma, Mr. Largent, is 
recognized for 5 minutes.
    Mr. Largent. Wes, I want you to give us a little domestic 
production 101 course here this morning for our friends that 
may not be aware of some of these facts.
    Tell us what a stripper well is. That is not a Demi Moore 
movie, but what is a stripper well?
    Mr. Watkins. In Oklahoma we call it 10 barrels or less. A 
marginal well is considered 15 barrels or less.
    Mr. Largent. And what percent of our domestic oil 
production comes from stripper wells, approximately?
    Mr. Watkins. About 25 percent of the overall production. 
Eighty-five percent of the wells in Oklahoma are stripper 
wells.
    Mr. Largent. Okay. And what percent of our domestic 
production actually comes from our small oil independent 
producers?
    Mr. Watkins. Small oil independent--oh, from independent 
wells? About 20 percent. Wouldn't that be about right? Sixty 
percent of our--did I get the question correctly?
    Mr. Largent. I think it is closer to 60, 60 to 70 percent 
of the oil that is produced in this country is done so by our 
small independents.
    Mr. Watkins. Yes, well over 50 percent.
    Mr. Largent. Let me ask you a couple of questions here. A 
lot of times when we hear oil prices, we hear that Nynex 
Mercantile figure, but how does that differ from what the 
producers are making at the wellhead? In other words, if we 
hear $16 a barrel or $17 barrel, what are they actually making, 
the producers, what are they actually getting at the wellhead.
    Mr. Watkins. Well, the various ones, like Oklahoma or Texas 
Intermediate and all, most of the time is a couple dollars less 
than what we are hearing out of New York. And also the futures 
have a play on some of that today now, some of the prices.
    Mr. Largent. And what would you say approximately is the 
cost of production for a small independent with stripper wells 
or marginal wells?
    Mr. Watkins. Of course that would vary, but I would say 
$13, $14 would be an amount that just, if you call it break 
even. Some would not break even at that amount.
    Mr. Largent. What are they getting----
    Mr. Watkins. We are up to close to 15, give or take? Twelve 
at the wellhead.
    Mr. Largent. So a dollar or 2 less than it costs them to 
produce the oil?
    Mr. Watkins. That's right. So it is kind of like an artery 
that has been cut. It is flowing and you can't stop it unless 
you plug it.
    Mr. Largent. Well, this is 101. So what we have established 
here is that it costs them more to produce it than they are 
making. And what is the result now that you are seeing in your 
district in terms of personnel and equipment? What is taking 
place in the oil and gas industry, especially the small 
producers today?
    Mr. Watkins. They are yanking up pipe, they are plugging up 
wells, they are stopping the production, and some on the verge 
I think of suicide.
    Mr. Largent. And once you close a stripper well or marginal 
well, what happens to it?
    Mr. Watkins. 90 percent of them are not worthy of opening 
back up.
    Mr. Largent. You have lost them.
    Mr. Barton. Will the gentleman yield on that?
    Mr. Largent. Yes.
    Mr. Barton. It may be different in Oklahoma than in Texas, 
but you can suspend production with permission of--in our State 
it is the Railroad Commission. I am not sure what it is called, 
it may be the corporation----
    Mr. Watkins. Corporation commission.
    Mr. Barton. For what, up to 90 days without having to plug 
it, but after a certain amount of time, if you are not going to 
resume production, you do have to go ahead and plug the well.
    Mr. Watkins. I would ask Mike or Pete, they would probably 
know exactly that on the corporation commission. Do they give 
you forgiveness time and not plug it?
    Mr. Smith. Two years, Mr. Chairman. Two-year moratorium 
now, unless it is a health or environmental situation.
    Mr. Watkins. By the way, the way your colleague Ralph Hall 
described the railroad commissioner, I think I want to leave 
this job, because that sounds like a very honorable job and a 
very nice job. Excuse me, Steve.
    Mr. Barton. Well, you have already tried to quit Congress 
once and we didn't let you.
    I yield back to Mr. Largent.
    Mr. Largent. Wes, just a couple of other questions. There 
has been--we are seeing the same thing obviously in the First 
Congressional District where people are leaving the industry. I 
think the number is close to 50,000 since November have left 
the industry. I think the number is about a half a million in 
the last 10 years have left the industry. Those people don't 
come back. The equipment is rusting, the drilling equipment 
lays dormant. It is irretrievable at that point. You shut up 
the stripper wells at some point in time and they are 
irretrievable.
    I guess I would just like to throw out one other question, 
if I could have an additional minute.
    There has been a lot of remedies suggested, some of them 
that you have proposed. Some people are suggesting an oil 
import fee. There has been suggestions of regulatory relief. 
There is a loan program I just learned of yesterday that the 
Senate is talking about putting into effect; capping imports 
and tax relief. You have a tax relief bill. What do we need to 
do, Wes?
    Mr. Watkins. My feeling is this. Maybe it is just the way 
I--I have always taken a full court press. You understand that 
term. I mean take everything we can and move it as quickly as 
we can and move forward. Do I expect everything I am trying to 
do to get done? No. I hope a few of those things are sending a 
message to the Arabs and others, and what we are doing today I 
hope sends a message, and what you do after this can send a 
message one way or the other. But yes, we need some immediate 
relief, and I think the income-averaging that Bill Thomas and I 
are on, trying to go back and pick up some good years they have 
had where they have paid in some taxes, they could carry that 
forward. The tax credit bill that I have is one of the quickest 
things we can do. All of those things, if we can do it, would 
help secure the industry here in America so we can have a--in 
agriculture we say we need to have a domestic food basket. I 
agree that we have to have. I think we have to have a domestic 
energy basket for national security. We are walking into a trap 
if we don't. I think common sense tells us that.
    So Steve, all of the above is what I would say. Let us try 
everything we can, knowing full well we have to try to come out 
with one or two of those things if we possibly can.
    The other thing, and this committee could address that. You 
remember we got a trade adjustment, the displaced workers, I 
would encourage you to revisit that and make sure that we can 
get our oil field workers in that, so they can get that kind of 
training. Because Steve, as you indicated, we are displacing 
those workers too and they are not going to come back. They are 
going to go into some computer work, technology, other things 
out there, and we are losing that infrastructure, and you 
cannot gear it back up overnight. Even if we had to, we 
couldn't get it to.
    Mr. Largent. Thank you, Mr. Chairman. I yield back.
    Mr. Barton. Thank you, Congressman.
    I recognize the gentleman from North Carolina, Mr. Burr, 
for 5 minutes.
    Mr. Burr. Wes, I wasn't going to ask a question and I may 
not ask one, but I may make a statement. You are right, we 
probably ought to include them in that displaced worker list. 
What alarms me is how long that list could be if we actually 
looked at displaced workers that we have had policy that has 
displaced them, whether it is inadequacies in trade 
negotiations or decisions as it related to foreign policy, and 
I guess what you are here saying is our foreign policy 
decisions do affect the livelihood of the American people.
    Mr. Watkins. Exactly right.
    Mr. Burr. It doesn't seem to play a part necessarily in the 
formation of that policy or those negotiations, and I think 
maybe we ought to raise that question a little louder. I thank 
you for your willingness.
    Mr. Watkins. If I can respond to that, I have a sinking 
feeling, because I think a lot of our State Department people 
and some of our international people literally are more 
concerned about getting and having a favorable feeling from 
where they may be stationed, Ambassadors and others, than our 
concern about the people on the farms and in the oil patches of 
this country or other industries. I have detected that. Maybe I 
am a little harder nosed than what I should be, but I mostly 
think I have a warm heart.
    Mr. Burr. I hope the workers in the oil fields don't find 
the same end results as the textile workers in the mills across 
the South.
    I thank the chairman, and I yield back.
    Mr. Watkins. By the way, I married a Presbyterian 
minister's daughter.
    Mr. Barton. We are not going to ask you a second round of 
questions, but I think Congressman Hall has one final question 
and then we will excuse you.
    Mr. Hall. Wes, just for the record, are you in favor of 
continuing the Iraqi Oil-For-Food Program?
    Mr. Watkins. Limited to the necessities of food and 
medicine.
    Mr. Hall. And being able to check on them.
    Mr. Watkins. And being able to check on them. You bet. You 
bet.
    Mr. Hall. Somebody said trust, but verify?
    Mr. Watkins. If we go what was above the 700,000 barrel 
area, then we are just handing them over everything they need 
and more.
    Mr. Hall. I thank you.
    Mr. Barton. Well, Congressman Watkins, we really 
appreciate, on behalf of this subcommittee, the leadership that 
you have shown in this area. Almost single-handedly you have 
raised the visibility of this, and as I said in my opening 
statement, this is not the only hearing we are going to do on 
the domestic oil and gas industry. It is unfortunate that this 
is on a Friday and that we don't have any television coverage 
for it, at least we don't have now, but I can assure you, and 
you can assure the people of the Third Congressional District 
of Oklahoma that if there is something that can be done to 
change this program and this subcommittee can do it, we will do 
it, and we will continue to work with you. I just hope that the 
people of your district appreciate the efforts that you are 
making on their behalf.
    Mr. Watkins. I thank you, Mr. Chairman, members of the 
committee, my neighbors in Oklahoma and Texas. I appreciate it.
    Mr. Hall. See you out at National.
    Mr. Barton. Save a seat on the plane for Congressman Hall.
    We want to recognize our second panel now. We have Mr. Bill 
Wood, who is the Principal Deputy Assistant Secretary of the 
Office of International Organizations, the United States 
Department of State; we have the Honorable Jay Hakes, who is 
the Administrator of the Energy Information Agency within the 
United States Department of Energy; we have the Honorable Carl 
Michael Smith, the Secretary of Energy from the great State of 
Oklahoma; and we have, not to be outdone, the Honorable Michael 
Williams, who is the Commissioner of the Texas Railroad 
Commission.
    Gentlemen, we want to welcome you. Your statements are in 
the record in their entirety. I am going to recognize you to 
speak in a second, but before I do that, I want to direct some 
comments to our representative from the State Department.
    We don't call State Department witnesses too frequently to 
this subcommittee. We have fairly frequent testifiers from our 
friends at the Department of Energy. It is not normal that we 
would ask a representative of the State Department. But we have 
a rule that we like testimony 2 days in advance so our members 
can actually study it. I won't swear to you that every member 
uses that time to study, but some do. We got the State 
Department's testimony I believe this morning, and you were the 
first people we asked.
    Now, if you were me, what kind of--what would your attitude 
be if you were me and you are the, in some ways, the most 
important government, Federal Government witness we are going 
to hear from because you all are in charge of this program and 
we get your testimony some time this morning.
    Mr. Wood. Mr. Barton, I can only apologize for the lateness 
of the arrival of the testimony. We don't testify before the 
subcommittee very often. We are very, very pleased at this 
opportunity to do so and we thank you very much for inviting us 
here. If the opportunity arises again in the future, we assure 
you we will do better.
    Mr. Barton. Well, we had the ability to look at some 
testimony. I don't know if you are the individual that gave it, 
but a representative gave similar testimony on a similar issue 
over in the Senate several weeks ago. I guess it is possible 
that whoever prepares it is on vacation. I guess it is possible 
you all don't think very much of the House of Representatives. 
I guess it is possible that you all don't think it is a very 
important issue. But I am going to send a letter to the 
Secretary of State and I may send a letter to the 
Appropriations Subcommittee chairman asking that we dock your 
part of the State Department $100,000, maybe take it out of the 
Iraqi Oil-For-Food Program, just to send a signal.
    We have problems with our friends at DOE, not EIA. EIA has 
been pretty good, but there are others in the Department of 
Energy that are almost as bad, but I don't think we have ever 
had an administration witness, and I was chairman of the 
Oversight and Investigation Subcommittee for 4 years, that had 
the effrontery to send in the testimony the day they were 
testifying. I just don't appreciate it. I really don't.
    Mr. Burr. Mr. Chairman, I ask that the witness be excused 
and not have the ability to testify.
    Mr. Barton. Well, unfortunately, we have to have their 
testimony. They have us between a rock and a hard place.
    Mr. Burr. We have his testimony, Mr. Chairman, but we don't 
need to hear from him verbally.
    Mr. Barton. I think if I send a letter to the Secretary of 
State and we dock them $100,000, I think that will get their 
attention.
    I mean we are going to be doing a series of hearings on the 
oil and gas industry and some of it is domestic, but a lot is 
international, so we are going to be calling other State 
Department witnesses, and I really want you to go back, I don't 
know if this was in your chain of control or not, Mr. Wood, but 
I want you to let folks know, we don't expect the State 
Department to turn cartwheels when they are asked to testify, 
but we do expect reasonable courtesy and we would like to get 
it in what the notice requires, which is 2 days ahead of time. 
But we at least want to get it a day ahead of time so that we 
can copy it and send it around to the staffs and let everybody 
review it.
    Mr. Burr. Mr. Chairman, could I at least ask the witness to 
tell the committee why we received the testimony so late, why 
he couldn't fulfill the rules of the committee.
    Mr. Barton. Well, sure. I mean I tried to ask him that. Why 
did it take the day of the hearing to get it?
    Mr. Wood. Mr. Chairman, I don't want to try to offer an 
excuse. All I can say is we were wrong not to get it to you on 
time. It won't happen again. We apologize. We do consider it 
both a lack of courtesy and a lack of professionalism. We are 
very grateful for your suggestion that in the future it has to 
be, at a minimum, 1 day in advance. We will get it here 2 days 
in advance.
    Mr. Barton. Again, I am new on this subcommittee, but I 
have been chairman of the oversight, and Mr. Burr has been one 
of my distinguished members on the oversight, and we have had 
this problem with the FDA and we have had it with the EPA. We 
finally got their attention. We didn't let them testify one 
time. You know, we just said go home and sit in the corner for 
the day. We don't want to start out that way. But we do want to 
let you know that we need to get the testimony on time.
    Mr. Wood. You got our attention, sir.
    Mr. Barton. All right.
    We are going to start with Mr. Hakes. Your testimony is in 
the record in its entirety. We are just going to go right down 
the line, Mr. Hakes, Mr. Smith, Mr. Wood and Mr. Williams and 
then we will let our committee members ask questions.
    Mr. Hall. Can I ask Mr. Hakes a question before we start?
    Mr. Barton. Yes, sir.
    Mr. Hall. Aren't you glad you submitted yours this morning?
    Mr. Hakes. I am going to try to get it in 3 days early next 
time.
    Mr. Barton. Well, my good friend from Texas, it does help 
the minority staff, too, to help prepare the questions and to 
read it. I actually read it. I may be the only member, but I 
read the testimony ahead of time as the chairman so I can know 
a little bit about where you all are coming from. So I was very 
upset.
    Mr. Hall. I withdraw my question.
    Mr. Barton. Okay. We will give each of you 7 minutes, and 
if you need a little more time, so be it. So, Mr. Hakes, you 
are recognized for 7 minutes.

STATEMENTS OF HON. JAY HAKES, ADMINISTRATOR, ENERGY INFORMATION 
ADMINISTRATION, DEPARTMENT OF ENERGY; HON. CARL MICHAEL SMITH, 
 SECRETARY OF ENERGY, STATE OF OKLAHOMA; HON. WILLIAM B. WOOD, 
 PRINCIPAL DEPUTY ASSISTANT SECRETARY, OFFICE OF INTERNATIONAL 
    ORGANIZATIONS, DEPARTMENT OF STATE; AND HON. MICHAEL L. 
       WILLIAMS, COMMISSIONER, TEXAS RAILROAD COMMISSION

    Mr. Hakes. Thank you, Mr. Chairman and members of the 
committee. As you know, the Energy Information Administration 
is an independent analytical and statistical agency within the 
Department of Energy. I would like to talk a little bit today 
about the role that Iraq plays in world oil markets.
    We have identified four factors that influenced world oil 
markets since the end of 1996 and the interaction between these 
factors make it difficult to assess the impact of each 
individually, but I would like to discuss them and sort of put 
them in some context.
    One factor that has clearly influenced the world oil market 
has been the increase in Iraqi oil production and the 
consequent exports that have occurred since the beginning of 
the United Nations Oil-For-Food Program. Iraq's oil production 
is currently 2.5 million barrels per day, which is about 2 
million barrels per day higher than it was prior to the Oil-
For-Food Program, although it is still lower than it was prior 
to their invasion of Kuwait in 1990. You can basically follow 
the movement of price there with that blue line, and you can 
see where the program started, it sort of zigzagged up to the 
2.5 million level.
    Even with the current oil exports of about 2 million 
barrels per day, Iraq is still below the ceiling of $5.3 
billion per 6 months imposed under the current phase of the 
Oil-For-Food Program. In order for Iraq to approach the ceiling 
during the next year or 2, the price of West Texas Intermediate 
crude would have to average about $18 to $19 per barrel day.
    Mr. Barton. $18 per barrel?
    Mr. Hakes. Yes, excuse me. $18 to $19 per barrel, which are 
prices that we are not currently forecasting, incidentally.
    Another factor that is important in terms of its impact on 
the world oil market is the dramatic slowdown in oil demand 
growth in Asia as a result of the economic crisis. I think 
after the Persian Gulf War most oil producers around the world 
realized that eventually at some point Iraq would come back, 
and that this would pose a problem for the market. And a number 
of them, including Saudi Arabia and others, made the comment 
that they thought that the increased demand in Asia would 
probably help soak up the Iraq increased production when that 
happened. But you can see that almost at the same time that 
Iraq is coming back onto the world market, there is an economic 
collapse in Asia, and the demand sort of stops.
    Demand in Asia was growing roughly 850 thousand barrels a 
day each year, and that is adding a lot of demand into the 
world market. Then you can see for 1998, demand growth was 
virtually negligible. So at the very time when there was a hope 
that Asian demand would soak up the Iraqi extra production, 
that demand was not there.
    EIA is estimating that Asian oil demand will grow by only 
1.5 million barrels per day during the entire period from 1997 
to 2000, instead of the 3.4 million barrels per day that would 
have been expected before this economic crisis occurred.
    Added on top of this have been three warm winters in a row, 
which has reduced the demand for heating oil, and this has 
further thrown the world market out of balance and created 
excess supply.
    Another factor that contributed to it is as Iraq was coming 
back on the market in 1997, other areas of the world instead of 
cutting back on their production actually were increasing 
production. There was quite a bullish market internationally in 
oil, and OPEC, which some thought might cut back because they 
had increased after the Persian Gulf War to cover the absence 
of Iraq, they actually had an increase in 1997, and it was not 
until 1998 that they began to cut.
    Let me just speak briefly, Mr. Chairman, about the outlook 
for Iraqi oil production in the world oil market. We feel that 
Iraq is currently producing at pretty much its full capacity 
since its oil revenues are significantly less than allowed and 
they would be producing more today if they could. Our current 
forecast assumes that Iraqi crude oil production capacity 
increases only by 100,000 to 200,000 barrels per day between 
now and the year 2000. Currently, the United Nations is 
allowing Iraq to import about $300 million worth of parts that 
are used to improve their oil infrastructure. How fast Iraq 
receives these parts and how well these parts are used will 
determine how quickly Iraqi oil production might increase. Some 
analysts believe that the capacity would be somewhat higher in 
the year 2000 than the EIA is estimating, but most of them 
expect the increases to be fairly modest.
    Now, the newest issue on the block of course is the recent 
announcement by OPEC that they are setting targets for reducing 
production. OPEC itself has pledged 1.7 million barrels per day 
of cuts and some nations outside of OPEC have joined into the 
agreement and pledged another 0.4 million barrels per day cuts. 
The cartel in the past has had a difficult time fully enforcing 
these cuts. However, Saudi Arabia has already put them into 
effect for April orders, so at least a part of this seems to be 
quite real. We have been predicting up until the OPEC action 
that the price of oil would probably, for West Texas 
Intermediate, get to slightly below $15 a barrel at the end of 
this year. I am sure we will raise that estimate when we come 
out with our next update, which is scheduled for April 8. At 
that time we will do a fairly detailed analysis of the 
estimated impact of the OPEC actions. But that is where it 
stands for now, and I of course will be glad to answer any 
questions the members of the committee may have.
    [The prepared statement of Hon. Jay Hakes follows:]
Prepared Statement of Hon. Jay Hakes, Administrator, Energy Information 
                  Administration, Department of Energy
Short-Term World Oil Market Outlook
    Mr. Chairman and members of the Committee, I wish to thank you for 
the opportunity to testify today on our short-term world oil outlook, 
paying particular attention to Iraq's role in the international oil 
market. As Administrator for the Energy Information Administration 
(EIA), which is an independent analytical and statistical agency within 
the Department of Energy, I have been asked to provide an overview of 
the world oil market--how we got here and where we think we are headed. 
As part of this discussion, I will highlight Iraq's oil production 
history thus far in the 1990s and provide our assessment of the short-
term outlook for Iraqi crude oil production.
    EIA has identified four factors that have influenced the world oil 
market since the end of 1996. The interaction between these factors 
makes it difficult to assess the impact of each individually. 
Nevertheless, I will discuss each factor separately and try to put the 
oil market impact of each in context.
    One factor influencing the world oil market has been the increase 
in Iraqi oil production (and exports) that have occurred since the 
beginning of the United Nations' ``oil-for-food'' program. Iraq's oil 
production is currently 2.5 million barrels per day, which is about 2 
million barrels per day higher than it was prior to the ``oil-for-
food'' program, although it is still lower than it was just prior to 
their invasion of Kuwait in 1990 (figure 1). But even with current oil 
exports of about 2 million barrels per day, Iraq is still well below 
the ceiling of $5.256 billion imposed under the current phase of the 
``oil-for-food'' program. In order for Iraq to approach the ceiling 
during the next year or two, the price of West Texas Intermediate crude 
oil would have to average about $19 per barrel during a 180-day phase 
of the United Nations' ``oil-for-food'' program. I would like to point 
out, however, that EIA is not forecasting prices at this level in the 
short-term.
    Another factor that is equally important in terms of its impact on 
the world oil market is the dramatic slowdown in oil demand growth in 
Asia as a result of the economic crisis, which began in the summer of 
1997. Between 1991 and 1996, Asian oil demand was increasing on average 
by about 850,000 barrels per day each year (figure 2). If Asian oil 
demand had continued to grow at this pace, EIA would have expected oil 
demand to be about 2 million barrels per day more in 2000 than in our 
current forecast, which would have helped soak up the increased 
production from Iraq. Instead, EIA is estimating that Asian oil demand 
will grow by only 1.5 million barrels per day during the 1997-2000 
period, instead of the 3.4 million barrels per day that would have been 
expected before the Asia crisis occurred.
    Weather has also been a major factor influencing the world oil 
market in recent years. Oil demand typically peaks in the winter, along 
with the demand for heating oil. Weather patterns in the northeast 
United States and Western Europe are particularly important to the 
world oil market since these are the regions where oil is used 
significantly as a fuel for heating. The winters of 1996-97 and 1997-98 
were particularly warm compared to ``normal'' temperatures, and now it 
is apparent that this winter will be the third significantly warmer 
than normal winter in a row. As a result, global oil inventories are 
much higher than they would have been had temperatures been more 
``normal'' during the past three heating seasons.
    The last major factor that EIA has identified as a major influence 
in the world oil market was oil production increases from many 
countries outside of Iraq, particularly in 1997. Global oil supply 
increased by about 2.3 million barrels per day in 1997, much more than 
the 1.7 million barrels per day of global oil demand growth that year. 
This followed a period of 32 months in which the price of West Texas 
Intermediate crude oil averaged above $17 per barrel each month. While 
oil production from Iraq increased more than any other single country 
in 1997 (about 600,000 barrels per day) as a result of the ``oil-for-
food'' program which began in December 1996, other OPEC and non-OPEC 
countries also increased oil production significantly in 1997 (world 
production increased by 2.3 million barrels per day, making Iraq's 
increase about 25 percent of the total). Within OPEC, Saudi Arabia oil 
production increased by 370,000 barrels per day, Venezuela increased by 
227,000 barrels per day, Qatar increased by 139,000 barrels per day, 
and Nigeria increased by 129,000 barrels per day. Outside of OPEC, most 
of the growth was in the Americas (North, Central, and South America, 
but excluding Venezuela, an OPEC member), which increased by over 
500,000 barrels per day. Since demand growth did not keep pace with the 
supply growth in 1997, much of this oil found its way into inventories.
    Turning to the future, let's look at where EIA thinks the oil 
market is headed in the short-term (through 2000). In 1998, OPEC and 
some non-OPEC countries agreed to cut oil production in order to help 
increase oil prices. In part because of these agreements and the 
beginning of an expected gradual recovery in Asia, EIA's most recent 
forecast had prices increasing by about $3.50 per barrel by December 
1999 from the historical low point in December 1998, and by an 
additional $1-$1.50 by the end of 2000. Now that OPEC and some non-OPEC 
countries have agreed to cut production by about 2 million barrels a 
day (figure 3), we would expect prices to increase even more. EIA's 
next Short-Term Energy Outlook, which is updated monthly, is scheduled 
for release on April 8, 1999. At that time, EIA will incorporate a 
detailed analysis of the new OPEC cuts into our price forecast. I can 
say now, however, that our forecast for oil prices will be higher. This 
forecast will be based on the assumption that demand growth will 
outstrip supply growth in both 1999 and 2000, even if producers only 
partially implement the planned cuts.
    Let me spend a little time discussing our outlook for Iraqi oil 
production. As I stated before, Iraq's crude oil production has 
increased by about 2 million barrels per day since late 1996. However, 
we feel that they are currently producing at full capacity since their 
oil revenues are significantly less than allowed and would produce more 
if they could, and that their oil production capacity is not expected 
to increase substantially through 2000. Our current forecast assumes 
that Iraqi crude oil production capacity increases by only 100,000-
200,000 barrels per day between now and 2000 (figure 1). Currently, the 
United Nations is allowing Iraq to import $300 million worth of parts 
that are to be used to improve their oil infrastructure. How fast Iraq 
receives these parts and how well these parts are used will help 
determine how quickly Iraqi oil production capacity might increase. 
There are some analysts that expect Iraqi oil production capacity to be 
somewhat higher by the end of 2000 than EIA is estimating. However, 
most analysts expect Iraq's oil production increases this year and next 
to be far less than what they were in 1997 and 1998.
    This concludes my testimony before the Committee. I would be glad 
to answer questions at the appropriate time.

[GRAPHIC] [TIFF OMITTED] T5644.001

[GRAPHIC] [TIFF OMITTED] T5644.002

    Mr. Barton. Just before we recognize Mr. Smith, Iraq is 
part of OPEC, is it not?
    Mr. Hakes. Yes.
    Mr. Barton. Mr. Smith, we will recognize you for 7 minutes. 
Mr. Largent, do you want to formally introduce Mr. Smith.
    Mr. Largent. Yes, I did in my opening statement. This is 
our Secretary of Energy from the great State of Oklahoma. We 
are glad to have him here.
    Mr. Barton. You are recognized for 7 minutes.

                 STATEMENT OF CARL MICHAEL SMITH

    Mr. Smith. Thank you, Mr. Chairman, and members of the 
subcommittee. As Congressman Largent mentioned, I serve as 
Secretary of Energy for the State of Oklahoma, and this year I 
am vice chairman of the Interstate Oil and Gas Compact 
Commission. I have been a member of Oklahoma's oil and gas 
community my entire adult life, either as a producer, as an 
attorney for operators, and currently in my public service. I 
have experienced firsthand the Arab embargo of 1973, the 
oilfield pipe and equipment shortage of the mid-1970's, the 
ill-conceived Natural Gas Policy Act of 1978, the misguided 
Fuel Use Act of 1978, the plunderous windfall profits tax of 
1980, the Middle East turmoil of the late 1970's and early 
1980's, the collapse of our domestic oil and gas industry in 
the mid-1980's, precipitating, as Congressman Largent mentioned 
earlier, a loss of about a half a million jobs, the advent of 
computer technology into the industry, the Gulf War, and now, 
Operation Desert Fox. In short, I have seen a lot of success, a 
lot of failure, and an abundance of public policy, most of 
which has, unfortunately, been poorly conceived and missed the 
mark.
    Since entering public life in 1990, I have been assisting 
in the conception and implementation of energy policy. Most of 
this work has involved assisting the IOGCC Governors in 
drafting and implementing A Dependent Nation: How Federal Oil 
and Gas Policy is Eroding America's Economic Independents. 
Recently, I have assisted my Governor, Frank Keating, as he has 
led the other oil and gas producing State Governors in 
addressing an unprecedented oil price trough which is 
approaching its 18th month.
    Today's hearing focuses on the Iraqi Oil-For-Food Program 
and its impacts. Mr. Chairman, the American people, and the 
people of my State, are very confused. Occasionally a 
constituent asks for my explanation of our Iraqi policy, and a 
rational answer is impossible. I overhear comments in elevators 
and discussions in coffee shops throughout my home state. No 
one can understand why, according to press reports, 3 days of 
Operation Desert Fox cost the American taxpayers almost $1 
billion, yet the rogue of the world, Saddam Hussein, is 
seemingly stronger than ever. Our proposed response is not to 
isolate him or cutoff his funding for weapons of mass 
destruction, rather to allow his continuing military threat to 
be enhanced through unlimited oil production, or so it seems. 
No one can argue that the Iraqi people have suffered a mighty 
hardship under his reign of terror, or that they deserve 
humanitarian aid. What is hard to explain to my constituents, 
who are losing their jobs due to less than break-even oil 
prices, is why our government would put our military at risk, 
spend balances of tax dollars, and then allow Saddam to flood 
the world oil market. Even more puzzling was America's 
acquiescence in the United Nations formula allowing Iraqi oil 
sales to be limited by a dollar amount rather than by volumes 
of oil. The Oklahoma Geological Survey, which is in my cabinet 
policy area, has reported that the almost singular contributor 
to the 1997 and 1998 world oil glut has been Iraq. As the 
attached data attached to my testimony which, by the way, Mr. 
Hakes, was from your agency, demonstrates that most of the 
world oil production, both OPEC and non-OPEC, has been 
relatively stable. The exception to that has been Iraq. Even 
more shocking is Iraq's rise to No. 4 source of U.S. imports 
last year, and in 1 month, Mr. Chairman, they were actually No. 
3, almost nosing out Kuwait. They have sort of been neck and 
neck for the three and four spot.
    Certain facts are not in dispute. America is importing 
nearly 60 percent of its daily crude oil needs. Current 
wellhead prices are far below the break-even point for most 
domestic producers. The world is awash in over-produced oil. 
Allowing Iraq to produce unlimited oil impairs America's 
economic and military security, and the lifting of limitations 
helps finance Saddam's almost certain future mischief.
    Long before the current crisis, President Clinton approved 
1994 findings by the U.S. Department of Commerce that oil 
imports, which were then at a much lower level, threatened U.S. 
security. Can you imagine our response if this morning we 
awakened to 60 percent of our air, water or food controlled by 
foreign sources? Oil is the lifeblood of our Nation and we 
cannot permit Iraq to further the disintegration of our 
domestic oil industry.
    Mr. Chairman and subcommittee members, I cannot count the 
number of times I have wanted to shout from the rooftops, 
America, wake up. We need America's oil to protect our shores 
and our way of life. I am proud to say, my constituents have 
always been first in line on both counts, and on their behalf I 
thank you for this opportunity to testify.
    [The prepared statement of Carl Michael Smith follows:]
Prepared Statement of Carl Michael Smith, Secretary of Energy, State of 
                                Oklahoma
    Mr. Chairman and members of the subcommittee, I serve as Secretary 
of Energy for the State of Oklahoma and as Vice-Chairman of the 
Interstate Oil and Gas Compact Commission (IOGCC).
    I have been a member of Oklahoma's oil and gas community my entire 
adult life. I experienced first hand the Arab embargo of 1973, the 
oilfield pipe and equipment shortage of the mid-1970s, the ill-
conceived Natural Gas Policy Act of 1978, the misguided Fuel Use Act of 
1978, the plunderous windfall profits tax of 1980, the Middle East 
turmoil of the late 70s and early 80s, the collapse of our domestic oil 
and gas industry in the middle 1980s (precipitating a loss of 
approximately 500,000 jobs), the advent of computer technology into the 
industry, the Gulf War, and now, Operation Desert Fox. In short, I've 
seen a lot of success, failure, and lots of public policy, 
unfortunately, most of which has been ill conceived. Since entering 
public life in 1995, I have been assisting in the conception and 
implementation of energy policy. Most of this work has involved 
assisting the IOGCC governors in drafting and implementing A Dependant 
Nation: How Federal Oil and Gas Policy is Eroding America's 
Independence. Recently, I have assisted my Governor, Frank Keating, as 
he has led the other oil and gas producing state governors in 
addressing an unprecedented oil price trough which is approaching its 
18th month.
    Today's hearing focuses on the Iraqi Oil for Food Program and its 
impacts. Mr. Chairman, the American people are confused. Occasionally, 
a constituent asks for my explanation, and a rational answer is 
impossible. I overhear comments in elevators and discussions in coffee 
shops throughout my home state. No one can understand why, according to 
NBC News on December 23, 1998, three days of Operation Desert Fox cost 
the American taxpayer almost $1 billion, yet the rogue of the world, 
Saddam Hussein, is seemingly stronger than ever. Our response is not to 
isolate him or cut off his funding for weapons of mass destruction, 
rather allow his continuing military threat to be enhanced through 
unlimited oil production. No one can argue that the Iraqi people have 
suffered a mighty hardship under his reign of terror or that they 
deserve humanitarian aid. What is hard to explain to my constituents, 
who are losing their jobs due to an oil market producing a dollar price 
per barrel less than break-even cost, why our government would put our 
military at risk, spend billions in tax dollars, and then willingly 
allow Saddam to flood the world oil market. Even more puzzling was 
America's acquiescence in the United Nations formula allowing Iraqi oil 
sales, under current sanctions, to be limited by a dollar amount rather 
than volumes of oil. The Oklahoma Geological Survey, which is in my 
cabinet policy area, has reported that the almost singular contributor 
to the 1997 and 1998 world oil glut has been Iraq. As the attached data 
demonstrates, most world oil producers (both OPEC and non-OPEC) have 
been relatively stable--the exception being Iraq. Even more shocking 
is, during 1998, Iraq rose to the number 4 source of U.S. imports, 
almost nosing out Kuwait for the number 3 spot.
    Certain facts are not in dispute:

 America is importing nearly 60% of its daily crude oil needs
 Current wellhead prices are far below the break-even point for 
        most domestic producers
 The world is awash in overproduced oil
 Allowing Iraq to produce unlimited oil impairs America's 
        economic and military security, and a lifting of monetary 
        limitations helps finance Saddam's almost certain future 
        mischief
Long before the current crisis, President Clinton approved 1994 
findings by the U.S. Department of Commerce that oil imports (then at a 
much lower level) threatened U.S. security.
    Mr. Chairman and subcommittee members, I cannot count the number of 
times I have wanted to shout from the rooftops, ``America, wake up--we 
need America's oil to protect our shores and our way of life.'' I am 
proud to say, my constituents have always been first in line on both 
counts, and on their behalf, I thank you for this opportunity to 
testify.

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    Mr. Barton. Thank you, Mr. Smith. We would now like to hear 
from Mr. Wood. We do have your testimony, so you are recognized 
for 7 minutes to elaborate on it.
    Mr. Wood. Thank you very much, Mr. Chairman. Let me again 
repeat how pleased I am to be here to discuss----
    Mr. Barton. You need to speak into the microphone so that 
we can hear you.

                  STATEMENT OF WILLIAM B. WOOD

    Mr. Wood. Okay. I am pleased to be here today and I want to 
reiterate that fact. Thank you for inviting me.
    The U.S. policy is to contain Saddam Hussein until he can 
be removed from power.
    In the meantime, U.S. sanctions on Iraq and the Oil-For-
Food Program are critical to the containment of Iraq. We must 
maintain broad international support for these programs in 
order to keep Saddam Hussein contained. Sanctions on Iraq were 
put in place by the international community following the 
brutal invasion by Iraq of its peaceful neighbor, Kuwait. The 
sanctions deprived Saddam of the revenue he would otherwise use 
to reconstitute his weapons of mass destruction.
    It is essential that we address the humanitarian needs of 
the Iraqi people. Doing so is right in itself, but also crucial 
to maintaining Security Council, regional and other support for 
the international sanctions regime while we continue our 
efforts to change the Iraqi regime. It is also consistent with 
our message to the Iraqi people that the United States is not 
against the people of Iraq, only the regime that is responsible 
for their plight. By meeting Iraq's general humanitarian needs, 
Oil-For-Food allows us to maintain a tough sanctions regime 
against Iraq.
    In 1991, the Bush Administration first proposed an Oil-For-
Food Program to meet the humanitarian needs of the Iraqi 
people. Iraq rejected the program. In 1995, the Security 
Council, with full U.S. leadership and support, adopted a 
revised Oil-For-Food Program, which Iraq finally accepted at 
the end of 1996. The first food shipments under this program 
arrived in Iraq in March 1997. In February 1998, based on the 
Secretary General's recommendations that additional funds were 
needed to meet the needs of the Iraqi people, the legitimate 
humanitarian needs of the Iraqi people, the Security Council 
expanded the Oil-For-Food Program. That program has most 
recently renewed last November.
    I might add that that is the reason why the Oil-For-Food 
Program is accounted for in dollars, because it is based on 
estimates of what it would cost to take care of the 
humanitarian needs of Iraq. It is not an effort to promote 
Iraqi exports, it is an effort to raise money for the specific 
humanitarian needs of Iraq.
    The current Oil-For-Food Program permits Iraq to sell up to 
$5.2 billion worth of oil every 6 months, two-thirds of which 
goes toward the purchase of food, medicine and other 
humanitarian goods such as water and sanitation infrastructure 
supplies. The remaining one-third goes to pay claims arising 
from Iraq's occupation of Kuwait, and to pay U.N. 
administrative and UNSCOM disarmament costs. All revenues of 
Iraq's oil sales are deposited in a U.N. escrow account to 
which Baghdad has no access. Although it is true that Iraq's 
agreement as to which bank was selected was necessary, Iraq did 
not get to choose the bank and, indeed, its first choices were 
refused under the memorandum of understanding between Iraq and 
the United Nations. We are assured that the bank in which the 
escrow account exists is functioning in a transparent and 
effective manner and funds cannot be released from that account 
without U.N. agreement.
    All contracts are reviewed by the U.N. sanctions committee, 
of which the U.S. is a member. Because the committee operates 
by consensus, we can hold or block any contract that is 
inappropriate or ill-advised. U.N. monitors on Iraq's borders 
and inside Iraq oversee importation and distribution within 
Iraq, and in northern Iraq, the three northern governments, 
distribution is actually carried out by the U.N. itself.
    Oil-For-Food, the largest humanitarian program in the 
U.N.'s history, requires that Saddam spend his own money on the 
thing he cares least about: his own people.
    Oil-For-Food is not a step toward lifting sanctions, nor 
does it reward Saddam Hussein. In fact, it makes sanctions, his 
worst enemy, sustainable. Without an Oil-For-Food Program, 
history has shown that Saddam Hussein would starve his own 
people to buy weapons and build palaces and to force the 
international community to lift sanctions. Although we could 
use our veto at the U.N. to prevent the lifting of sanctions, 
the pressure of a sympathetic international community, absent 
Oil-For-Food, could well lead to a de facto breakdown of the 
implementation of the sanctions regime. So it is not simply a 
distribution problem, it is also an implementation problem.
    Sanctions have slowed considerably Iraq's ability to expand 
oil exports. We estimate that sanctions have prevented Iraq 
from exporting more than $120 billion of oil from 1991 to 1996. 
In the last two phases of the Oil-For-Food Program, the 
Security Council earmarked limited funds for the importation of 
spare parts and equipment to improve Iraq's crumbling oil 
infrastructure so that funds can be made available for 
legitimate, necessary humanitarian needs. Those spare parts 
have just begun to arrive in Iraq, and it will be many more 
months before there will be an appreciable growth in the Iraqi 
ability to export oil as a result of them.
    We are also discussing in Security Council capitals and in 
the Security Council itself how to keep Oil-For-Food viable and 
effective. We have proposed that the Security Council consider 
raising the ceiling on oil sales consistent with Iraq's 
legitimate humanitarian needs. In the short run, Iraq would be 
unable to expand oil exports. Over time, allowing increased 
Iraqi oil exports would address concerns regarding the 
shortfall in revenues needed for humanitarian purchases. Saddam 
would not benefit from these increased oil export revenues. The 
revenues would be put into the escrow account and released only 
for the purchase of humanitarian goods.
    Raising the ceiling on revenue available for the purchase 
of humanitarian goods would also serve to counter growing calls 
from Arab states and Security Council members to lift sanctions 
outright. By removing the root cause of calls for lifting 
sanctions, we free our allies in the Arab world and elsewhere 
to support our broader Iraqi policy goals. We also draw 
Security Council support away from more radical French and 
Russian proposals to lift sanctions altogether.
    We also understand your concerns about the current oil 
market. However, Iraq is only one among several factors which 
has adversely impacted oil prices. Our sanction--our Iraq 
sanctions policy, frankly, has never been linked to the price 
of oil on world markets. This was true in the early 1990's, 
when Iraqi oil was completely cutoff the world market, putting 
upward pressure on oil prices, and it remains the case today. 
Allowing oil price considerations to drive our sanctions 
decisions or seeking to use sanctions to target oil prices 
would undermine our ability to maintain an international 
consensus aimed at containing Saddam Hussein, as well as 
provide for the humanitarian needs of the Iraqi people.
    Were international support for an effective U.N. sanctions 
regime to erode, Saddam Hussein would be a much greater threat 
to the world community. He would quickly regain the free use of 
$10 billion to $15 billion per year to put into his weapons of 
mass destruction programs. But we have promoted raising the 
ceiling under monitoring. Moreover, the prospect of Iraq 
without U.N. sanctions would also have a negative effect on oil 
prices.
    Over the long term, the only way to ensure that Saddam no 
longer threatens either his people or his neighbors is to work 
for a new government of Iraq, one that will maintain the 
territorial integrity and unity of Iraq, respect the rights of 
Iraq's people and neighbors and fulfill Iraq's international 
obligations. We are committed to helping the Iraqis achieve 
this regime change or transition.
    Mr. Chairman, I realize I am over my time, but let me only 
make one sort of summary comment. The Oil-For-Food Program has 
been characterized repeatedly as a humanitarian program. It is 
certainly a humanitarian program. We are a humane Nation. We 
are not making war on the population of Iraq. That is Saddam's 
strategy. But it is not the policy of the administration to 
benefit the populations of other countries at cost to our own 
population. That is not our goal, and that is not what we 
believe we are achieving here.
    Mr. Barton. That may not be the goal, but that is certainly 
the result. And I am not going to get in a debate right now. We 
still need to hear from Mr. Williams, but I guarantee you when 
we get to the question and answer period, we are going to have 
a dialog.
    Mr. Wood. We do believe, however, that this is a national 
security requirement. That is my last comment.
    [The prepared statement of William B. Wood follows:]
Prepared Statement of Hon. William B. Wood, Deputy Assistant Secretary 
                                of State
    Mr. Chairman: I am pleased to be here today to discuss US policy 
toward Iraq and the role the Oil-for-Food program plays within it.
    The Administration's policy is to contain Saddam Hussein until he 
can be removed from power. We will contain Iraq by maintaining 
sanctions on Iraq, enforcing the no-fly zones in the North and South, 
and by maintaining a robust military presence in the region and a 
readiness to use force if Iraq reconstitutes its prohibited weapons 
programs, threatens its neighbors, or moves against the Kurds in the 
north.
    In addition to these elements of containment, we are also working 
at the United Nations to build consensus in the Security Council in 
support of an effective disarmament and monitoring presence in Iraq.
    Over the long-term, however, the only way to ensure that Saddam no 
longer threatens either his people or his neighbors is to work for a 
new government in Iraq--one that will maintain the territorial 
integrity and unity of Iraq, respect the rights of Iraq's people and 
Iraq's neighbors, and fulfill Iraq's international obligations. We are 
committed to helping Iraqis achieve this regime change or transition. 
There are many tools we can use to help them, including both the $8 
million in Economic Support Funds Congress has appropriated for this 
purpose, and the Iraq Liberation Act. In the final analysis, change has 
to come from the Iraqi people themselves. We cannot impose ideas or 
initiatives on them.
    In the meantime, UN sanctions on Iraq and the Oil-for-Food program 
are critical to the containment of the Iraqi regime. We must maintain 
broad international support for these programs in order to keep Saddam 
contained.
    Sanctions on Iraq were put in place by the international community 
following the brutal invasion by Iraq of its peaceful neighbor Kuwait. 
The sanctions deprive Saddam of the revenue he would otherwise use to 
reconstitute weapons of mass destruction.
    It is also essential that we address the humanitarian needs of the 
Iraqi people. Doing so is right in itself, and crucial to maintaining 
Security Council and regional support for sanctions while we continue 
our efforts for regime change. It is also consistent with our message 
to the Iraqi people that the United States is not against the people of 
Iraq--only the regime that is responsible for their plight. By meeting 
Iraq's genuine humanitarian needs, oil-for-food allows us to maintain a 
tough sanctions regime against Iraq.
    The current oil-for-food program permits Iraq to sell up to $5.2 
billion worth of oil every six months, two-thirds of which goes towards 
the purchase of food, medicine and other humanitarian goods such as 
water and sanitation infrastructure supplies. The remaining one-third 
goes to pay claims arising from Iraq's occupation of Kuwait, and to pay 
UN administrative and UNSCOM disarmament costs. All revenues from 
Iraq's oil sales are deposited in a UN escrow account to which Baghdad 
has no access. All contracts are reviewed by the UN Sanctions 
Committee, of which the U.S. is a member. Because the Committee 
operates by consensus, we can hold or block any contract that is 
inappropriate or ill-advised. UN monitors on Iraq's borders and inside 
Iraq oversee their import and distribution. In northern Iraq, the 
distribution is carried out directly by UN personnel.
    Sanctions have never prohibited the import of food or medicine to 
Iraq. However, the regime in Baghdad has been unwilling to take full 
advantage of this exemption, and, therefore, in 1991, the Bush 
Administration first proposed an oil-for-food program to meet the 
humanitarian needs of the Iraqi people. Iraq rejected the program. In 
1995, the Security Council, with full US leadership and support, 
adopted a revised oil-for-food program, which Iraq finally accepted at 
the end of 1996. The first food shipments under this program arrived in 
Iraq in March 1997. In February 1998, based on the Secretary General's 
recommendations that additional funds were needed to meet the needs of 
the Iraqi people, the Security Council adopted an expanded oil-for-food 
program. That program was renewed again in November.
    Oil-for-food is not a step towards lifting sanctions, nor does it 
reward Saddam. In fact, it makes sanctions--his worst enemy--
sustainable. Without an oil-for-food program, history has shown that 
Saddam Hussein would starve his own people to force the international 
community to lift sanctions. Although we could use our veto at the UN 
to prevent the lifting of sanctions, the pressure of a sympathetic 
international community--absent oil-for-food--could well lead to the de 
facto breakdown of the sanctions regime.
    The oil-for-food program has had a tremendous positive impact on 
conditions for the average Iraqi. Since the beginning of the program, 
$2.75 billion worth of food, over $500 million of medicine and $400 
million worth of supplies for such things as water, sanitation, 
electricity and education projects, has been delivered to Iraq. The 
average daily food ration has increased from 1275 calories per day in 
1996 to 2100 calories per day now. However, problems remain. Although 
malnutrition rates have declined, they are still too high. Significant 
work on the sanitation and water, electrical, education, agriculture 
and other sectors is still required.
    Sanctions have slowed considerably Iraq's ability to expand oil 
exports. We estimate that sanctions have prevented Iraq from exporting 
more than $120 billion worth of oil from 1991 to 1996. We have in the 
last two phases of the program permitted funds to be earmarked for the 
importation of carefully screened spare parts and equipment to improve 
Iraq's crumbling oil infrastructure to fund needed humanitarian 
purchases. Those spire parts have just begun to arrive and it will be 
many months before there will be significant growth in Iraqi ability to 
export oil.
    We are also discussing in Security Council capitals how to keep 
Oil-for-Food viable and effective. We have proposed that the Security 
Council consider raising the ceiling on oil sales consistent with 
Iraq's legitimate humanitarian needs. In the short run, Iraq would be 
unable to expand oil exports. Over time, allowing increased Iraqi oil 
exports would address concerns regarding the shortfall in revenues 
needed for humanitarian purchases. Saddam would not benefit from these 
increased oil export revenues. The revenues would be put in an escrow 
account and released only for the purchase of humanitarian goods.
    Raising the ceiling on revenue available for the purchase of 
humanitarian goods also would serve to counter growing calls from Arab 
states and Security Council members to lift sanctions outright. By 
removing the root cause of calls for lifting sanctions, we free our 
allies in the Arab world and elsewhere to support our broader Iraq 
policy objectives. We also draw Security Council support away from more 
radical French and Russian proposals to lift sanctions altogether.
    We also understand your concerns about the current oil market 
situation. However, Iraq is only one among several factors which has 
adversely impacted oil prices over the last year. Our Iraq sanctions 
policy, moreover, has never been linked to the price of oil on world 
markets. This was true in the early 1990s when Iraqi oil was completely 
off the world market, putting upward pressure on oil prices, and it 
remains the case today. Allowing oil price considerations to drive our 
sanctions decisions, or seeking to use sanctions to target oil prices, 
would undermine our ability to maintain an international consensus 
aimed at containing Saddam Hussein as well as to provide for the 
humanitarian needs of the Iraqi people.
    The US will continue to work to improve the oil-for-food program, 
and to ensure that it serves its intended purpose. In February, the UN 
Secretary General reported that there are $275 million worth of 
medicine sitting in Iraqi warehouses undistributed. This is 
unacceptable, and we will work to change it. We will continue to 
scrutinize every contract for goods under the oil-for-food program and 
can veto any contract that we judge to be inappropriate or ill-advised. 
Given the absence of UNSCOM and IAEA, which have a role in monitoring 
dual-use goods, we have tightened our standards for contract approval. 
In January, the Security Council formed three panels to examine 
disarmament, humanitarian and Kuwait-related issues. We expect that the 
humanitarian panel's report, due in mid-April, will suggest additional 
changes that may enhance the program's effectiveness.
    Were international support for effective UN sanctions regimes to 
erode, Saddam Hussein would be a much greater threat to the world 
community. He would quickly regain the free use of ten to fifteen 
billion dollars per year to put into his WMD programs. Moreover, the 
prospect of Iraq without UN sanctions would also have a much greater 
negative impact on oil prices.
    We remain concerned about the illegal traffic of oil and petroleum 
products out of Iraq--to Turkey, Jordan, Syria and the Persian Gulf. 
Each of these avenues presents unique problems, and we are addressing 
each of them differently. We continue to work with Turkey to find a way 
to bring illicit trade over the Turkish border within the framework of 
the oil-for-food program. We believe a similar approach should also be 
taken regarding Syria. With respect to the smuggling of Iraqi gasoil 
through Iranian territorial waters, we have had considerable success 
over the past year in combining efforts to bring third-country pressure 
to bear on Tehran to end the trade with more direct military actions. 
This has included bombing of the section of the Basra refinery devoted 
to this trade during Desert Fox, and the conduct of ``surge 
operations'' by the multi-national Maritime Interception Force or 
``MIF,'' in areas of the northern Gulf known to be used by the Iraqis 
and others as routes for smuggled cargoes. As for Jordan, although the 
UN has taken note of Jordan's trade of bartered humanitarian goods in 
exchange for Iraqi oil at concessionary prices, we continue to work to 
reduce Jordan's dependence on Iraqi oil.
    Although the oil-for-food program is not perfect, it is essential 
to our policy of containing Saddam until there is a new government in 
Baghdad. Without it, sanctions would be much more difficult to sustain. 
Saddam Hussein would once again have control over tens of billions of 
dollars a year to spend on weapons of mass destruction.
    Over the long-term, however, the only way to ensure that Saddam no 
longer threatens either his people or his neighbors is to work for a 
new government in Iraq--one that will maintain the territorial 
integrity and unity of Iraq, respect the rights of Iraq's people and 
Iraq's neighbors, and fulfill Iraq's international obligations. We are 
committed to helping Iraqis achieve this regime change or transition.
    Thank you, and I welcome any questions you may have.

    Mr. Barton. Thank you. Mr. Williams, your statement is in 
the record in its entirety and we will recognize you for up to 
7 minutes to elaborate on it. We welcome you as one of the 
members of the Railroad Commission from Texas. I believe you 
are the newest member. You have a distinguished background. I 
won't put that all in the record, but you are a former 
administration official in the Bush Administration, you have a 
distinguished record in the private sector and public sector in 
Texas. We are very glad that you could testify today.

                STATEMENT OF MICHAEL L. WILLIAMS

    Mr. Williams. Chairman Barton, thank you, and members of 
the committee, thank you for the opportunity to be with you. 
Before I go any further, Congressman Hall, thank you for the 
kind words earlier this morning.
    I appreciate this opportunity to testify on behalf of the 
Texas Railroad Commission on the impact of the United Nations 
sponsored Oil-For-Food Program and the impact that it has on 
the vital interests of Texans, as well as the Nation.
    Admittedly, the goal of the Iraqi Oil-For-Food Program is 
quite laudable. However, I must admit that as presently 
structured, that program is adverse to the interests of Texans 
and Americans. No Texan would take issue, and quite frankly no 
American would take issue with a responsible attempt to provide 
food and medicine and other necessities for the Iraqi people. 
Arguably, however, we do have some serious doubts that the 
program is actually meeting the humanitarian needs of the Iraqi 
people, and nonetheless quite frankly it is more troublesome 
that Iraq is being permitted to sell oil and make money out of 
the pockets of Texas producers and, I might add, Oklahoma 
producers and other domestic producers, their workers and their 
families at the same time that Iraqi ground troops are firing 
at American fighter pilots who are protecting the no-fly zone. 
Moreover, by allowing Iraq to sell $10.4 billion of oil during 
a 12-month period, irrespective of linking it to the impact 
that Iraqi production is having on worldwide crude oil supplies 
and price, provides no incentive for the Iraqis to be proper 
stewards of their crude oil reserves, nor is there any 
incentive whatsoever for the Iraqis to concern themselves with 
the harmful impact that their behavior might be having on 
producers worldwide, particularly those producers here in the 
U.S.
    Quite the contrary, the Oil-For-Food Program places a 
premium on how much money Iraq is allowed to generate, rather 
than how many barrels of crude oil it is being allowed to sell. 
So the program encourages them to provide and dump as much 
crude oil as possible on the market during the 6-month period 
to reach that $5 plus billion mark with no regard to the price 
per barrel.
    The Oil-For-Food Program doesn't just permit Iraq to act in 
a way that is adverse to American interests, but to some extent 
it encourages them to do so and that puts domestic production 
at great risk. We have already heard today about the cost and 
what happens to domestic production when prices are running at 
somewhere below $15 a barrel. What is happening in Texas is 
that we are now at an all-time low for oil rig count. We have 
191 oil rigs presently in service compared to 377 at this time 
last year. Between February 1998 and 1999, some 9,500 wells in 
Texas were plugged.
    In the same time period, some 2,200 wells were shut in. So 
wells in Texas and across the country have been placed at great 
risk because of the impact of Iraqi production on the world 
market depressing prices.
    And what is the impact in terms of what is happening to 
real people? In Texas we have had since December 1997 the loss 
of some 11,000 jobs. Unemployment claims in Texas has risen 
some 304 percent compared to this time last year. And I might 
add that I grew up in the oil patch in Midland--and most people 
typically think of folks in the oil business as being, as we 
frequently say, a bunch of J.R. Ewings with cowboy boots and 
exotic gold cuff links. The oil patch is comprised of a wide 
variety of folks; and of those 11,000 folks who have lost jobs, 
many of the people who have lost jobs in the oil fields are 
Hispanic, and many of the people in the accounting departments 
and the personnel departments and the H.R. departments and 
otherwise are African-American. This is an industry that 
represents the bulk and the diversity of Texas, and it is being 
hurt.
    What is happening to our schoolchildren? In Texas, about 
two-thirds of the 1,000 school districts in the State of Texas 
receive some funding from oil and gas revenues, particularly 
from ad valorem and tax revenues. Ninety-five of those school 
districts receive half of their funding from that source, and 
we are estimating in Texas that we lose anywhere from $150 
million to $160 million because of the depressed prices.
    This is also affecting those royalty interests owners in 
Texas, many of those who are living on fixed incomes who look 
for that royalty check each and every month in order to make 
payments. But obviously with depressed prices, they are not in 
a position to do so.
    And so what might be done? While I am the newest member of 
the Texas Railroad Commission and have not been around a long 
time, I will take the liberty to make some suggestions. And the 
first might be that Congress and the administration might press 
the United Nations to conduct a thorough investigation to 
determine whether the Iraqis, indeed, are using the designated 
amount of oil-for-food funds to provide food and medicines and 
other necessities for the Iraqi people.
    The second thing, frankly, you might look to restructure 
the oil-for-food production formula. Currently the cap allows 
for $5.26 billion of Iraqi oil production every 6 months 
without regard to the number of barrels it would take to reach 
that target. And I have heard that this program has never 
linked the production to the barrels; and, quite frankly, I 
think that would be helpful to do so, so that we would not 
encourage overproduction and a depression on prices.
    And the third would be that we look at and revisit the 
notion of allowing the Iraqis to use the oil-for-food funds in 
a way to rebuild Iraq's oil infrastructure. I just want you to 
think about the irony of producers in Texas and Oklahoma and 
elsewhere who have to look for refinancing and have to find 
money and capital in order to go out and work rigs; and we are 
providing an opportunity for the Iraqis who are now assisting 
in providing the oversupply to the industry. We are providing 
dollars for them to buildup and retrofit their infrastructure.
    Mr. Chairman and members of the committee, I thank you 
again for the opportunity of being with you this morning; and I 
stand to answer any questions that you might have.
    [The prepared statement of Michael L. Williams follows:]
Prepared Statement of Michael L. Williams, Commissioner, Texas Railroad 
                               Commission
    Mr. Chairman, and members of the committee, I appreciate this 
opportunity to testify on the impact of the United Nations sponsored 
oil-for-food program on our vital national energy interests. For time 
purposes, I have summarized my testimony and have submitted additional 
written testimony for the record.
    Founded in 1891, the Texas Railroad Commission's chief 
responsibility is to protect and conserve one of Texas and America's 
most precious natural resources: oil. As America's number one producer 
of oil, Texas' proper resource management of oil has yielded profound 
contributions for both our state and the nation:

 The discovery of crude oil at Spindletop in Beaumont, Texas in 
        1901 changed the face of the American transportation industry 
        and gave way to thousands of oil and related service companies 
        that have employed untold millions of Americans.
 Plentiful supplies of Texas crude oil made possible our modern 
        automobile industry. World War II may well have taken a 
        different course.
 Allied Forces would not have sailed to victory on a sea of oil 
        if it were not for Texas' extra production capacity and 
        Hitler's lack of oil during World War II.
 And today, petrochemicals derived from oil and natural gas 
        have enabled us to create everything from Teflon to 
        televisions.
    Crude oil exploration and production have been central to the 
modern industrial age. As we approach the 21st Century, we must 
continue to protect and conserve this precious natural resource that 
has proven a powerful economic, military, political, and strategic 
tool. And with the proper stewardship of the 120 billion barrels of 
crude oil still locked underground in Texas, our nation's energy future 
could be just as bright.
   the iraqi oil-for-food program as presently structured threatens 
                           american interests
    The Iraqi oil-for-food program is another matter. The goal of the 
program is quite laudable. No Texan would take issue with a responsible 
attempt to provide food and medicine for the Iraqi people. Arguably, 
there are some serious doubts that the program is actually meeting the 
humanitarian needs of the Iraqi people.
    U.N. Secretary General Kofi Annan, someone who knows the ins-and-
outs of the program, admitted in February, ``Only half of the $540 
million worth of drugs and medical supplies delivered to Iraq since the 
program was launched in 1995 have reached hospitals and clinics.''
    The Iraqi oil-for-food program, as presently structured, is adverse 
to American interests. It is more than troublesome that Iraq is being 
permitted to sell oil and take money out of the pockets of Texas 
producers, workers and families at the same time that Iraqi ground 
troops are firing at American fighter pilots who are protecting the 
``no-fly zone.''
    Moreover, by allowing Iraq to sell $5.26 billion of oil during a 
six month period (irrespective of the impact that Iraqi production has 
on worldwide crude oil supplies or price), there is no incentive for 
Iraq to properly steward its crude oil reserves. Nor is there an 
incentive for Iraqis to concern themselves with the harmful impact 
their behavior might have on producers worldwide.
    Quite the contrary, the oil-for-food program places a premium on 
how much money Iraq is allowed to generate rather than how many barrels 
of crude oil it is allowed to sell. In so doing, the program encourages 
Iraq to sell as much crude oil as possible during the six-month 
interval to reach the more than $5 billion mark, with no regard to 
price per barrel. Oil for food doesn't just permit Iraq to act in a way 
that is adverse to American interests, it encourages it to do so.
    While there is no certain number, there appears to be developing a 
consensus in the industry, that the amount of excess oil on the world 
market is roughly between one and two million barrels a day. That said, 
on average, Iraqi oil production accounts for more than 2.3 million 
barrels a day. Furthermore, evidence indicates that Saddam may be 
illegally exporting an additional 100,000 barrels a day. Even the U.S. 
Department of Energy admitted in late 1998, ``[The] increase in Iraqi 
oil exports has been playing a significant role in the world oil glut 
which is responsible for the sharp decline in world oil prices.''
    We may be dropping bombs on Iraq without visible retaliation; 
however, Saddam Hussein is engaged in a clandestine campaign of full-
scale economic terrorism. His conduct is keeping world oil prices low 
by pouring even more oil onto an already saturated market under the 
guise of the oil-for-food program.
         the oversupply of crude oil hurts domestic production
    In his letter to Congress earlier this month, President Clinton 
stated that ``The United States has expressed its support for [once 
again] lifting the cap on Iraqi oil exports under the oil-for-food 
program.'' In fact, the Clinton Administration advocates eliminating 
the cap. In light of Secretary Annan's recent report, however, that dog 
simply won't hunt.
    More oil on the already flooded world market would adversely affect 
oil prices across the globe. It's Supply and Demand 101: the more 
product on the market, the cheaper it is. In the United States where 
production costs are relatively high and production is relatively low, 
drastic price declines have sent the rig count and production 
spiraling. Since last year, U.S. production has fallen by 4.7%. In 
Texas, production has fallen by 7.4%. The rig count, the historical 
barometer of industry vitality, is down 78% since a year ago. Texas' 
rig count has plunged 97% during the same period.
             less domestic production means less for texans
    The Iraqi people are not the only ones who stand to lose something 
under Oil for Food. Texans like the Ryder family from our state's 
Permian Basin have seen their lives fall apart during the past year. In 
their early fifties, Ronnie Ryder and his wife, Inatte, used to think 
retirement might not be so far off. After working in the oil business 
for 30 years, Ronnie is now looking for ``any job he can get.'' Inatte 
is back in school and working nights at an elderly care facility. 
Unfortunately, the Ryder's story doesn't stop there.
    Until the price crisis hit, Ronnie's son was working in a 
roustabout gang for Phillips Petroleum. Today, with their first child 
on the way, Rusty and Priscilla Ryder don't get to spend much time 
together as Rusty has been forced to take a job driving trucks cross-
country. I wish the Ryder's story was the exception, but I'm afraid 
that in the oil patch, it's become the rule.
    The overwhelming majority of producing wells in Texas are marginal 
wells--or wells that produce 10 barrels or less per day. Those wells 
are placed in jeopardy by low and unstable prices. With profits falling 
and the amount of oil on the market increasing, thousands of Texans who 
operate marginal wells have been forced to shut in wells--an 
irreversible process. When those wells get shut in workers get shut 
out.
    Economic studies have shown that for each dollar invested in the 
oil and gas industry at the wellhead, there is a positive economic 
effect of $2.91 on the Texas economy. Without marginal well production, 
millions of dollars and thousands of Texas jobs will be severely 
impacted. State unemployment will increase, sales tax revenues will 
drop, and property tax revenues used to fund schools will plummet.
    As the number of producing marginal wells decline because they are 
no longer economically viable to produce, royalty and interest owners 
are directly impacted by a loss in revenue. Royalty income has 
sustained countless families, small farms and ranches and rural towns 
for decades. In turn, royalty dollars circulate many times through a 
local economy by way of the grocer, the doctor, the pharmacist, small 
shops, retail stores, and service providers. In many rural communities 
people are dependent on royalty payments for their daily existence. 
Shutting in or reducing marginal well production could mean financial 
devastation to some.
    The importance of marginal well production and its rippling effect 
on the state economy is reinforced in a recent article published by the 
Texas Workforce Commission. According to their December 1998 
publication of the Texas Labor Market Review, mining (oil & gas 
extraction) continued its trend of declining employment and loss of 
jobs. The article states that persistently low crude oil prices are 
placing tremendous pressure on mining employment counts and are 
affecting other industries that support drilling and explorations 
activities in Texas. Employment in all three of the major industries 
within the goods producing sector (mining, construction, and 
manufacturing) declined in December, for a total loss of 2,400 jobs. As 
of January 1999 release, mining was suffering the seventh straight 
month of declining employment. Employment estimates in the mining 
sector alone decreased from 169,300 in January 1998 to 160,600 for 
January 1999--a 75% decrease of some 8,700 jobs. Additional workforce 
impact information can be found on the Texas Workforce Commission web 
site at www.twc.state.tx.us.
    Low oil prices are also taking a toll on Texas' greatest resource: 
our children. It is estimated that Texas' statewide Fiscal Year 2000 
school district losses will be between $150-$160 million. The impact is 
already been being felt by many cities and counties across our state as 
jobs are lost, related services are cut, and state and local revenues 
plunge. I think David Goodman, superintendent of Andrews Independent 
School District in West Texas summed it up best when he asked, ``Do you 
know of any businesses that could stand to lose one-third of its 
operating budget and still open its doors the next year?''
    The Texas Comptroller's Office recently surveyed appraisal 
districts and contract firms that appraise oil and gas reserves for 
property tax purposes. Although the appraisals are not complete, the 
appraisers' consensus is that oil properties will decline in value from 
January 1, 1998 to January 1, 1999 by about 40% and gas properties will 
decline about 15%. In school districts where oil and gas reserves 
comprise more than $250 million, these value losses were translated 
into property tax levy losses and are available on the Comptroller's 
web site at www.window.state.tx.us/taxinfo/proptax/levyloss.html.
    According to the American Petroleum Institute, at least 51,000 
Americans have lost their jobs since December of 1997 because of low 
oil prices--nearly 9,000 of them are in Texas. Compared to a year ago, 
oil-related unemployment claims are up 304%. Contrary to the impression 
left by popular culture, those are not men and women who wear exotic 
cowboy boots and wear gold watches. Rather, they are Americans like you 
and me, like the Ryders with real car payments, real mortgages, and 
real families to feed.
                               what to do
    Like the families of America's steelworkers or farmers, oil 
families are suffering in ways that they have not felt before. And, 
like we have to the steel and farming industries, we should reach out 
and correct policies like Oil for Food that make bad times even worse. 
For the sake of American families and schoolchildren, the oil-for-food 
program should be revisited and restructured. To that end, I would urge 
you to consider the following.

 First, Congress and the Administration might press the United 
        Nations to conduct a thorough investigation to determine 
        whether Iraq is using the designated amount of oil-for-food 
        funds to provide food and medicines for the Iraqi people. 
        According to U.S. National Security Adviser Sandy Burger, 
        ``Saddam is so indifferent to the suffering of his people that 
        he still refuses to make full use of this allowance.''
 Secondly, while the humanitarian needs of the Iraqi people 
        might necessitate additional revenues, we should seek to insure 
        that any attempt to eliminate the crude oil production cap 
        takes into account and does not exacerbate the negative impact 
        that additional Iraqi production might have on domestic 
        producers.
 Third, the United States should call on the United Nations to 
        revise the resolution so that oil-for-food funds are not used 
        to rebuild Iraq's oil infrastructure. Common sense says that it 
        is not in the United States' best interest to rebuild a 
        competitor's economic and industrial arsenal.
 Fourth, we should urge the United Nations to restructure the 
        oil-for-food production formula. Currently, the cap allows for 
        $5.26 billion dollars of Iraqi oil production every six months 
        without regard to the number of barrels it would take to reach 
        that target. Nor does it take into account the impact Iraqi 
        production has on world oil prices. During every six-month 
        period the U.N. should designate the number of barrels of oil 
        Iraq would be allowed to produce to reach a designated revenue 
        target. We must urge that the target be placed at a level that 
        neither fosters price instability nor that is harmful to the 
        preservation of domestic production.
 Fifth, members of Congress from producing and non-producing 
        states should band together--as they have recently for other 
        vital U.S. industries--to boycott the sale of Iraqi oil within 
        the United States, thereby mitigating the insult to our men and 
        women in uniform stationed in the Persian Gulf and working in 
        the oil patch.
    It's a disgrace that hard-working Texans have been forced to bear 
the brunt of a skewed foreign policy that does more harm than good. 
Congress and the Clinton Administration should revisit and revise the 
United State's support of the oil-for-food program as it stands--if not 
for our oil producers, for the sake of the coming addition to the Ryder 
family.
                                 ______
                                 
                       Railroad Commission of Texas
                                              Austin, Texas
                                                     March 22, 1999
The Honorable Joe Barton
2264 Rayburn House Office Building
Washington, D.C. 20515
    Dear Mr. Barton, there's a clear and urgent need to evaluate our 
nation's domestic energy policy. Texas Railroad Commissioner Michael 
Williams will testify before the House Subcommittee on Energy and Power 
on Friday, March 26th. He'll offer his insight into our nation's 
domestic energy policy and the U.N.-sponsored ``Oil for Food'' program 
with Iraq. I want you to know that as Chairman of the Railroad 
Commission of Texas, I'm in complete support of Commissioner Williams' 
testimony.
    When the energy industry in Texas suffers, we all feel its effects 
through decreased state revenues and fewer dollars for our state's 
public schools. The Texas Comptroller of Public Accounts estimates that 
with every dollar drop in the price of oil, approximately 10,000 Texas 
jobs are lost. Lower prices and an increasing dependence on foreign oil 
means many of those jobs are going abroad. These losses are 
particularly staggering when you consider that the U.S. already imports 
more than 50% of the oil we use, placing our nation more and more at 
the mercy of foreign--and often unfriendly--governments.
    In Texas, Governor George W. Bush recently signed emergency 
legislation that gives certain oil and gas producers temporary 
exemptions from severance taxes when prices fall below set levels. It's 
not a silver bullet, but it's a step in the right direction and shows 
that Texas is committed to helping one of our state's most important 
industries. Now it's time for Washington to step up to the plate for 
domestic producers.
    The Independent Petroleum Association of America will hold Crude 
Awakening rallies in Washington, D.C., Austin, Texas and across the 
nation this week where members will sign the ``Oil Price Crisis Relief 
Resolution.'' The IPAA and its members make it very clear: the federal 
government needs to respond to this downturn in prices. The resolution 
states that Washington should support the filling of the Strategic 
Petroleum Reserve (SPR), get behind a reduction of taxes on marginal 
wells, work to encourage domestic production, investigate improper 
trade practices in the U.S. market by foreign suppliers, and offer much 
needed regulatory reform for the industry.
    Your actions in the coming weeks will show just how committed 
Washington is to a strong domestic energy policy. It's more than simple 
economics. It's an issue of critical importance for our national 
security. With best wishes, I am,
            Sincerely,
                                                 Tony Garza
                                                           Chairman

    Mr. Barton. We thank you, Mr. Williams. The Chair is going 
to recognize himself for 5 minutes. We are going to be very 
flexible. We have got four members here. We are going to use 
the 5-minute rule, but we are going to give additional time and 
probably do additional questions; and if people want to 
interrupt, that is fine.
    If the staff would put the first chart there, the EIA, the 
Iraq crude oil production chart. Let's put that back up on the 
easel.
    I want to start off--this is off of the CNN news line that 
we get on the Internet: March 4, the headline is ``British jets 
attack Iraqis in the southern no-fly zone.'' March 6, ``U.S. 
launches new attacks in Iraq no-fly zone.'' March 14, ``U.S. 
jets strike at Iraqi northern no-fly zone.'' March 15, ``U.S. 
war planes attack Iraq's northern no-fly zone.'' March 16, 
``Iraq breaks sanctions by flying pilgrims to Saudi Arabia.'' 
March 17, ``Sanctions-busting Iraqi pilgrims snub no-fly zone 
rules again.''
    This chart shows that right before the Kuwaiti invasion by 
Iraq, they were producing about 3.5 million barrels. Once the 
invasion occurred and President Bush declared that would not 
stand, their production fell to about 500,000 barrels per day. 
And then when the oil-for-food program began in January or late 
November 1996, it started ratcheting back up; and it is 
currently up to 2.6 million barrels a day.
    Mr. Wood, does the State Department dispute any of those 
figures?
    Mr. Wood. I don't believe we do.
    Mr. Barton. Okay. If it is true that Mr. Hakes' statement 
that they--I mean, at least before the invasion they were 
producing for a short spike period up to 3.5 million. But I 
believe, Mr. Hakes, you said you don't believe they could get 
much higher than what they are doing right now?
    Mr. Hakes. They would need a lot more spare parts and 
capital development to repair the equipment to get back up to 
that level.
    Mr. Barton. So for all intents and purposes, is it fair to 
say that we are allowing Iraq to produce as much oil as they 
are capable of producing? Is that a fair statement?
    Mr. Wood. It is certainly true at the moment, yes, sir.
    Mr. Barton. I can only characterize the current policy, 
after listening very intently and scanning the testimony, that 
our Iraqi policy is designed to maximize Iraqi production at 
the expense of the marginal producer in the United States, 
which is a small independent oil and gas producer. And I don't, 
quite frankly, think that makes a lot of sense. Do you disagree 
that if it is not the intent, that is the effect of this 
policy, Mr. Wood?
    Mr. Wood. The intent of the policy, sir, is to maximize 
international support for the continued isolation and 
containment of Iraq.
    Mr. Barton. And it seems to be working really well. 
``Sanctions-busting Iraqi pilgrims snub no-fly zone rules 
again.'' Now, that is not some political headline. That is the 
CNN news line March 17, 1999. Could you explain to me how these 
sanctions are working when Iraq can produce as much oil as they 
are capable of, regardless of the price; they can fly pilgrims 
to wherever they want to in the world; they have thrown our 
inspectors out. So please explain to me and the American people 
how effective these sanctions are. I think the sanctions are 
driving constituents in the oil producing States with marginal 
producers out of business. I think that is what the sanctions 
are doing.
    Mr. Wood. Mr. Chairman, there is no question that Iraq is, 
as it always has, resisting sanctions implementation. At the 
same time, first, the sanctions are being very effective in 
controlling Iraqi exports and the revenues that come from those 
exports.
    Mr. Barton. But the only export they have, Mr. Wood, is 
oil. Maybe some olives, I don't know.
    Mr. Wood. I understand and we are controlling with a high 
degree of confidence where the revenues from those exports go.
    Mr. Barton. I see.
    Mr. Wood. We are also--we are preventing, through this 
regime, the use of those revenues for the purposes that Saddam 
Hussein would most like to use them for.
    Mr. Barton. Let me ask this question, because my first 5 
minutes is about out. Where did this determination that they 
needed $5.2 billion every 6 months come from? Who made that 
determination?
    Mr. Wood. That was the result of an extensive United 
Nations study that was completed in February 1998, I think.
    Mr. Barton. And did the Iraqi government have any input 
into that study?
    Mr. Wood. The Iraqi government refused to cooperate with 
that study in large part. It was conducted, for the most part, 
by organizations like the World Food Program and others.
    Mr. Barton. Okay. Now, do we have any confidence that the 
food that is being purchased is actually getting to the Iraqi 
people?
    Mr. Wood. We do have, obviously, some problems. The papers 
reported very recently that the Iraqis were--that the 
government was not distributing medicines, for instance, that 
were supposed to be distributed. But at the same time, we know 
that Iraq has imported an average of 3.8 billion metric tons of 
food a year, which is more than 50 percent higher than the 
annual average for the 6 years prior to the program's 
implementation.
    We know that the malnutrition rate in the government-
controlled south has stabilized over the past year at about 15 
percent for infants and 25 percent for children between 1 and 4 
years of age; and that is an improvement over the previous 
years. We know that UNICEF reports that malnutrition in the 
north for the Kurds has dropped--for children under 5 has 
dropped to 25 percent last year from 30 percent in 1997 and 37 
percent in 1994.
    So we have got some clear indications that the goal of the 
oil-for-food program, which is to take care of the Iraqi 
population in spite of Saddam Hussein's intentions, is being 
achieved.
    Mr. Barton. Now, is it true--one of my briefing papers said 
that Saddam Hussein has refused to let any of this money be 
spent on food that is purchased or manufactured in the United 
States. Is that true?
    Mr. Wood. That is only true very recently, sir.
    Mr. Barton. But it is true right now?
    Mr. Wood. Right, it is true. We have under the oil-for-food 
program roughly $240 million of U.S. products have been 
purchased, of which----
    Mr. Barton. I want you all to listen to this. This program 
has been in effect since what, November 1996?
    Mr. Wood. Right.
    Mr. Barton. And we allow up to $5 billion every 6 months, 
so that is potentially $10 billion a year. So that is 
potentially maybe $12, $13 billion since we are just into 1999; 
but I am told that it has not been that much. We have spent how 
many billions of dollars? Do you know the exact number? I am 
going to guess it is $8 or $9 billion, but I don't know that.
    Mr. Wood. Well, it is important to remember again that the 
proceeds for the oil-for-food, a large part of it, a third of 
it goes to the compensation commission to compensate Kuwaitis 
for their losses--Kuwaitis, Americans, and others for their 
losses during the Gulf War. So not all of that program goes for 
the purchase of food.
    Mr. Barton. Give me your best number for how much of the 
billions of dollars that they have collected has been spent on 
food that actually went into Iraq.
    Mr. Wood. Our best understanding is that $902 million have 
been approved for food.
    Mr. Barton. Only $902 million?
    Mr. Wood. Let me keep going. $172 million for health.
    Mr. Barton. Let's just focus on food right now. A little 
less than a billion dollars on food? Is that your best number?
    Mr. Wood. That is right.
    Mr. Barton. Less than a billion, and of that billion, $240 
million was purchased from the United States sources?
    Mr. Wood. That is right.
    Mr. Barton. Okay. Well, I think I could equate that to how 
many jobs have been lost and how many millions of barrels of 
production have been lost in the United States. But that would 
be hitting a little bit below the belt. But I think you get my 
drift.
    Mr. Hall is recognized for 5 minutes.
    Mr. Hall. Thank you, Mr. Chairman. Mr. Williams, I will 
start with you. You have--one of your cures for the dilemma is 
that we get the U.N. to do some searching and see what is 
happening with the food when it gets there, who it goes to. I 
know you are highly educated, and I also know that you have got 
an awful lot of street sense, street smarts. Doesn't your 
street sense tell you that if they couldn't find the dang 
nuclear plants, that they are going to have a hard time 
catching those guys stealing that food?
    Mr. Williams. It probably does and it should. The import of 
that suggestion goes to the fact that we need to have--someone 
needs to do the investigation and make the----
    Mr. Hall. You pointed out by your answer now the dilemma 
that we are in. And my thrust probably is going to be to see 
what we can do to kill the policy. I don't think it is a good 
policy. I don't think it is a sensible policy. We used the 
Space Station for foreign policy and wound up putting money 
galore into Russia; and still apparently we are not saving the 
Space Station. Here we are using food-for-oil as another--
really a kind of a--I don't know why we would try to have a 
good foreign policy with Iraq, but apparently somehow we are 
trying to keep our foot in the door.
    It seems to me--I am not saying cut all the trees and kill 
all the whales and everything is bad and we ought to disconnect 
everybody in the world. But I don't see any sense in dealing 
with Iraq. I don't like to starve children, but war is war; and 
we are in a state of war with those people. We are bombing them 
probably today or tonight or tomorrow or whenever we are going 
to.
    Mr. Wood, what do you mean by saying you are controlling 
where the revenue goes? That thought occurred to me--I heard 
you say that a moment ago. Where does the revenue go? I will 
come back to you, Mr. Williams.
    Mr. Wood. As I indicated, the revenue goes into an escrow 
account that is only released for authorized purposes.
    Mr. Hall. Now, this is food for oil.
    Mr. Barton. But it is really not food for oil. That is what 
is so frustrating about this. They have collected somewhere 
between $5 and $6 billion and they have spent a little less 
than a billion on food. So it is called food for oil, but it is 
really not food for oil.
    Mr. Wood. Let me correct what I said earlier because I was 
giving you the most recent statistics. Since the beginning of 
the program, a total of $2.75 billion has been used to purchase 
food. Over $500 million has been used to purchase medicine and 
$400 million for supplies in areas of water, sanitation, 
electricity, and education projects.
    Mr. Barton. So that gets us up to about $3 billion, but a 
little over $2.5 billion for food?
    Mr. Wood. And, again, don't forget the oil-for-food program 
has only been at the $5.2 billion level for a year or so.
    Mr. Barton. Right. I am going to give Mr. Hall additional 
time; and I don't want to dominate this, but that infuriates 
me. This study that was done apparently was done with a great 
degree of effort to find out what the true needs were, but you 
have doubled the program; and the population of Iraq has not 
doubled in the last year. I mean, I can draw no conclusion to 
that, sir, but that that is just a pure political judgment on 
behalf of the bureaucrats in the United Nations to appease 
Saddam Hussein. I may be wrong, and the studies may show it 
different; but if the first study was an accurate study, the 
Iraqi population is not that fertile that they are expanding 
the population so greatly that they need to double the amount 
of flood and supplies that they need. But, Mr. Hall?
    Mr. Hall. Go ahead and get your answer from him.
    Mr. Wood. Mr. Chairman, I think that the easiest example I 
can give you is that OPEC has just cut back its sale of oil.
    Mr. Barton. Yes, they did. And Iraq did not and Iraq is a 
member of OPEC.
    Mr. Wood. This is following in December Baghdad's call for 
the overthrow of the regime of Saudi Arabia and the leadership 
in some of the other Persian Gulf OPEC members.
    Mr. Barton. Which have the full faith and credit of the 
United States of America to guarantee that this will not happen 
by military means.
    Mr. Wood. I understand. But the OPEC nations themselves 
believed it was better for them to cut back their oil sales 
than to seek a reduction in the oil-for-food program. And the 
reason for that, we believe, is a combination of humanitarian 
concern for people of Iraq and the recognition that taking care 
of the humanitarian needs of the people of Iraq is an absolute 
prerequisite to maintaining the integrity of sanctions 
implementation and to returning, as we hope will occur soon, 
the weapons-of-mass-destruction inspectors and the other 
elements of the policy for containing Iraq.
    Mr. Barton. Well, hopes are one thing, sir, but reality is 
another. And I don't believe anybody on this subcommittee 
opposes providing in some way food and medicine for the people 
of Iraq. That is not the message we are sending. But it really 
does not appear, so far as this hearing is going along, that 
that is what is happening. And with all due respect, I don't 
think appeasement works; and I don't think it works with Saddam 
Hussein, and I would disagree with the collective wisdom of the 
OPEC nations to think it is okay to appease Saddam Hussein and 
let him produce as much oil as he wants.
    Mr. Hall, I have used almost your entire 5 minutes, so I 
will give you another 5 minutes. We will give you an additional 
2 or 3 minutes.
    Mr. Hall. You are the Chairman. It makes a difference.
    Mr. Barton. I am just a little riled up about this.
    Mr. Hall. To reclaim my 7 minutes--and you have covered 
some of the ground I wanted to cover, and of course we have 
talked about the economic advantages that the Iraqi government 
and Saddam Hussein has taken. I think, Mr. Hakes, you can tell 
us another advantage that he has taken. Our research and 
development expert from Randall and Dewey, Dave Bole, is going 
to be testifying in a little bit; but we have read his 
testimony and he has indicated that not only do the Iraqis have 
this advantage, the two advantages that the Chairman drew out 
there, they have also made Iraq the swing oil producer, have 
they not, in that whole part of the country?
    Mr. Hakes. Not as I understand that term.
    Mr. Hall. Well, let me tell you how I understand the term. 
It may be wrong. They sell the last barrel into the market. And 
doesn't that define the market price?
    Mr. Hakes. Well, everybody that sells into the market is in 
a sense selling the last barrel.
    Mr. Hall. The last seller getting the most price for it.
    Mr. Hakes. The swing producer, as I have normally seen it 
used, is referred to Saudi Arabia who has the ability to raise 
and lower production because they have more excess capacity 
than they use.
    Mr. Hall. They have a bigger hole in their well than 
anybody else.
    Mr. Hakes. Right. For instance, a year ago before they made 
these cuts, they still had the capacity to almost immediately 
increase production by 2 billion barrels; and they also have 
been more willing to cut back. So they sort of have been the 
only swing producer that is able to raise and lower. The Iraqis 
don't have any ability right now to go above the 2.5.
    Mr. Barton. But they do have the ability to go below 2.5.
    Mr. Hakes. As does any producer.
    Mr. Barton. I mean, there is no structural impediment to 
the Iraqis reducing their oil production if they wanted to.
    Mr. Hakes. Right. Particularly the state-owned companies 
have that option if they are willing to.
    Mr. Barton. And all the oil in Iraq is state owned.
    Mr. Hakes. Right. I think the four or five largest 
companies in the world right now are state-owned companies 
including Iraq.
    Mr. Hall. Mr. Hakes, to where we are on the same line, his 
testimony will be--it says, ``Let me explain what allows Iraq 
to become the swing producer.'' I guess that is why we ran 
across that. ``Currently many industry analysts estimate that 
worldwide oil productive capacity that is, production that 
could quickly be added to the world market exceeds demand by 
only about 4 percent.'' And says, ``This increase has allowed 
Iraq to become the world's swing producer, the producer that 
sells the last barrels into the market and thereby defines the 
market for the entire market.'' Is that not your understanding 
of what a swing producer is?
    Mr. Hakes. No.
    Mr. Hall. Okay. I am sorry that I hadn't set that out for 
you.
    Mr. Hakes. I have heard that discussed, but I am not sure 
that is the way it works.
    Mr. Hall. That is a good thing to allude to. Call it 
whatever type producer you want to; he in the position of 
selling the last and defining the market.
    Mr. Hakes. The market is set by all producers and all 
buyers.
    Mr. Hall. In diamonds or whatever.
    Mr. Barton. Mr. Hall, could you ask one more question and 
then let us go to Mr. Shimkus. We will come back and give you 
additional time after the other three.
    Mr. Hall. I would like to just ask a quick yes-or-no from 
Mr. Wood. Are we the only Nation supporting the oil-for-food 
program?
    Mr. Wood. By no means, sir.
    Mr. Hall. A number of other nations? With Iraq?
    Mr. Wood. Absolutely, sir. Both in the Security Council and 
around the world.
    Mr. Hall. You have answered. What would be the impact on 
our foreign policy and our relations with our allies if the 
U.S. were to successfully push for an end to the oil-for-food 
program?
    Mr. Wood. We believe that the sanctions, all of the 
programs aimed at containment of Iraq, would be seriously 
eroded. While we retain the ability within the Security Council 
to veto any legal change in these programs, we believe that 
their observance by other nations would erode quickly. We would 
face growing international pressure to lift sanctions. We would 
have less support for a hard line on maintaining inspections of 
Iraq's weapons-of-mass-destruction programs. We believe that 
this would seriously weaken our ability to take a tough line 
with Iraq while we are pursuing the other track--the two other 
tracks, which are the enforcement of the no-fly zones and our 
efforts to replace the regime of Saddam Hussein.
    Mr. Hall. Last question. Are you all talking to the oil 
producers about the impact it has on them?
    Mr. Wood. Absolutely, sir. And I might add----
    Mr. Hall. Are you listening to them?
    Mr. Wood. We are, sir. Oman was one of the original 
sponsors in the United Nations of the first oil-for-food 
program proposal back in the early 1990's.
    Mr. Barton. Could I just--Mr. Hakes and Mr. Wood, before we 
go to Mr. Shimkus, are either one of you aware of any other 
Nation in the world that is permanently shutting in production 
that will never come back as a result of this program? You say 
that the other nations support the program. I am not aware of 
any other nation in the world that has the marginal-well 
situation like we have in the United States that is being 
permanently lost because of this. Are there other nations?
    Mr. Hakes. I am not as familiar with--Canada might possibly 
have some, but I would agree with the drift of your question 
that the United States is in a rather unique position on this 
issue.
    Mr. Barton. I am told we have lost about 600,000 barrels a 
day just within the last year. It is never going to come back.
    Mr. Hakes. The December-to-December figures going to 
December 1998, we had lost about 500,000 barrels a day; and it 
is higher than that now, I am sure; and there is also a leg 
effect because it discourages new investments, and sometimes 
that doesn't show up in production losses that you otherwise 
would have had.
    Mr. Barton. So with the exception of Canada, when the 
deputy under special assistant secretary talks about the rest 
of the world supporting this program, it is really the domestic 
small oil and gas producer in the United States that is 
supporting it by losing their job and losing their resources. 
There is no other----
    Mr. Hakes. The point, I think, is very valid that the small 
producers have a very limited ability to come back once they 
are shut down. In other words, when the price goes down like 
this and then the price goes back up, that won't necessarily 
bring those--a higher price won't necessarily bring all of 
those producers back.
    Mr. Barton. I want to correct the record. It is the 
principal assistant deputy secretary. I am not trying to be 
facetious about that, sir.
    Mr. Shimkus.
    Mr. Shimkus. Mr. Chairman, I yield my time to my colleague 
from Oklahoma so he can catch his plane.
    Mr. Largent. Thank you, Mr. Chairman. Mr. Wood, I am 
reading in your testimony that we got at 9:30 this morning. The 
second paragraph says that the administration's policy is to 
contain Saddam Hussein until he can be removed from power. It 
sounds to me that it is the administration's policy to sustain 
Saddam Hussein until he can be removed from power, and I want 
to make a statement and get you to respond to it.
    As I have studied history throughout the world, the most 
motivating thing--if you want to foment change in a country, 
hunger is the most motivating factor to foment political change 
that we are trying to see in Iraq. And yet we are moving in the 
opposite direction. Would you like to comment on that? I mean, 
I am striking at the very fundamental policy decision that is 
being made.
    And I want to say, too, just parenthetically here, that I 
understand that if we can see this change take place and we get 
a new regime in there and Iraq comes back on with their oil 
production and begins increasing their oil production, that we 
are in the same boat. So what I am really talking about is a 
foreign policy decision that currently is affecting independent 
producers; but if we are successful in our foreign policy, we 
still have the same problem that we have to deal with, and I 
understand that. So don't think that I am saying--or anybody up 
here is saying that the problem that we are having in Oklahoma 
is all because of our foreign policy. But this foreign policy 
is important, and I am just thinking that we are doing the 
exact opposite of what we need to be doing if our policy goal 
is to remove Saddam Hussein from power.
    Mr. Wood. We certainly agree with you that this is a very 
important foreign policy, and, indeed, in fact there is no 
issue on which the Secretary of State and our people in New 
York and others spend more time.
    It is not our assessment that withholding humanitarian 
assistance under the oil-for-food program would be a better way 
to drive out Saddam Hussein. And I might add that it is not his 
assessment either. He has not cooperated with this program. In 
spite of the program, he has tried to keep food from his 
population. He has tried to keep medicine from his population. 
That is why we received these press reports a month ago. He 
finds it more useful to blame the world for the poverty and the 
malnutrition and the unhappiness of his own people than to 
allow them to be adequately nourished.
    He has consistently failed to cooperate with the oil-for-
food program. He sees it as a threat. He does not see it as a 
bolster for his regime, and in this assessment, frankly, we 
agree with him.
    Mr. Barton. If he really felt that, he wouldn't have to 
sell any oil. If that were literally a true statement, he would 
refuse to let his state-owned oil company sell any oil. So it 
can't be true.
    Mr. Wood. During the life of the program, Saddam Hussein 
has interrupted the flow of oil on several occasions for 
periods of more than a month at a time. And, again, it is 
because his assessment is that--we believe that his assessment 
is that the world will take responsibility for his population 
even if he won't. And that may extend, as it has in some cases, 
to proposals to lift sanctions.
    Mr. Largent. So in this world, we literally cannot force 
Saddam Hussein to do anything, including allow us to inspect 
weapons sites. We cannot force him to not fly in the no-fly 
zone. But what we can do, what we have been effective in doing 
is forcing food on him. Is that what you are telling us? That 
is the one thing that we have been effective in doing is 
forcing food on him when he didn't want it?
    Mr. Wood. I would have to say that I don't think that he is 
happy with what is happening in the no-fly zones.
    Mr. Largent. Who distributes the food under this program?
    Mr. Wood. The Iraqi regime distributes it in the south 
under U.N. monitoring, and the U.N. itself distributes it in 
the north.
    Mr. Largent. And where in the pecking order does the 
Republican Guard fall in? Who gets fed first?
    Mr. Wood. Again, I think that they are--they tend to be 
less malnourished than anybody else to begin with.
    Mr. Largent. I think so. We are making them fat.
    Mr. Wood. I am not saying that it is the U.N. that is 
feeding them. I am not saying that it is this program that is 
feeding them. They have always been cared for better than the 
population at large.
    Mr. Largent. Thank you, Mr. Chairman.
    Mr. Barton. We have been everywhere liberal in the use of 
time. I have consumed probably three times my 5 minutes, so if 
you have some additional questions.
    Mr. Largent. It just seems to me that the administration's 
policy or our foreign policy in this issue right now is that we 
want to overthrow this evil empire, but we don't want to make 
anybody mad doing it. I don't understand that. That just really 
baffles me. We are going to kill them with kindness.
    Mr. Hall. Will the gentleman yield?
    Mr. Largent. Yes, sir.
    Mr. Hall. Does it ever occur to you that we won't ask 
ourselves the question of whatever happened to consorting with 
the enemy? You know, they used to shoot you for that. I think 
it is a sorry policy, and I think this is a sorry program. And 
I think you are bringing it out very well. So give him 7 more 
minutes.
    Mr. Largent. I will yield back, Mr. Chairman.
    Mr. Barton. Mr. Shimkus, do you want to reclaim original 
order or do you want me to go to Mr. Burr?
    Mr. Shimkus. I would rather go original order, unless Mr. 
Burr has a pressing----
    Mr. Barton. Mr. Burr's plane is not until 4:15.
    Mr. Shimkus. I imagine mine is too, or close to it.
    Mr. Wood, I am sorry that I missed the initial fireworks, 
so welcome. And we are learning a lot, and I appreciate you 
being here, along with the other panelists. But it seems like 
you are getting the brunt of the fire right now.
    I am trying to follow up on a statement that you said that 
our allies want this program and they are willing to curtail 
their own production while allowing Saddam Hussein to produce 
more, both on the food-to-oil program and through the black 
market, thus undercutting their prices on the world market. Our 
allies support this policy?
    Mr. Wood. What I am saying is that we have not received 
approaches from OPEC nations, and in particular the Gulf OPEC 
nations, seeking to curtail the oil-for-food program. Just the 
opposite. They have indicated strong support for the oil-for-
food program.
    Mr. Barton. Would the gentleman yield on that?
    Mr. Shimkus. I will.
    Mr. Barton. Surely you have got people in the State 
Department that understand if we drive the American marginal 
producer out of production, it helps every producer in the 
Middle East over time. And Iraq is part of OPEC. So they are 
crying with crocodile tears when they support this because 
every marginal well in Texas, Oklahoma, Louisiana, Illinois, 
West Virginia, California, Colorado, on and on and on that goes 
out of production is never coming back. And their wells in the 
Middle East are there just waiting to resume production. Surely 
you all understand that. Do you?
    Mr. Wood. Yes, I mean--I am certainly not an expert in our 
domestic oil industry, but it is obvious from the testimony 
here today, and from your own comments, sir, that marginal 
wells once shut down stay shut down.
    Mr. Shimkus. Maybe that message ought to get back to the 
State Department.
    Mr. Wood. It will.
    Mr. Shimkus. Following up on a question I asked to my 
colleague, Wes, from Oklahoma--and you have kind of 
elaborated--but you said an escrow--how do we know that the 
revenue from the oil-for-food program is going for food only? 
Mr. Watkins said that it is going to an Iraqi bank account. You 
mentioned an escrow. What bank or banks is this money flowing 
to, and who controls the account?
    Mr. Wood. I am not sure what--I am told that, I think, it 
is Banque Nationale of Paris, one of the world's largest and 
most reputable. Let me just say, though, that within the oil-
for-food program there are a series of checks and maybe it 
would be useful if I went through those.
    A U.N. contractor monitors outflow of Iraqi oil through 
pipelines. This does not mean that there is not a smuggling 
problem. I will get to that in a second because we are trying 
to address that.
    Then roughly 50 employees of another contractor, a Swiss 
company, are stationed at the four points of entry for products 
that are allowed. And they are responsible for verifying the 
arrival of humanitarian goods. Within Iraq itself, the U.N. 
Office of the Iraq Program has roughly 150 inspectors whose job 
it is to ensure that the goods sent into Iraq under our oil for 
food reach their proper destinations. There are 50 sector 
observers and 50 geographic observers and 20 of sort of a 
multidisciplinary unit.
    That is how distribution within a particular southern part 
is tracked. Every contract is approved--every contract is 
approved by the sanctions committee, of which we are a member. 
We review every contract. We approve every contract.
    In addition, UNSCOM, the weapons-inspection agency, when it 
is functioning--and I admit it is not functioning now--but when 
it is functioning, they also receive reports of all imports 
into Iraq and do their own analysis as to whether or not there 
is any diversion away from the intended----
    Mr. Shimkus. But that is not being done now, so there could 
be diversions?
    Mr. Wood. And as a result, we on the sanctions committee 
are being more scrupulous in the contracts that we are allowing 
to go through. So there is an offset there. Maybe--that is the 
general framework.
    Mr. Shimkus. Okay. So you would take--so you would not 
accept Congressman Watkins' premise that there is no control of 
the money and that the money is going totally for the needs of 
the food and the medicine?
    Mr. Wood. Sir, I would never say totally. I would say with 
a high degree of confidence, we are absolutely sure that the 
vast, vast majority of this revenue is going for what it is----
    Mr. Shimkus. Does State Department believe that money is 
fungible?
    Mr. Wood. Yes, sir.
    Mr. Shimkus. In other words, that if this money is being 
used to feed the populous and the medicine needs, then that is 
saving revenue for the Iraqi government to fully feed the Guard 
and also the people in high places and authority?
    Mr. Wood. That is true. However, Iraq is under the most 
sweeping sanctions regime in the history of the world. And it 
is not clear where they will develop new hard currency in order 
to buy imports, in order to do that.
    Now, we have talked about the smuggling program; and this 
continues to be a problem. There has been smuggling of gas oil 
products through the Gulf; and we estimate that that has been 
reduced from roughly 55,000 barrels a day a year ago to 
approximately 5,000 barrels per day now. And we have done this 
through a combination of third-party pressure on Iran, which is 
where the smuggling was destined; the bombing of the Basrah oil 
refinery which was responsible for producing this oil; and 
through the activities of the maritime interception force and 
other activities there. So there is a dramatic decrease in that 
smuggling.
    Trade through Turkey we also believe has decreased 
significantly by about 50 percent. We estimate that the current 
trade is roughly 20,000 barrels per day compared to 45,000 
barrels a day a year ago. We are continuing to work hard with 
Turkey on reducing this.
    So much for the good news. The bad news is that there seems 
to be a growing illicit trade through Syria, and we are looking 
into that; but I assure you that we take the smuggling problem 
seriously. We take--it is of particular concern because it is 
the way of raising hard currency for use by the Iraqi regime, 
which is not under our control. It is the principal way that 
they can raise hard currency that is not under our control. And 
what they can buy with hard currency are things that we don't 
want them to buy.
    Mr. Shimkus. I would love to follow this line of 
questioning more, but I want to go to my last one. And this is 
a little bit more touchy and generic.
    How can we as a Nation continue to follow the line of the 
U.N. position that gives us the authority to patrol the no-fly 
zone, to do the oil-for-food program, when we are now engaged 
in activities in Kosovo without any negotiation of the United 
Nations, no U.N. Security Council. Do you not think that we are 
now in a position of not legitimizing our presence in that 
region under the U.N. when we have totally disregarded U.N. 
negotiations in our current activities?
    Mr. Wood. I think I would make a couple of quick points. 
First, our policy is to pursue U.S. objectives. And to the 
degree that the U.N. assists us to do that, it is a valuable 
tool in the----
    Mr. Shimkus. It is a U.N. no-fly zone. It is not a U.S. no-
fly zone.
    Mr. Wood. The no-fly zone is carried out within the 
framework of U.N. resolutions. They are not explicitly 
authorized by U.N. resolutions.
    Mr. Shimkus. Is it a U.N. no-fly zone or a U.S. no-fly 
zone?
    Mr. Wood. Again, the no-fly zones were put in place 
following the Gulf War after Saddam Hussein began to attack his 
own people----
    Mr. Shimkus. Who authorized it?
    Mr. Wood. It is not authorized explicitly in any U.N. 
resolution, but it is within the framework of U.N. resolutions 
that calls upon nations to assist--to help prevent Iraq from 
brutalizing its own population. But there is nothing--but the 
pilots of the no-fly zones don't wear blue helmets. They don't 
fly U.N. planes. There is no U.N. chain of commands whatsoever. 
That is a green-hatted operation.
    Mr. Barton. What is a green hat?
    Mr. Wood. It is under the national chain of command.
    Mr. Shimkus. So go ahead and continue with the answer, 
then.
    Mr. Wood. Again, we utilize the United Nations, as every 
nation does----
    Mr. Shimkus. No, we don't. We haven't in our recent 
activities in Kosovo. We pick and choose when we need to use 
the U.N. and when we do not.
    Mr. Wood. We certainly believe that our actions in Kosovo 
are entirely in keeping with international law. There is, in 
fact, a vote taking place just about now, I hope, in the 
Security Council on a resolution to be introduced by Russia 
criticizing the NATO action. And we believe that it will fail 
both for lack of votes and because it will have no fewer than 
three vetoes on it. So we will have to see.
    Mr. Barton. We will have to reclaim somewhat regular order 
so that we can let Mr. Burr get a question in. Mr. Burr is 
recognized for 5 minutes.
    Mr. Burr. Thank you, Mr. Chairman. Mr. Wood, just keep that 
mike next to you. I want to ask you about your testimony. Did 
you really mean it when you said you are pleased to be here 
today?
    Mr. Wood. Absolutely, sir.
    Mr. Burr. Did you write this testimony?
    Mr. Wood. No, sir.
    Mr. Burr. When were you told that you were testifying in 
front of this committee?
    Mr. Wood. Wednesday, sir.
    Mr. Burr. Who told you?
    Mr. Wood. I was asked if I was available to do it.
    Mr. Burr. Who asked you?
    Mr. Wood. Our normal legislative----
    Mr. Burr. Name?
    Mr. Wood. I don't think I have a name.
    Mr. Burr. You don't know who asked you?
    Mr. Wood. I can't recall, sir.
    Mr. Burr. Who would have approved it?
    Mr. Wood. My boss approved it.
    Mr. Burr. Your boss is who?
    Mr. Wood. Assistant Secretary Welch.
    Mr. Burr. Did he write your testimony?
    Mr. Wood. No.
    Mr. Burr. Who wrote your testimony?
    Mr. Wood. It was written in our office.
    Mr. Burr. Who did that?
    Mr. Wood. Some of the people behind me, but----
    Mr. Burr. When did you read it?
    Mr. Wood [continuing]. I take full responsibility for it.
    Mr. Burr. When did you read your testimony for the first 
time?
    Mr. Wood. Wednesday evening.
    Mr. Burr. Did you have the ability to change your 
testimony?
    Mr. Wood. Yes, sir.
    Mr. Burr. Did your boss sign off on your testimony?
    Mr. Wood. He reviewed it. He didn't sign off on it.
    Mr. Barton. Who is your direct supervisor?
    Mr. Wood. Assistant Secretary Welch.
    Mr. Burr. Is he the final sign-off on it, or did it have to 
go somewhere else?
    Mr. Wood. It had to be cleared fairly widely.
    Mr. Burr. To what degree, as far as the hierarchy at State?
    Mr. Wood. Well, because it reflected--because the principal 
task in writing it was to update the testimony that I think has 
been mentioned here earlier that Under Secretary Pickering gave 
in the Senate, there was a wide, wide clearance.
    Mr. Barton. Would the gentleman yield?
    Mr. Burr. Let me make one statement, and I would be happy 
to yield. Would you disagree with the statement that your 
testimony was to support what the State Department's policy is?
    Mr. Wood. Yes, sir, that is exactly what my testimony is 
for.
    Mr. Barton. I just want to follow up on this same line. We 
had some concern, Mr. Wood--and we are not personally offended 
that you are here. I think you are doing a good job in a 
difficult situation, so I want to let you know that. But we had 
a concern that we were not getting the appropriate level of 
testifier that should have been here.
    That was expressed to me early in the week, and did I want 
to call the Secretary of State and demand that there be a 
higher-level official than yourself; and I said no, that the 
main thing was to get the meat of the issue before the 
subcommittee. Of course, then when we didn't get testimony 
until this morning, that kind of inflamed opinion about that.
    How many people in the State Department have direct impact 
on this policy that Mr. Burr and I and every other member of 
the subcommittee is concerned about? Could you elaborate the 
chain of command of the people who are directly involved in 
this policy?
    Mr. Wood. By ``this policy,'' you mean our policy toward 
Iraq?
    Mr. Barton. No, the great oil-for-food policy that you are 
trying with some difficulty to defend.
    Mr. Wood. Starting with the Secretary of State. There are 
officials at the Under Secretary level--well, at the----
    Mr. Barton. I am with Mr. Burr on this one. We want names 
of people. We want names and titles: Secretary Madeleine 
Albright, the Secretary of State----
    Mr. Wood. Deputy Secretary of State Strobe Talbott, Under 
Secretary for Political Affairs Thomas Pickering, Under 
Secretary for Economic Affairs Stuart Eizenstat, Assistant 
Secretary for Near East/Middle East Affairs, Martin Indyk, 
Assistant Secretary for International Organization Affairs, 
David Welch.
    Mr. Barton. That is six so far.
    Mr. Wood. There are also people in our intelligence----
    Mr. Barton. Give us the name of the person or at least the 
title. I know the State Department is a massive bureaucracy, so 
I may even get beyond your mental ability here.
    Mr. Wood. Getting beyond my mental ability is not a high 
threshold.
    Mr. Barton. No, I think so you are an intelligent man.
    Mr. Wood. But perhaps I can cut this--can help by saying 
that it is routine State Department practice--and I can't speak 
for other departments of the government--that officials at the 
Deputy Assistant Secretary level, my level, are often the 
testifiers on a variety of subjects. It is not our policy, 
however, to fail to provide testimony on a timely basis.
    Mr. Barton. Who is your direct report? I forgot.
    Mr. Wood. David Welch, assistant secretary.
    Mr. Barton. But you are the principal deputy assistant.
    Mr. Wood. That is right.
    Mr. Barton. Which would indicate that there is a deputy 
probably below you.
    Mr. Wood. That is right.
    Mr. Barton. Is it safe to say that you are the lowest level 
State Department official that they could comfortably get away 
with sending before this subcommittee?
    Mr. Wood. No, sir.
    Mr. Barton. No, sir? There is somebody lower than you?
    Mr. Wood. I hope so, sir.
    Mr. Barton. Okay. If we want to pursue this, though--and I 
think we will. I have heard nothing yet to indicate that this 
is a policy that the Congress should support with any 
enthusiasm. So if we want to continue this, we should ask up to 
probably the Under Secretary and just have a State Department 
panel so that we get every player in the State Department that 
has put this policy together before this subcommittee.
    Mr. Wood. Well, I----
    Mr. Barton. And probably the U.N. Ambassador.
    Mr. Wood. We very much hope that everybody from the State 
Department would speak with one voice on the policy. And I 
believe that I can adequately represent that voice.
    Mr. Barton. Oh, I think you are making the best of a bad 
deal before this subcommittee.
    Mr. Wood. And at the same time, my initial statement that 
we were genuinely grateful for this opportunity to testify 
before the subcommittee, a subcommittee that you yourself 
pointed out we don't testify before very often----
    Mr. Barton. But you will.
    Mr. Wood. And we look forward to it, sir.
    Mr. Barton. There is a new beginning. We will recognize Mr. 
Burr for another 5 minutes because I took 3 minutes and didn't 
even let you get started.
    Mr. Burr. Mr. Wood, how long will it take for Saddam to be 
removed?
    Mr. Wood. Difficult to say, sir. Sooner the better.
    Mr. Burr. Who will remove him?
    Mr. Wood. We are working--we, including our new Special 
Coordinator for Transition in Iraq, Mr. Frank Ricciardone, is 
working with regional groups, with dissident groups.
    Mr. Burr. Outside Iraq? Inside Iraq? Who will actually 
bring him down?
    Mr. Wood. Don't know.
    Mr. Burr. We don't know?
    Mr. Wood. Don't know yet.
    Mr. Burr. Will we?
    Mr. Wood. Yes, although not necessarily much before it 
actually happens. I just don't--this isn't the kind of thing 
that lends itself to speculation or to, really, public 
analysis. But it is certainly the case that there are dissident 
groups outside of Iraq. There are groups inside of Iraq that 
have been oppressed by Saddam Hussein. This includes the Kurds 
in the north, the Shiites in the south, it includes numbers of 
groups. And we believe that every day and every way Saddam 
Hussein is alienating his own population. This is one of the 
reasons that we do not wish to provide him the additional lever 
of claiming that he is protecting his population.
    Mr. Burr. So the State Department has determined that 
hunger does not mobilize his people to be upset with him? Is 
that what you are saying?
    Mr. Wood. Yes, and he has made that statement.
    Mr. Burr. If he gives them the food, they will be angrier 
at him?
    Mr. Wood. He has concluded that with his control of the 
media and other things, it is easier for him to blame the 
outside world if his----
    Mr. Burr. I am trying to determine what mobilizes his 
people, because I think your whole policy is based on an 
overthrow from within. And I guess I would ask you where have 
we used this policy before and it worked?
    Mr. Wood. I think that there are numbers of cases where we 
have supported dissident groups, both inside and outside of 
countries, and it has produced an overthrow. I wouldn't like to 
go into specifics in this forum.
    Mr. Barton. I think that it is working really well in Cuba. 
I think Fidel Castro came into being in 1959.
    Mr. Hall. Haiti.
    Mr. Barton. Haiti. We have a number of sterling examples of 
this policy.
    Mr. Burr. Clearly, if we adopt the same definition for the 
term ``removal'' being death by old age, then we have quite a 
few years that we would live with this policy.
    Let me just make one comment and then I will quit, Mr. 
Chairman. Thomas Pickering testified in front of the Senate 
Foreign Relations Committee on March 17, a little over a week 
ago, I guess. I don't think there was anything real difficult 
in preparation for you to testify. I think, in fact, there was 
intent at the State Department to make sure that we were as ill 
prepared for your testimony as we possibly could be.
    I will push next time a State Department official is here 
to refuse that they testify. When we find out that we can get 
the same information from other sources, maybe we will take 
that opportunity to grow a larger surplus by our reductions at 
the State Department in personnel.
    I am confident that this is not the last time somebody from 
the State Department will be in front of this committee and 
many other committees to try to defend this program, the 
policies that we have got, and ultimately put all the policies 
of this State Department under scrutiny.
    Mr. Chairman, I thank you and the ranking member for your 
willingness to hold it; and I feel confident that next time, if 
we don't do it on the last day before a break, that we will 
have a full subcommittee of members here to pursue this policy 
further. And I yield back.
    Mr. Barton. The Chair is going to recognize himself for 5 
minutes.
    Mr. Williams, can you give me right now a verbal 
approximation, and then within a week or so in writing, the 
number of wells in Texas that have been shut in since the oil-
for-food program began in late 1996?
    Mr. Williams. I will do that, Mr. Chairman. But since 
February 1998 through about February 1999, we have shut in 
about 2,200 wells in Texas; and I will provide that additional 
information.
    Mr. Barton. 2,200?
    Mr. Williams. Right. And we have plugged about 9,500.
    Mr. Barton. Plugged about 9,500. Mr. Smith, can you again 
give me an approximation now and within a week or so the 
numbers for that same question in Oklahoma.
    Mr. Smith. Happy, to Mr. Chairman. Thank you. We have about 
70,000 wells in Oklahoma that produce oil and some gas. As 
Congressman Watkins mentioned, most of those are marginal. We 
are plugging wells right and left. I don't know the number. I 
can get it for you. Maybe Mr. Brown, who is a producer here 
with me, will know. I am going to guess--and then I will 
substantiate my number later--that we have plugged since this 
oil-for-food program started probably about 10 to 15,000 wells.
    Mr. Barton. 10 to 15,000 wells in Oklahoma?
    Mr. Smith. Yes, sir.
    Mr. Barton. So many more in Oklahoma than in Texas?
    Mr. Smith. I think so. Again, that is off the top of my 
head. I will verify that.
    Mr. Barton. There are different terms for stopping 
production. But the term ``plug'' means it is literally 
cemented in and you cannot resume production from that well.
    Mr. Smith. That is correct.
    Mr. Barton. So it is gone.
    Mr. Smith. That is correct.
    Mr. Barton. Mr. Hakes, I asked those two gentlemen because 
they represent States. You represent the United States. Could 
you give us your best approximation for domestically--the 
number of wells that have been plugged and again, as soon as we 
can get the exact number, get it to us for the record since 
this oil-for-food program began.
    [The following was received for the record:]

    The EIA estimates that as many as 33,000 oil and gas wells 
were plugged in 1998 in the United States. This estimate is 
based on two pieces of information and certain assumptions. The 
Interstate Off and Gas Compact Commission (IOGCC), in a recent 
report entitled ``A Battle for Survival?: The Real Story Behind 
Low Oil Prices'' (Updated Report--April 1999), reported the 
results of a survey of States that showed that (excluding 
Texas) at least 48,000 oil and gas wells were abandoned or 
idled in 1998. It is unlikely that as many as 50 percent of 
these wells were plugged. Plugging costs can be high and 
operators generally try to avoid incurring them as long as 
possible. On the other hand, it is noted that both Pennsylvania 
and Colorado did report higher plugging percentages. Assuming, 
for the purpose of determining a rough upper estimate, that 50 
percent of the abandoned or idled wells were plugged, the total 
wells plugged outside of Texas would be 24,000. For Texas, a 
precise number (8,951) of plugged wells was made available by 
the Texas Railroad Commission. Combining the two estimates 
yields the 33,000 wells for the total United States. While it 
was not possible to determine the exact distribution of total 
plugged wells between off wells and gas wells, it is clear that 
the large majority of these were oil wells.

    Mr. Hakes. If you are using the term ``plug'' in the 
literal sense, that would be data we would get from the States, 
but we would be glad to assist in the preparation of that 
number for you.
    Mr. Barton. Well, give me an estimate. And I am not going 
to hold you to a great degree of accuracy. I am just trying to 
get a feel for how many wells we have lost forever since this 
program began. And we have got 10 to 15,000 in Oklahoma and 
around 2,000 in Texas. So can you give us--fill in the blank 
for the rest of the country?
    Mr. Hakes. Well, I think those are the two largest States 
for those kinds of wells, so you could extrapolate from that 
data and say all the other States maybe it is twice that or 
something.
    Mr. Barton. So kind of a back-of-the-envelope, you would 
say 20 to 30,000 wells?
    Mr. Hakes. I am extrapolating from their data. I would have 
to go back and check.
    Mr. Barton. You can get us--to the extent such data is 
available, you can compile that and get it within the next 2 
weeks?
    Mr. Hakes. Yes, we will certainly do that.
    Mr. Barton. Mr. Smith?
    Mr. Smith. Mr. Chairman, just a correction. I misread Mr. 
Hakes' chart. I read it as January 1996 for the oil-for-food 
program start date rather than 1997. I think I was probably 
high, but I will get those for you.
    Mr. Barton. Okay. We are going to make a good faith effort 
to either terminate this program or substantially change it. 
And in order to do that, we need to have factual data that we 
can show our friends at the State Department these losses have 
occurred. And while there are other factors, we are not going 
to deny that the Asian situation and the Caspian Sea and all of 
that, there is a fairly substantial good correlation between 
this program starting and the problems in the other area.
    Mr. Wood, do you know how many barrels a day the Iraq 
Nation needs just for internal consumption? And Mr. Hakes may 
know that number.
    Mr. Hakes. The number we use is about 550,000 barrels a 
day.
    Mr. Barton. 550?
    Mr. Hakes. So the exports are roughly 2 million.
    Mr. Barton. I want to be sure. If they are producing 2.5 
million barrels or 2.6 million barrels a day, that is for 
export; and then on top of that they are using half a million.
    Mr. Hakes. I believe that is the production number.
    Mr. Barton. That is the total production number and not the 
export number?
    Mr. Hakes. Yes, the exports are about 2 million, I believe.
    Mr. Barton. Okay. So is it the Department of Energy's 
energy information estimate that they are basically at maximum 
production right now?
    Mr. Hakes. Yes, because of their difficulty getting spare 
parts and capital investment. You know, I think if they had 
full access to parts and capital investment, they could quickly 
get back to prewar levels; and I think just in terms of the 
physical potential there, if you had full investment there, 
they could probably get up to, maybe, 5, 6 million barrels. But 
right now they have limited access to capital and parts.
    Mr. Barton. But given the infrastructure in place, we can 
assume that they are at maximum production and they are using 
half a million barrels a day for internal consumption and then 
they are exporting as much as they can?
    Mr. Hakes. Right. Just to be a little bit more precise, we 
are estimating that they may go up 50,000 to 100,000 barrels a 
day over the next year or so, so that there would be some 
addition. And I would say that there are a couple of respected 
firms who think they might be able to increase a little bit 
more than that. But somewhere in that range.
    Mr. Barton. Now, Mr. Wood, as this program was put together 
at the State Department, and I guess the White House and in the 
United Nations, my understanding is that Iraq has financial 
assets that have been frozen in western banks since the 
invasion; is that correct or not correct?
    Mr. Wood. That is correct, sir.
    Mr. Barton. Do you know the amount of those assets in terms 
of dollars?
    Mr. Wood. I don't think I do.
    Mr. Barton. Can you get that for us?
    Mr. Wood. We can look for it for the number, sir.
    Mr. Barton. Can you do more than look for it? Can you find 
it?
    Mr. Wood. We will get you a number, sir. My best 
understanding is that there are--that there are substantial 
claims by Americans and by others against those frozen assets 
just for your----
    [The following was received for the record:]

    Question. Into which bank are the revenues from sales of 
Iraqi oil under the Oil-for-Food program are deposited?
    Answer. Revenues from sales of Iraqi oil under the Oil-for-
Food program are deposited into an account at the New York 
branch of the Banque Nationale de Paris. Iraq does not have 
access to the bank account, nor can Iraq change banks.
    Question. What is the value of Iraqi frozen assets in the 
United States? Please provide background on this matter as it 
relates to the Oil-for-Food program.
    Answer. Blocked Iraqi assets in the United States total 
between $1.2 and 1.3 billion. The asserted value of prewar 
claims against Iraq by U.S. citizens, corporations, and the 
U.S. government totals approximately $5 billion.
    In 1992, the U.N. Security Council adopted resolution 778 
which required states to transfer to the U.N. limited blocked 
assets representing the proceeds from the sale of Iraqi oil 
paid after sanctions were imposed on Iraq on August 6, 1990 to 
fund UNSCOM and the UN Compensation Commission. The USG 
transferred to the U.N. a total of $211 million. Few other 
countries made such transfers.
    The U.S. opposes making further transfers of blocked Iraqi 
assets to the U.N. because of the potential damage to the 
interests of U.S. claimants against Iraq.

    Mr. Barton. I understand. But here is my point. Instead of 
letting the Iraqis export oil, if we have assets that are in 
western banks, why couldn't we use those assets to buy the food 
and to send it to the Iraqis and put a liability against future 
oil production when we have a new government in Iraq so that 
you still have a contingent claim by the current claimants, but 
you don't decimate our domestic oil and gas industry in the 
short-term?
    Use the money in the bank, buy them the food and the 
medical equipment, send it over there, put a voucher in there, 
put a marker in place. Then when we get a new government, then 
future oil revenues can go back into those funds, into those 
accounts that we borrowed against or drawn against. I mean does 
that seem to be a possible rational policy?
    Mr. Wood. I believe that such an idea has been considered. 
I think that the lawyers tell us----
    Mr. Barton. Well, God help me if I have suggested something 
that the lawyers might have a problem with.
    Mr. Wood. I think that the lawyers have some concerns about 
substituting current claims against current assets for current 
claims against future assets. But I will certainly ask the 
questions, sir.
    Mr. Barton. Lawyers have concerns about the sun rising in 
the east every morning. It may not come up tomorrow, so.
    The gentleman from Texas is recognized for 5 minutes.
    Mr. Hall. I am entitled to the same amount of time to talk 
about the engineers. Joe is an engineer, the engineer of the 
year in Texas the year before last, I think.
    You know, as I have been listening--and I thank you for 
your testimony--and questions that have been asked, and I don't 
want to ask any of you to comment on what I am about to say, 
but it seems like we are aiding the enemy. I don't think there 
is any question that we are aiding the enemy. It seems, while I 
don't subscribe to anybody lying to a grand jury or anybody 
else, the Senate committee, it seemed like this dwarfs Oliver 
North's being charged with aiding the Contras when they were 
our friends. And here we are aiding a country that is 
absolutely our enemy, and we are feeding its children and we 
are doctoring them.
    And while that maybe makes a lot of us feel good, we are 
putting off the time that those same people are going to rise 
up and put him out. That is the goal. That is why we are 
bombing Yugoslavia today, to encourage the people to rise up 
and fight their own war. Just to get the scenario in Baghdad, 
it is a sunny afternoon; and Saddam looks up and sees a truck 
driving up and tells all of his buddies there, Let's tie our 
camels over in front of the Long Branch. We have this truck 
coming in. I hate this stuff but we are going to unload it. You 
have told us, Mr. Wood, that he doesn't like the program. That 
is the kind of scenario that could take place. And then get 
back to this country and the oil hits here. All of us--all the 
testimony I have heard is that this program is hurting our 
domestic Nation's oil industry. But it hits over here, and they 
say, Well, we don't like it. We don't like this program. I know 
this committee doesn't like the program. But let us unload it 
and put it in the pipeline.
    Two of you got bad deals there. I always thought somebody 
had the best of a contract. You know, marriage isn't anything 
but a contract; and I didn't marry until I thought I had the 
best of the contract. Here it looks like they both got the 
worst of the contract.
    Why are we putting up with this? Why are we continuing with 
this? In February 1998 the U.N. secretary general criticized 
this oil-for-food program basically for delays and 
inefficiency. And it seems if this is hurting our Nation's oil 
industry, at the same time being criticized by the General 
Secretary of the U.N.; and Saddam says he doesn't want it, what 
would it take to kill a program like this? Not to fund it? Let 
me ask a more pointed question: How much money is in our budget 
to support this program?
    Mr. Wood. Mr. Hall, this program does not directly cost the 
United States a nickel because it is using Iraq's money 
exclusively.
    Mr. Hall. The money that is in their banks over here?
    Mr. Barton. Are we are paying the unemployment claims for 
all the displaced workers out of this program?
    Mr. Hall. I will take all the help I can get. Thank you, 
Joe.
    Mr. Wood. I understand the point, but the fact is this uses 
the proceeds from Iraqi oil sales to fund humanitarian supplies 
for Iraq to ensure that those revenues are not used for weapons 
of mass destruction or other nefarious means; to fund, in fact, 
inspections against weapons of mass destruction, which I admit 
are temporarily suspended and we are working hard to get them 
back into place. And roughly a third of it goes to the U.N. 
compensation commission to pay the just claims of poor 
Kuwaitis, poor Saudis, poor Americans, for losses that they 
suffered during the Gulf War.
    Saddam Hussein doesn't like this because he is only getting 
a share of the total value of his oil revenues, because he is 
not controlling the share that he gets; and the share that he 
is not controlling is going to fund inspections of his weapons-
of-mass-destruction program; and it is going to feed his 
population so that he cannot blame their unhappiness on the 
outside world.
    This in our view is--this program is absolutely fundamental 
to maintaining the solidarity of the international community 
behind a continued tough line on Iraq. And as you know, we have 
been facing some problems in that regard. We think that oil for 
food is absolutely fundamental to maintaining that tough line.
    When he was interviewed by David Frost, George Bush said 
that his most important accomplishment was not winning the Gulf 
War; it was forming the coalition that won the Gulf War. We are 
trying to maintain that kind of coalition. We are trying to 
maintain that kind of international consensus, in spite of the 
fact that a potentially very rich, potentially very powerful 
country is doing everything it can to get out of the box. And 
we are trying to keep them in the box.
    Mr. Hall. Well, I must admit we don't have all the 
information that you have at your disposal, and that is the 
purpose of these hearings. And I want to reread the record 
myself.
    At best, it seems to me that we are helping to keep Saddam 
in charge over there by feeding his children and doctoring his 
people. And if you have another part of your body that hasn't 
been beat on, if you will turn toward me, I will ask you some 
more questions. But without that, I have had all the time I 
need, Mr. Chairman.
    Mr. Barton. I just have a few wrap-up questions for this 
panel.
    And I don't know if this would be Mr. Wood or Mr. Hakes, 
but we understand that there are currently $380 million in 
spare-parts contracts that have been signed with the Iraqi 
government for additional infrastructure improvement, but only 
$11 million worth of that equipment has arrived in the country. 
If and when that equipment arrives, how much additional export 
or production capacity does that give the Iraqi oil industry?
    Mr. Wood. I could begin to answer that question. I am not 
sure what the incremental effect on Iraqi exports will be. But 
the delay--I mean, we are now in the second 6 months in which 
up to $300 million in each phase has been made available for 
the Iraqi infrastructure improvements. The delay is the result 
of close scrutiny by the sanctions committee of the proposed 
contracts, making sure that they go to the right things and 
they don't go to the wrong things.
    For instance, we continue to keep on hold contracts that 
the Iraqis want to use to improve the Basrah refinery, which is 
the one that we bombed which was heavily implicated in illegal 
smuggling. And I am not sure what, frankly, this rash of 
improvements in the Iraqi infrastructure, what the marginal 
impact----
    Mr. Barton. Do you know, Mr. Hakes?
    Mr. Hakes. Well, I think our analysts in arriving at their 
projection have assumed a sort of moderate speed in the arrival 
of these parts. And, I believe, in my written testimony we say 
that there is some uncertainty that the parts will arrive very 
quickly and fully. We might raise our estimates a little bit if 
they increase more--are delivered more slowly we might lower a 
little bit. But we have sort of assumed that they would arrive 
at a moderate pace.
    Mr. Barton. Okay. Well, you are going to get a letter next 
week--the Secretary of State is going to get a letter. We are 
going to ask that no contracts be signed. You are also going to 
be asked to give all information that is not classified as to 
the contents of those contracts. And I am going to sign that 
letter as subcommittee chairman, and I am going to ask Mr. Hall 
and every other member of the subcommittee to sign it. Whether 
I can get them all to sign it, I don't know. I see absolutely 
no sense in continuing to give the Iraqis the ability to 
increase their production, even if it is marginal, while our 
industry is being decimated in the United States.
    The other thing we are going to ask you, Mr. Wood, is we 
want a complete itemization of all revenues that have been 
collected under this program. We want a complete record of all 
disbursements that have been made under this program. We want 
an estimate of the expected revenues for the fiscal year that 
we are currently in and the fiscal year that will begin in 
October and an expected disbursement from those same funds. And 
we are going to want that in the next 2 weeks. And we have got 
to get you the official request in writing for what I just 
itemized. I understand you can't act on anything until we make 
it official. But we are going to take a very, very serious look 
at this program. And I am going to do everything I can--and I 
mean everything--to either stop it or at least change it so 
that we provide for the legitimate humanitarian needs of the 
Iraqi people, but we do it in a way that is different than is 
currently being done. And there are some things that can be 
done differently through our food-for-peace program, using the 
existing Iraqi assets that are in western banks. There are all 
kinds of ways to help the humanitarian needs of the Iraqi 
people that don't involve, basically, letting Iraq produce as 
much oil as it can and export as much as it can. I mean, that, 
to me is a flawed policy; and it is a failed policy, and it is 
not in the national security interest of the United States of 
America.
    Does this panel wish any final comments before we go to the 
third panel? Anybody? Well, gentlemen, we want to thank you for 
your attendance. There will be additional questions for the 
record in addition to the ones that I have itemized; but we do 
appreciate it, and this is an important hearing of this 
subcommittee; and your input has been very valuable, so you are 
excused.
    Mr. Hall. And you might tell them that their long tenure at 
the table will shorten the tenure of the next panel. You have 
done some good for somebody.
    Mr. Barton. We would like to call forward our third and 
final panel, but not the least important. Mr. Adam Sieminski, a 
principal and senior oil analyst from Baltimore, Maryland; we 
have Mr. Tom Taylor, who is the regional Vice President for the 
Texas Independent Producers and Royalty Owners Association; we 
have Mr. F.W. Pete Brown, co-owner of the Cimarron Production 
Company in Oklahoma; and Mr. David Bole, who is in corporate 
research and development, Randall and Dewey, Incorporated, in 
Houston, Texas; and I believe we have Mr. Scott Anderson, who 
is the executive director of TIPRO who wishes to appear at the 
table with the TIPRO witness.
    Mr. Anderson. I will just sit right behind him.
    Mr. Barton. Gentlemen, your statements are in the record. 
We want to thank you for getting your testimony in on time. It 
is good to know the private sector pays more attention than 
some of our public officials. We are going to start with Mr. 
Sieminski. How close am I?
    Mr. Sieminski. That was very good, Mr. Barton. Thank you 
very much.
    Mr. Barton. We will give each of you 5 minutes and then we 
will have questions. Starting with you, sir.

   STATEMENTS OF ADAM E. SIEMINSKI, PRINCIPAL AND SENIOR OIL 
 ANALYST, BT ALEX BROWN; TOM TAYLOR, REGIONAL VICE PRESIDENT, 
  TEXAS INDEPENDENT PRODUCERS AND ROYALTY OWNERS ASSOCIATION; 
  F.W. ``PETE'' BROWN, CO-OWNER, CIMARRON PRODUCTION COMPANY; 
DAVID L. BOLE, CORPORATE RESEARCH AND DEVELOPMENT, RANDALL AND 
                          DEWEY, INC.

    Mr. Sieminski. Thank you, Mr. Barton. I appreciate the 
opportunity to come in and provide a statement on some of the 
factual aspects associated with the Iraqi exports.
    Let me first try to answer a question that you just asked, 
sir. What does $300 million worth of spare parts and equipment 
do for production? Let me just take a quick crack at that.
    U.N. personnel experts who were sent to Iraq said that 
production would fall somewhere between 4 to 8 percent a year 
if they did not get $300 million in spare parts. So if we just 
said 5 percent or 6 percent, that would be somewhere between 
125,000 barrels a day, up to 150,000 barrels a day that, 
presumably, would be able to stay on line with those funds 
coming in.
    And so that would--if we are now up to $600 million, I 
think we could be talking about this possibility of 250,000 
barrels a day of oil that would be available to the Iraqis to 
export.
    Let me, in light of, I think, that 7-minute rule, let me 
make seven quick points. Again, putting the Iraqi oil exports 
into perspective, they were the greatest source of OPEC's 
difficulty in meeting their own compliance rule. Second point, 
exports have gone up quite a bit. We went from about 1.5 
million barrels a day in 1998, and that number should hit 2.1 
to 2.2 in 1999. That is a little bit less than the growth that 
occurred between 1997 and 1998.
    The third point I had in my written statement said that 
Iraq's exports were the second largest influence in 1998 in 
driving oil prices lower. Listening to Mr. Hakes, I might want 
to revise that. He said that, I believe, that the incremental 
loss of demand in Asia was about a million barrels a day. And 
Iraq's exports went up just a little under 900,000. Mr. Hakes 
said that in his chart, he had the incremental amount in Asia 
was about 850,000. If we took his number, then Iraq was No. 1 
in terms of its impact on the market in 1998.
    Fourth point. Production capacity in Iraq looks like it is 
stuck. Looks like it is stuck at 2.7 million barrels a day. 
That means that imports would presumably be capped at somewhere 
near 2.1. But the Iraqis have managed to somehow keep 
production growing faster than the U.N. technical experts 
thought they could. And it was only about a year ago that the 
U.N. said that exports would be limited to about 1.6 or 1.7 
million barrels a day, and they have gotten well over that 
level. So I don't know how that is being accomplished, and that 
might be a question that you might want to ask somebody.
    Fifth point----
    Mr. Barton. Our staff actually had that in the prepared 
questions. So it will be asked for the record.
    Mr. Sieminski. The fifth point is that while taking the 
ceiling off of the $5.265 billion ceiling actually could become 
more than just a technical kind of thing very soon. Oil prices 
have already gone up quite a bit since the beginning of the 
year. Iraq sold oil last week for $12 a barrel. All they need 
is another $2 on top of that $12 number that they got last 
year, and they will hit their cap. And they will not do this 
during this fifth phase, but if you projected that $2 increment 
into the next phase which starts May 25, they would actually 
collect, if they exported 2.1 million barrels a day, $5.3 
billion. And if they can export more than 2.1, that cap could 
actually come into effect at a price $2 above current WTI.
    Sixth point is kind of, I think, an interesting one and 
this is--you are going to have to ask somebody else because I 
don't know the answer to this question, but I would love to 
know the answer to it. The last two times that Iraq has gone to 
war--in late 1979 just before their invasion of Iran and then 
in 1990, in the first half of 1990, just before the invasion of 
Kuwait--there was a sharp rise in production in Iraq. And we 
have seen just recently another sharp rise in production.
    And I heard the comment made earlier that oil or funds are 
fungible. Even if the sources--with more revenue coming into 
Iraq from these exports, that would give Saddam the ability to 
use his own internal funds for possible mischief, and I am kind 
of wondering what this big increase that we have seen in 
production exports just in the past month or so really means.
    Final point is one that I really wish that Deputy Secretary 
Wood would have made and that is that if Iraq is allowed to 
rebuild its facilities--and this would be a lot easier done if 
the overall sanctions were moved or if the oil-for-food program 
was changed in some way, as there have been recommendations on 
the Security Council to allow companies to go in and invest to 
help Iraq rebuild its--and repair its equipment and facilities, 
I would think that Iraq would be quite capable of getting up to 
3.5 million barrels a day of production pretty quickly, and all 
of that increment would be available for export.
    So I would conclude, Mr. Chairman, with sort of a kind of a 
recommendation, which is that one of the key focuses of this 
committee and the questions that I think you should pursue with 
the State Department is how do we keep direct foreign 
investment by other countries into the Iraqi oil industry 
limited during the period that sanctions are on and Iraq is 
still misbehaving. And I thank you for your time.
    [The prepared statement of Adam E. Sieminski follows:]
   Prepared Statement of Adam E. Sieminski, Principal and Senior Oil 
                  Analyst, BT Alex. Brown Incorporated
                iraq's oil exports and world oil markets
Iraqi exports were a major reason for the drop in oil prices in 1998
    The rise in Iraqi production from an average of 1.15 mmb/d in 1997 
and 2.11 mmb/d in 1998, to about 2.5 mmb/d currently has been the 
greatest source of OPEC's difficulty in meeting quota compliance under 
agreements reached in March and June of 1998. Iraq's oil exports, which 
rose along with production, were a major contributor to the oil price 
weakness of 1998 and early 1999. Two key factors played a role in this 
situation. First, the UN's Oil for Food Program sets a monetary (not 
oil volume) target for humanitarian relief. If oil prices decline for 
any reason, the amount of oil Iraq is allowed to sell under the program 
can rise. Low oil prices allowed Iraq to sell more barrels under the 
`old' $2 billion per six months plan. Second, in early 1998 the UN 
raised the oil-for-food revenue ceiling to $5.265 billion every 180 
days.
Iraqi oil exports increased from 0.59 mmb/d in 1997 to 1.47 mmb/d in 
        1998
    During the recent period of low oil prices, the level of exports 
from Iraq was limited only by Iraq's wellhead production and pipeline/
terminal capacities. A UN rule requiring at least 50% of exports to 
transit via the 1.0 mmb/d capacity Ceyhan (Turkey) route is being 
ignored, since all export amounts over that level are now exiting 
mainly via the Gulf port of Mina al-Bakr. Exports are currently 
averaging about 2.1 mmb/d and have exceeded 2.5 mmb/d for short periods 
of time since January 1999.
How the rise in Iraqi exports influenced the oil markets in 1998
    There is little doubt that the rise in exports from Iraq, a 0.87 
mmb/d increment between 1998 and 1999, had a significant impact on the 
oil markets. Of course there were other factors, but in our opinion, 
Iraq's exports were the second largest influence pushing oil prices 
lower in 1998.

 The crisis in Asia reduced oil demand by 1.0 mmb/d against 
        expectations
 Warm weather dropped demand by 0.5 mmb/d compared to `normal'
 Russian exports rose contra-seasonally by 0.2 mmb/d in 4Q 1998
 China curtailed oil imports (by about 0.3 mmb/d) in 2H 1998
 OPEC's efforts to trim production in 1998 were neither timely 
        nor sufficient
 OECD inventories rose some 200-300 mb above industry norms
Production history
    Iraq's oil production climbed from about 1.5 mmb/d in 1972 to an 
annual peak of 3.5 mmb/d in 1979. In the last quarter of 1979, Iraq 
managed to produce 3.7 mmb/d. The Iran-Iraq war, which started in 
September 1980, lead to a significant decline in export capacity and 
wellhead production. From a low of 1.0 mmb/d production in 1981-83, 
Iraq's output climbed back to 3.5 mmb/d just before the invasion of 
Kuwait in August 1990. In 1991-92 Iraq produced about 0.4 mmb/d (which 
is probably a good estimate of actual internal consumption). More 
recently, Iraq's internal use has appeared to be about 0.65 mmb/d, but 
this includes UN-approved exports of 0.1 mmb/d of products to Jordan, 
and probably reflects some level of smuggling.
The main physical constraint on exports is now wellhead capacity
    Production capacity in Iraq appears to be limited to about 2.7 mmb/
d. The UN has been slow to approve imports of the equipment, expertise 
and capital required to boost Iraq much beyond this level. 
Nevertheless, Iraqi engineers have surprised the UN inspectors with 
their ability to keep output climbing. In March 1998 UN technical 
experts estimated that Iraq's wellhead production capability was 
unlikely to exceed 2.2 mmb/d (mid-1998) or 2.4 mmb/d (start 1999). In 
fact, Iraq has managed to exceed these estimates by about 0.2 mmb/d.
Status of oil spare parts and equipment authorizations and repairs
    In view of Iraq's inability to take full advantage of the $5.3 
billion oil-for-food allowance, in June 1998 the UN authorized Iraq to 
purchase up to $300 million in spare parts and equipment to repair its 
oil facilities. Later in 1998, an additional $300 million in purchase 
authority was granted. To date, UN's Office for the Iraq Programme has 
approved 395 contracts worth $237 million. Another $28 million in 
contracts is on hold. UN Security Council members (including the US) 
have argued that some of the requested equipment is either 
inappropriate or has military use potential. Several members of the 
Security Council are arguing for more active involvement of outside 
companies in the needed repairs and expansion of Iraq's oil 
infrastructure.
Near term production difficulties
    The Iraqi oil Ministry, UN technical experts and outside 
consultants all seem to agree that Iraq is experiencing production 
difficulties. According to a UN report, production in the north has 
been lost because of water encroachment problems. In the south, 
production water problems are coupled with pressure maintenance 
difficulties resulting from lack of water injection facilities. Some 
experts believe that without a significant increase in investment, 
Iraq's basic production capacity could fall by 4-8% per year. Many 
believe that the recent rise in production is related to very 
aggressive petroleum engineering practices--pushing output beyond 
normal levels in order to maximize near-term production and exports. 
There have been some reports that domestic use has been officially 
constrained as part of this policy.
With higher oil prices, a new volumetric constraint could come into 
        force
    During January and February, Iraq's oil sold for about $9 per 
barrel, a $2 discount to Brent, and a $3+ discount to WTI. With Brent 
prices now at $14 and WTI at $15, Iraq's exports are likely selling at 
close to $12 per barrel. This raises an interesting policy question if 
oil prices continue to rise. At a $14/bbl Iraqi sales price, Iraq would 
hit the UN's $5.3b ceiling at an export level of 2.1 mmb/d.
    This potential limit to oil exports is more of an issue for the 
UN's Phase 6 program, which starts May 25, and not for the current 
Phase 5, because low prices in December-February make it highly 
unlikely that the $5.3b cumulative revenue ceiling would be achieved 
during the current Phase. The Clinton administration has proposed 
removing the ceiling on oil exports, but still opposes allowing direct 
foreign investment in the Iraqi oil industry--which may be necessary to 
significantly boost Iraq's production. Studies are underway now at the 
UN (with reports due in mid-April) which are intended to review the 
status of the oil-for-food program.
Could there be an Iraqi-instigated interruption?
    Although the US and Iraq are still at odds over weapons 
inspections, and Iraq has experienced some erosion of its support in 
the UN Security Council, there have been several new proposals advanced 
to alter the sanctions policy. Despite the US proposal to remove the 
ceiling, the Iraqi regime does not appear to favor expansion or 
indefinite continuation of the oil-for-food program. This suggests that 
some interruption in the program could occur when the current Phase 5 
expires May 24. Such an interruption does have precedent--in July 1997 
and December 1997 the Iraqi regime temporarily halted exports. However, 
in those two situations, Iraq's exports were constrained by the earlier 
monetary limit (and thus Iraq was able to `make up' its lost production 
by physically increasing the level of exports. At this time that option 
does not appear to be available to Iraq.
What about longer-term production and export capability?
    With investment in both production and pipeline/terminal 
facilities, Iraq could probably continue to increase its output and 
exports. Repairs to the Kirkuk-Ceyhan pipeline could boost its capacity 
from the current 1.0-1.1 mmb/d level to its 1.5 mmb/d pre-Gulf war 
level. Iraq has had discussions with Syria about re-opening the 0.65 
mmb/d capacity Banias line that was closed in 1982 during the Iran-Iraq 
war. The IPSA pipeline through Saudi Arabia to the Red Sea could be 
opened if currently unfriendly relations between the two governments 
were to improve.
Upstream production could rise significantly with access to outside 
        capital and expertise
    Iraqi official have claimed that 3.0-3.5 mmb/d of production 
capacity could be reached fairly quickly once sanctions are removed. 
Iraq's NIOC believes that this can be accomplished by a development 
effort that includes: re-working and upgrading existing upstream 
facilities; attracting foreign investment for new fields; and 
establishing an E&P effort in Iraq's Western desert region. In 1997, 
former Iraqi oil minister al-Chalabi estimated that Iraq would require 
a least $5 billion of foreign capital during the first two or three 
years after sanctions to lift production capacity to 3.5 mmb/d. There 
does not seem to be any shortage of potential investors as seen in the 
material prepared by the Energy Intelligence Group (attached as an 
exhibit), although the incremental 2.8 mmb/d of production is estimated 
by EIG to cost about $18 billion.
What is the most likely near-term impact on the oil markets?
    Downside risk to oil prices: The UN allows more upstream 
investment, perhaps due to a change of regime in Iraq, or a further 
softening in the US stance. Upside potential: Iraq carries out its 
recurring threat to cease cooperation with oil-for-food when it expires 
in May, or some form of conflict (with the US or internal) physically 
interferes with exports. Most likely outcome: an extension of the 
status quo with no monetary ceiling. This implies no interruption in 
exports, a likely gradual rise in the overall level of production and 
exports, but no large-scale near-term expansion of production.

[GRAPHIC] [TIFF OMITTED] T5644.008

[GRAPHIC] [TIFF OMITTED] T5644.009

[GRAPHIC] [TIFF OMITTED] T5644.010

[GRAPHIC] [TIFF OMITTED] T5644.011

    Mr. Barton. Mr. Taylor, we will put your statement in the 
record and delighted to hear from you. My understanding is that 
you actually are an independent producer. Is that correct?
    Mr. Taylor. I am trying to be.
    Mr. Barton. Trying to be. That is the right answer. Welcome 
to the committee.

                    STATEMENT OF TOM TAYLOR

    Mr. Taylor. I want to thank you for allowing me to be here 
to testify, Mr. Chairman.
    Yes, I am trying to be an oil producer in West Texas. I 
also am the regional vice president for the Texas Independent 
Producers and Royalty Owners Association, TIPRO, which I am 
representing here today, consists of approximately 1,600 
members with petroleum interests in the State of Texas making 
us the largest statewide group in our industry.
    We are not here to advocate making life even more 
unbearable for the Iraqi people. It would be unreasonable, as 
well as unrealistic, for Americans whose jobs depend on the 
American oil industry to expect our economic problems to be 
solved through a ``beggar thy neighbor'' policy. We are having 
a humanitarian crisis out in West Texas right now. We are 
plugging wells. These wells are not shut in; they are plugging 
wells. Because we don't have--we have 2 years in order to not 
plug wells. But in all due respect there might have been an 
attorney or two here in the room. Landowners who don't get 
royalty checks to provide for their food are concerned. They 
call their attorneys. They ask them why. The attorneys say 
those wells are not producing. We have 90 days in most 
situations to produce those wells. In the event we don't 
produce those wells, our leases are expired. Then we have 2 
years to plug those wells.
    By virtue of that, those wells become worthless; and the 
school systems, as Commissioner Williams pointed out, are 
losing a tremendous amount of money. Up to 40 percent of our 
revenues to run our school systems in West Texas are being lost 
because of this.
    Our knowledge is limited about the Iraqi situation, but we 
know that anyone who thinks the world oil market is a free 
market is kidding themselves. War, threat of war, political 
instability, sanctions, government fiats--these are not exactly 
what one thinks of when one thinks of a willing buyer and 
willing seller with each other in a properly functioning 
marketplace. We know that Mr. Wood and the U.S. policymakers 
like to tell themselves that our Iraq policy is neutral in 
terms of effect on oil prices, but they are kidding themselves 
once again. The sanctions policy, in particular the oil-for-
food program, represents significant government intervention 
into the world oil market and, as presently structured, has a 
depressing effect on prices.
    Finally, we know that low oil prices are bad for any 
program that depends on revenues for oil, whether the program 
is a small drilling venture in West Texas, a major development 
such as that down in the Caspian Sea, or the oil-for-food 
program in Iraq. If policymakers want to increase the amount of 
oil revenues available to each of the suffering people in Iraq, 
the policy focus should be shifted from increasing production 
to increasing price in order to reach whatever revenue target 
they may be seeking.
    I will elaborate briefly. As has been discussed here, 
certainly world events other than the Iraq situation have an 
impact on this. As we discussed, the Asian energy demand, 
increasing oil production from OPEC, and recent warm winters 
have all contributed to the current crisis. But increased Iraq 
production must also be recognized as a material influence on 
the price. As you have stated, in our records 1.3 million 
barrels of exports is a direct reflection of this. You have 
Saudi Arabia that is decreasing by 2 million barrels; and, 
therefore, they are basically subsidizing the production from 
Iraq. And as we discussed, there has been a 20 percent rise 
just off of this speculation.
    Now, before a reporter would take that and inflate that, 
oil prices are back up. They have increased 20 percent from an 
all-time low, which still causes an uneconomic situation as a 
producer. The surplus capacity dictates that producers reduce 
supply, yet our government is encouraging the United Nations to 
allow Iraq, a distressed seller if there ever was one, to 
increase supply.
    Basically, we are going to be the next 2 million barrels is 
what we are afraid of as independent producers. We have lost 
almost 250,000 barrels in Texas alone. I think we have lost, as 
we stated earlier, 600,000 barrels in the United States as 
independent producers, and we don't have the luxury of turning 
those wells back on like they do over there.
    The effect of low oil prices in the U.S. has been 
staggering, as we discussed. The charts prepared by the 
Independent Petroleum Association is included as an appendices 
to my testimony, and this will illustrate all too well. It 
shows the workover rigs, not the drilling rigs, but the 
workover rigs, which is a key indicator of the industry's 
efforts to maintain production, has declined almost 50 percent. 
So we are not even able to be able to work over these wells, 
because their economics, it doesn't justify the expenditure.
    Appendix 2 shows that oil and gas extraction employment has 
fallen by over 50,000 jobs. In Texas I might also add 
unemployment claims in my industry quadrupled in 1998 and in 
1999 it is even worse. Low oil prices are troublesome for the 
Oil-For-Food Program, and Appendix 3 outlines the difference in 
price and pro-

duction scenarios facing this program. At current prices, Iraq 
will raise over $3 billion during phase 5. So far, it is far 
short of the $5 billion target. The table also shows that at 
current price average, Iraq will need to export 3 million 
barrels at the current price to raise $5 billion. The 
Department of Energy Secretary Bill Richardson testified last 
week that Iraq appears unable to increase production to this 
level. So it appears Iraq will not raise $5 billion--the $5.2 
billion target price for the foreseeable future. Put simply, 
the Oil-For-Food Program simply does not work in a world of $10 
oil.
    I will conclude with two suggestions for policymakers, and 
it should be noted that it is important that these suggestions 
be pursued in concert. First, we suggest that the U.S. press 
the United Nations to restructure the Oil-For-Food Program so 
that it no longer gives Iraq an incentive to depress world oil 
prices. We submit that production increases measured in 
hundreds of thousands of barrels per day would cause prices to 
fall further, and the Oil-For-Food Program would still come up 
short. Put simply, humanitarian needs in Iraq will not be met 
in a world of $10 oil.
    We believe that the way to restructure the Oil-For-Food 
Program so that it no longer serves to depress oil prices is 
for the United Nations to establish an oil quota for Iraq. The 
quota would be equal to the number of barrels per day that can 
be reasonably expected to yield the revenues that are believed 
necessary. The production quota could be adjusted every 80 days 
as revenue targets and oil price forecasts change. A potential 
quota table is attached as Appendix 4. As you can see, a slight 
increase in the dollar amount makes a significant difference.
    This proposal may have some flaws and I present it only as 
a potential option. However, by maintaining Iraq's production 
at a level that bears some relation to market demand, we can 
eliminate the downward pressure Iraq's increased production has 
on price.
    In summary, if the United Nations wants to increase the 
amount of oil revenue available to ease the suffering of the 
Iraq population, the policy focus should be shifted from 
increasing production to increasing price. What we are saying 
is give price a chance.
    Our second suggestion is to couple the restructuring of the 
Oil-For-Food Program with meaningful efforts to stabilize the 
price of oil at levels that reflect its hidden environmental 
and military cost. The United States can help achieve this 
through variable import fees such as fees on tankers that move 
oil in environmentally sensitive coastal waters, fees 
designated to recoup some of our Nation's enormous military 
cost devoted to protecting Middle East oil supplies and/or fees 
that offset the advantage that imported oil currently enjoys 
over domestic production due to minimal environmental 
regulations of foreign production practices.
    I close in saying that I would be honored to assist Mr. 
Woods in explaining to the State Department the effect this has 
on the small independent producer. I would like to take this 
opportunity to thank you again, and we would be more than happy 
to answer any questions.
    [The prepared statement of Tom Taylor follows:]
   Prepared Statement of Tom Taylor, Regional Vice President, Texas 
          Independent Producer and Royalty Owners Association
    Mr. Chairman and Members, my name is Tom Taylor from Abilene, 
Texas. I am an oil producer and serve as a Regional Vice President for 
the Texas Independent Producers and Royalty Owners Association (TIPRO). 
TIPRO, which I am representing here today, consists of 1600 members 
with petroleum interests in the State of Texas, making us the largest 
statewide group in our industry.
    We come to you today with a sense of humility. My association has 
no magic solution to the difficulties in Iraq, and I am not a foreign 
policy expert. It is tempting to say that the experts don't have the 
answers either, but we are not here to make a wholesale indictment of 
Iraq policy.
    Neither are we here to advocate making life even more unbearable 
for the Iraqi people. It would be unreasonable, as well as unrealistic, 
for Americans whose jobs depend on the domestic oil and gas industry to 
expect our economic problems to be solved through a ``beggar thy 
neighbor'' policy. In other words, and we want to be quite clear about 
this, Texas oil producers are not here to ask for elimination of the 
oil-for-food program or even to suggest that Iraqi oil production 
levels should return to those that prevailed a year or two ago.
    While our knowledge about Iraq is limited, we do know a few things:

 We know that anyone who thinks the world oil market is a free 
        market is kidding themselves. War and threat of war, political 
        instability and intrigue, sanctions and governmental fiats--
        these are not exactly what one thinks of when one thinks of 
        willing buyers and willing sellers dealing with each other in a 
        properly functioning marketplace.
 We know that U.S. policymakers like to tell themselves that 
        our Iraq policy is neutral in terms of effects on oil prices, 
        but they are kidding themselves once again. The sanctions 
        policy, in particular the oil-for-food program, represents 
        significant government intervention in the world oil market 
        and, as presently structured, has a depressing effect on 
        prices.
 Finally, we know that low oil prices are bad for any program 
        that depends on oil revenues, whether the program is a small 
        drilling venture in West Texas, a major development such as 
        that found in the Caspian Sea, or the oil-for-food program in 
        Iraq. If policymakers want to increase the amount of oil 
        revenue available to ease the suffering of the Iraqi people, 
        the policy focus should be shifted from increasing production 
        to increasing price in order to reach whatever the revenue 
        target may be.
    I want to elaborate on the two latter points, that is, how the 
present design of the oil-for-food program depresses prices and how 
higher oil prices would further both the Iraq program and domestic 
energy production.
(1) The oil-for-food program, as presently structured, depresses world 
        oil prices.
    Certainly, world events other than what is taking place in Iraq 
have had an impact on oil prices. Reduced Asian energy demand, 
increased OPEC production and recent warm winters have all contributed 
to the current price crisis. But, increased Iraqi production must also 
be recognized as a material influence on prices. Iraq has added at 
least 1.3 million barrels per day to the market since 1997--1.3 million 
barrels of new supply compared to a global surplus of approximately one 
to two million barrels per day.
    What kind of impact has this had? A big impact. To put the impact 
of 1.3 million barrels in perspective, note that oil prices in recent 
weeks have risen over 20 percent merely upon OPEC's declaration that it 
will reduce production by a total of about 2 million barrels. Surplus 
capacity dictates that producers reduce supply. Yet our government is 
encouraging the United Nations to allow Iraq, a distressed seller if 
ever there was one, to increase supply.
    The sanctions policy, if it is enforced as intended, gives Saddam 
only one way to raise meaningful revenue--taking whatever is available 
to him under the oil-for-food program. Since the program is structured 
only in terms of revenue limits, with no limits on the amount of Iraqi 
production, Saddam's incentive is to produce whatever it takes to 
generate permitted revenue. And if the limits on the revenues were 
simply removed, his incentive would be to produce even more, without 
regard to the glut in the marketplace that motivates producers who are 
under less duress to curtail production.
(2) Low oil prices are bad for both U.S. producers and the oil-for-food 
        program.
    The effect of low oil prices in the U.S. has been staggering. Two 
charts prepared by the Independent Petroleum Association of America 
(IPAA), included as appendices to my testimony, illustrate this all too 
well. Appendix One shows that the workover rig count, a key indicator 
of the industry's efforts to maintain production, has declined 
dramatically; from 1,459 in December 1997 to 766 in January 1999. 
Appendix Two shows that oil and gas extraction employment has also 
fallen from 339,000 employees in December 1997 to 288,000 in February 
1999. In Texas, I might add, unemployment claims from my industry 
quadrupled in 1998 and 1999 is even worse.
    Low oil prices are also troublesome for the oil-for-food program. 
Appendix Three outlines different price and production scenarios facing 
the program. According to the United Nations, since the beginning of 
Phase V (which runs from November 26, 1998 to May 24, 1999) Iraq has so 
far exported an average of 1.9 million barrels per day at $9.31 a 
barrel. At this price, Iraq will raise $3.18 billion during Phase V--
far short of the $5.26 billion target. The table also shows that at the 
current average price, Iraq will need to export 3.1 million barrels of 
oil per day to raise $5.2 billion. Department of Energy Secretary Bill 
Richardson testified last week that Iraq appears unable to increase 
production to this level, so it appears Iraq will not raise the $5.26 
billion target for the foreseeable future. The oil-for-food program 
simply does not work in a world of $10 oil.
                     recomnendations and conclusion
    I will conclude with two suggestions for policymakers, and it 
should be noted that it is important that these suggestions be pursued 
in concert.
(1) Restructure the Oil-for-Food Program so it does not depress world 
        oil prices.
    First, we suggest that the U.S. press the United Nations to 
restructure the oil-for-food program so that it no longer gives Iraq an 
incentive to depress world oil prices. TIPRO is concerned that to 
simply lift the ceiling on oil sales, as the Administration has 
recently proposed to the United Nations Security Council, would depress 
oil prices further. In a world of $10 oil, Iraq would need to produce 
almost 3 million barrels per day--which is almost half a million 
barrels per day more than it produces currently--to generate $5.26 
billion every 180 days, as the current ceiling allows. Given that a 
world oil surplus of perhaps 2 million barrels a day (half of which can 
be attributed to increased production by Iraq) yields oil prices that 
are only slightly above historic lows, what will happen if Iraq 
increases production by a half million barrels per day in the next 
year?
    We submit that production increases measured in hundreds of 
thousands of barrels per day would cause prices to fall further, and 
the oil-for-food program would still come up short. Put simply, 
humanitarian needs in Iraq will not be met in a world of $10 oil.
    We believe that the way to restructure the oil-for-food program so 
that it no longer serves to depress oil prices is for the United 
Nations to establish an oil quota for Iraq. The quota would be equal to 
the number of barrels per day that can be reasonably expected to yield 
the revenues that are believed necessary.
    The production quota could be adjusted every 180 days as revenue 
targets and oil price forecasts change. A potential quota table is 
attached as Appendix Four. For example, if the forecast is that Iraq 
will receive an average of $12 per barrel during the next United 
Nations reporting period, and $5.25 billion is the target revenue for 
the period, the quota would only need to be 2.43 million barrels per 
day. If the United Nations determines that more revenue is needed, $6 
billion for example, the quota for the period would be 2.78 million 
barrels per day. If the price of Iraqi crude should rise to $16 per 
barrel, a 2.43 million barrels per day quota would provide $7 billion 
of revenue in 180 days, should the United Nations want to provide that 
much revenue to the program.
    This proposal may have some flaws, and I present it only as a 
potential option. However, by maintaining Iraq's production at a level 
that bears some relation to market demand, we can eliminate the 
downward pressure Iraqi increased production has on price.
    In summary, if the United Nations wants to increase the amount of 
oil revenue available to ease the suffering of the Iraqi population, 
the policy focus should be shifted from increasing production, to 
increasing price, in order to reach the revenue target.
(2) Seek to stabilize oil prices at reasonable levels.
    Our second suggestion is to couple the restructuring of the oil-
for-food program with meaningful efforts to stabilize the price of oil 
at levels that reflect its hidden environmental and military costs. The 
United States can help achieve this through variable import fees, such 
as fees on tankers that move oil in environmentally sensitive coastal 
waters, fees designed to recoup some of our nation's enormous military 
costs devoted to protecting Middle Eastern oil supplies, and/or fees 
that offset the advantage that imported oil currently enjoys over 
domestic production due to minimal environmental regulation of foreign 
production practices.
    I appreciate the opportunity to be with you today and would be 
happy to try to answer any questions.

[GRAPHIC] [TIFF OMITTED] T5644.012

[GRAPHIC] [TIFF OMITTED] T5644.013

                             Appendix Three

                                                    Price and Production Scenarios Under Oil-for-Food
                                                       Total Revenues Derived from Iraqi Oil Sales
                                                          (Billions of Dollars Every 180 Days)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Dollars per barrel
                          MMB/D                          -----------------------------------------------------------------------------------------------
                                                           9.31     10      11      12      13      14      15      16      17      18      19      20
--------------------------------------------------------------------------------------------------------------------------------------------------------
5.0.....................................................    8.38    9.00    9.90   10.80   11.70   12.60   13.50   14.40   15.30   16.20   17.10   18.00
4.5.....................................................    7.54    8.10    8.91    9.72   10.53   11.34   12.15   12.96   13.77   14.58   15.39   16.20
4.0.....................................................    6.70    7.20    7.92    8.64    9.36   10.08   10.80   11.52   12.24   12.96   13.68   14.40
3.5.....................................................    5.87    6.30    6.93    7.56    8.19    8.82    9.45   10.08   10.71   11.34   11.97   12.60
3.1.....................................................  \1\ 5.    5.63    6.20    6.76    7.32    7.89    8.45    9.01    9.58   10.14   10.70   11.27
                                                              25
2.5.....................................................    4.19    4.50    4.95    5.40    5.85    6.30    6.75    7.20    7.65    8.10    8.55    9.00
2.0.....................................................    3.35    3.60    3.96    4.32    4.68    5.04    5.40    5.76    6.12    6.48    6.84    7.20
1.9.....................................................  \2\ 3.    3.42    3.76    4.10    4.45    4.79    5.13    5.47    5.81    6.16    6.50    6.84
                                                              18
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ According to the United Nations Office of the Iraq Programme Weekly Update for 13 to 19 March, since the beginning of Phase V, which runs from
  November 26, 1998 to May 24, 1999, Iraq has exported an average of 1.9 mb/d at $9.31 a barrel. At this rate Iraq will raise $3.18 billion during Phase
  V.
\2\ At the current average price, Iraq will need to export 3.13 million barrels of oil per day to raise 5.25 billion.

                             Appendix Four

                                                            Potential Iraq Production Quotas
                                                                (Million Barrels Per Day)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Dollars per barrel
          Total Revenue ($billion per 180 days)          -----------------------------------------------------------------------------------------------
                                                           9.31     10      11      12      13      14      15      16      17      18      19      20
--------------------------------------------------------------------------------------------------------------------------------------------------------
3.25....................................................    1.94    1.81    1.64    1.50    1.39    1.29    1.20    1.13    1.06    1.00    0.95    0.90
3.50....................................................    2.09    1.94    1.77    1.62    1.50    1.39    1.30    1.22    1.14    1.08    1.02    0.97
3.75....................................................    2.24    2.08    1.89    1.74    1.60    1.49    1.39    1.30    1.23    1.16    1.10    1.04
4.00....................................................    2.39    2.22    2.02    1.85    1.71    1.59    1.48    1.39    1.31    1.23    1.17    1.11
4.25....................................................    2.54    2.36    2.15    1.97    1.82    1.69    1.57    1.48    1.39    1.31    1.24    1.18
4.50....................................................    2.69    2.50    2.27    2.08    1.92    1.79    1.67    1.56    1.47    1.39    1.32    1.25
4.75....................................................    2.83    2.64    2.40    2.20    2.03    1.88    1.76    1.65    1.55    1.47    1.39    1.32
5.00....................................................    2.98    2.78    2.53    2.31    2.14    1.98    1.85    1.74    1.63    1.54    1.46    1.39
5.25....................................................    3.13    2.92    2.65    2.43    2.24    2.08    1.94    1.82    1.72    1.62    1.54    1.46
5.50....................................................    3.28    3.06    2.78    2.55    2.35    2.18    2.04    1.91    1.80    1.70    1.61    1.53
5.75....................................................    3.43    3.19    2.90    2.66    2.46    2.28    2.13    2.00    1.88    1.77    1.68    1.60
6.00....................................................    3.58    3.33    3.03    2.78    2.56    2.38    2.22    2.08    1.96    1.85    1.75    1.67
6.25....................................................    3.73    3.47    3.16    2.89    2.67    2.48    2.31    2.17    2.04    1.93    1.83    1.74
6.50....................................................    3.88    3.61    3.28    3.01    2.78    2.58    2.41    2.26    2.12    2.01    1.90    1.81
--------------------------------------------------------------------------------------------------------------------------------------------------------
This chart reflects the number of barrels that Iraq would need to produce per day to reach a 180 day revenue target at a given price. As the price of
  oil price or revenue target changes, the amount of oil Iraq would be allowed to produce in subsequent phases would change accordingly.


    Mr. Barton. We want to thank you, Mr. Taylor, for your 
testimony, and the appendices especially will be used as we 
pursue this. Our friends in the State Department I don't think 
have enough personnel to do some of the basic math that you 
have done.
    Mr. Taylor. Thank you, sir.
    Mr. Barton. We appreciate that.
    Mr. Brown, we appreciate you being here on behalf of 
Congressman Largent. He recommended that you be asked to 
testify and we appreciate you coming up. We will put your 
statement in the record, and give you such time as you may 
consume to elaborate on it. But try to do it within 5 to 7 
minutes.

                STATEMENT OF F.W. ``PETE'' BROWN

    Mr. Brown. Thank you, Mr. Chairman. Mr. Chairman and 
Representative Hall and members of the audience, I believe 
myself to be a very typical independent oil and gas producer, 
not only in Oklahoma, but throughout the entire Nation.
    In 1998, 32 percent of the wells in which I own an interest 
lost money due to low oil prices. In the month of December 
alone, that same year, 57 percent of my wells were losing money 
for the same reason. I accepted these losses in the hopes that 
oil prices would rebound.
    In the past 17 months, the price of oil has plummeted to 
levels far below the lifting cost of independent producers 
throughout the United States. To understand the reason for this 
drop, we first must understand why exporting countries until 
recently have not taken the initiative to curtail production.
    First of all, it needs to be noted the world's so-called 
oversupply of crude oil is based on the ability of a country to 
produce oil versus worldwide consumption. In order to maintain 
stability in the marketplace, those of us who import oil, like 
the United States, should also want supply to exceed demand. 
Excess production capacity is not actually produced. Aside from 
above ground storage, there is very little ability to store 
large quantities of oil once it is produced. Saudi Arabia, for 
example, is estimated to have the capability of producing up to 
10 million barrels of oil per day, and yet it actually produces 
just a little over 8 million barrels of oil per day. This can 
be misleading in that the ability to produce oil in the field 
does not necessarily mean that it can be transported to 
terminals and loaded into tankers at the same rate.
    Actually, no one really knows how much surplus production 
capacity exists in the world today. Some believe the world's 
ability to produce oil exceeds demand by about 3.5 million 
barrels a day, but that compares to estimates of 10 million 
barrels a day of surplus capacity in 1981, the year in which 
the price of oil reached $38 a barrel. Today we are actually 
closer than ever before to a point where demand will exceed the 
world's ability to produce. Part of the reason for this 
reduction in surplus production capacity is increased demand, 
but part of the reason is reduction of production.
    Why, then, is the price of crude at such low levels? The 
price of crude first started to drop when the Saudis began to 
lose market share as a result of Venezuelan production. 
Venezuela began increasing exports about the same time that 
crude oil prices began their downward spiral. As production 
increased in Venezuela, it began to capture market share from 
Saudi Arabia. The Saudis had two choices. They could curtail 
production even further, causing the price to rise, or they 
could keep production levels the same, allowing the price to 
drop below Venezuela's cost of production, which was 
significantly higher than the Saudis.
    This strategy discourages drilling in areas that have 
associated high cost of drilling such as the North Sea, 
Siberia, deep offshore drilling, the Caspian Sea, which is an 
area estimated to contain reserves equivalent to the Persian 
Gulf, and of course U.S. domestic onshore production. In 
addition, it has had the side benefit to the Saudis, that is, 
of shutting down much of the stripper production in the United 
States. It is not the intention of the Saudis to maintain the 
low prices; rather, they want to create market volatility, 
which has the affect of discouraging high drilling in high-cost 
regions.
    Saudi Arabia, like many Middle Eastern countries, has 
social costs associated with their crude production. Crude oil 
funds social programs set up for the Saudi citizens such as 
free medical care, no taxes, low-cost housing and many more 
programs that once established cannot be easily discontinued. 
In recent months, OPEC has dropped production levels that would 
ordinarily be sufficient to bolster the price of crude oil to 
1997 levels. This has failed to produce the desired results for 
very important reasons. Iraq has been allowed to produce 
additional volumes of oil to offset the drop in production, 
even while men and women of our armed forces are in a shooting 
war with Iraq. Allowing Iraq to produce this oil has had a 
devastating effect on U.S. independent producers and threatens 
to drop U.S. crude production as much as 1 to 2 million barrels 
per day. The 4-week average of domestic crude oil production is 
already down 416,000 barrels a day from 1 year ago, according 
to figures published in the Oil and Gas Journal.
    It is argued that it is necessary to allow the Iraqi 
government to increase production so that they can have 
sufficient revenue to feed their people. Yet, grain and food 
purchased with these funds sits in warehouses undistributed. We 
also might want to consider the fact that the Iraqi government 
has never provided their citizens with free food, and probably 
has no intention of doing so now.
    By allowing the sale of crude oil for humanitarian reasons, 
we have, in effect, taken the pressure off the Iraqi government 
to provide for its own people. In doing so, we provide them the 
means by which they can fund their continued production of 
biological and chemical weapons. At the same time, we eliminate 
a valuable natural resource in this country which will 
ultimately give countries with surplus oil production such as 
Iraq an enormous amount of power in the not too distant future. 
If, in fact, we feel it necessary to reward Iraqi's 
noncompliance for humanitarian reasons by allowing 
overproduction of crude oil, steps should and must be taken to 
protect our domestic producers.
    The paramount tragedy here is allowing a viable, important 
industry to be systematically dismantled, causing the loss of 
thousands of jobs, as well as causing economic depression in 
oil producing States. All the while, our government continues 
to subsidize foreign governments and ignores its own domestic 
oil and gas producers. By spending billions of dollars to 
ensure the free flow of oil out of the Persian Gulf, my 
government and yours, in effect, is subsidizing my foreign 
competition.
    Those of us in the oil and gas industry believe in a free 
market economy. World crude oil production is far from a free 
market. When foreign governments control the flow of oil, our 
own government has not only the right, but the obligation to 
protect its domestic industry. This can be accomplished by 
allowing the defense equalization fee to be charged on crude 
oil from the Middle East. Revenues from such a fee could be 
used to offset the cost of subsidizing their production and 
maintaining a military presence in the Persian Gulf.
    Another disadvantage we face as domestic producers is our 
environmental costs. The crude oil purchased from foreign 
countries is subject to barely a fraction of our environmental 
regulations protections and the associated environmental costs 
in terms of dollars. Thus, an environmental equalization fee 
would be appropriate to level the playing field for domestic 
oil and gas producers. This fee should be put in place 
regardless of price, as long as America continues to allow 
foreign governments to have a competitive advantage.
    At normal prices, the wells in which I own an interest that 
are daily losing money still have thousands of barrels of 
recoverable oil. But as anyone, I can only lose money for so 
long. My wells that are losing money must now be plugged and 
abandoned. I have no choice. Once these wells are plugged, they 
will never be brought back on, as the remaining reserves would 
not justify the additional substantial investment required to 
do so.
    If Congress fails to act, the United States of America 
stands to lose a substantial portion of a precious national 
asset, as well as turning over an even greater share of our 
future energy requirements to foreign governments that don't 
have America's best interests at heart.
    Mr. Chairman, members of the subcommittee, we citizens of 
the United States face a crisis that will have far-reaching 
consequences if left unabated. I urge each of you on behalf of 
our domestic oil and gas industry and our country to take 
action to curb production from Iraq. The energy future of 
America now and for generations to come is in your hands. It 
has been my honor to address you and I thank you for the 
opportunity to be heard on this issue, and I would be glad to 
answer any questions.
    [The prepared statement of F.W. ``Pete'' Brown follows:]
  Prepared Statement of F.W. ``Pete'' Brown, Independent Oil and Gas 
                                Producer
    Mr. Chairman, members of the subcommittee and distinguished guests, 
thank you for the opportunity to provide testimony on this vital issue. 
I come before you, as a very typical and average independent oil & gas 
producer, not only in Oklahoma but throughout the entire nation. In 
1998 32% of the wells from which I receive production lost money due to 
low crude oil prices. By the month of December in 1998, 57% of my wells 
were losing money. I have continued to accept these losses in the hope 
that crude oil prices would rebound.
    In the past 17 months, the price of domestic crude oil has 
plummeted to levels far below the average lifting cost for the majority 
of independent producers in the United States. To understand the reason 
for this drop, one must first understand why the oil exporting 
countries have not taken the initiative to curtail production.
    First of all it should be noted that the world's ``so-called 
oversupply'' of crude oil is based on the ability of countries to 
produce oil versus worldwide consumption. In order to maintain 
stability in the market place, those of us who rely on imports should 
always want supply to exceed demand. Excess production capacity is not 
actually produced. Aside from above ground storage (782,955,000 bbls 
crude and refined product or roughly a 42 day supply according to the 
Oil & Gas Journal dated March 22, 1999), there is very little ability 
to store large quantities of oil once it is produced. Saudi Arabia, for 
example, is estimated to have the capability of producing up to 10 
million barrels of oil per day and yet they actually produce a little 
over 8 million barrels per day. This can be misleading in that the 
ability to produce oil in the field does not necessarily mean that it 
can be transported to terminals and loaded into tankers at the same 
rate.
    Actually, no one really knows how much surplus production capacity 
exists in the world today. Some believe the world's ability to produce 
& market oil exceeds demand by about 3.5 million barrels per day 
compared to estimates of 10 million barrels per day of surplus 
production capability in 1981, a year in which crude oil prices reached 
$38.00 per barrel. Today we are actually coming closer to the point 
where demand will exceed the world's ability to produce. Part of the 
reason for this reduction in surplus production capacity is increased 
demand.
    Why then is the price of crude at such low levels? The price of 
crude first started to drop when the Saudis began to lose market share 
as a result of an increase in Venezuelan production. Venezuela began 
increasing exports about the time that crude oil prices began their 
downward spiral. As production increased in Venezuela, it began to 
capture market share from Saudi Arabia. The Saudis had two choices; 
they could curtail production even further, causing the price to rise, 
or they could keep production levels the same, allowing the price to 
drop below Venezuela's cost of production, which was significantly 
higher than the Saudi's. This strategy discourages drilling in areas 
that have associated high costs such as the North Sea, Siberia, the 
Caspian Sea (an area estimated to contain reserves equivalent to the 
Persian Gulf), deep offshore and U.S. domestic onshore. In addition, it 
has the side benefit (to the Saudis) of shutting down much of the 
stripper production in the U.S.
    It is not the intention of the Saudis to maintain such low prices, 
rather they want to create market volatility, which has the effect of 
discouraging drilling in high cost regions. Saudi Arabia, like many 
Middle East countries, has ``social'' cost associated with their crude 
oil production. Crude oil funds these social programs, set up for Saudi 
citizens, such as free medical care, no taxes, low cost housing and 
many more programs that, once established, can not be easily 
discontinued.
    In recent months, OPEC has dropped production to levels that would 
ordinarily be sufficient to bolster the price of crude oil to 1997 
levels. This has failed to produce the desired results for one very 
important reason. Iraq has been allowed to produce additional volumes 
of oil to offset the drop in prices, even while men and women of our 
Armed Forces are engaged in a shooting war with Iraq. Allowing Iraq to 
produce this oil has had a devastating effect on U.S. independent 
producers and threatens to drop U.S. crude production as much as 1 to 2 
million barrels per day. The four-week average of domestic crude oil 
production is already down 416,000 barrels per day from one year ago 
according to figures published in the Oil & Gas Journal dated March 22, 
1999. It is argued that it is necessary to allow the Iraqi government 
to increase production so that they can have sufficient revenue to feed 
their people. Yet grain purchased with these funds sits in warehouses 
undistributed. We might want to consider the fact that the Iraqi 
government has never provided its citizens with free food, and probably 
has no intention of doing so now. By allowing the sale of crude oil for 
humanitarian reasons, we in effect have taken the pressure off the 
Iraqi government to provide for its own people. In doing so we provide 
them the means by which they can fund their continued production of 
biological and chemical weapons.
    At the same time we eliminate a valuable natural resource in this 
country which will ultimately give countries with surplus oil 
production, such as Iraq, an enormous amount of power in the not too 
distant future. If in fact we feel it necessary to reward Iraqs non-
compliance, for humanitarian reasons, by allowing overproduction of 
crude oil, steps should and must be taken to protect our own domestic 
producers.
    The paramount tragedy here is allowing a viable and important 
industry to be systematically dismantled causing the loss of thousands 
of jobs, as well as causing an economic depression in oil producing 
states. All the while our Government continues to subsidize foreign 
governments and ignores its own domestic oil and gas producers. By 
spending billions of dollars to insure the free flow of oil from the 
Persian Gulf my government and yours, in effect, is subsidizing my 
foreign competition. Those of us in the oil and gas industry believe in 
a free market economy. World crude oil production is far from a free 
market. When foreign governments control the flow of oil, our own 
government has not only the right, but also the obligation, to protect 
its domestic industry. This can be accomplished by allowing a defense 
equalization fee to be charged on crude oil from the Middle East. 
Revenues from such a fee would be used to offset the cost of 
subsidizing their production by maintaining a military presence in the 
Persian Gulf.
    Another disadvantage we face as domestic producers is our 
environmental cost. The crude oil we purchase from foreign countries is 
subject to barely a fraction of our environmental regulations and 
protections, and the associated environmental cost in terms of dollars. 
Thus an environmental equalization fee would be appropriate to level 
the playing field for domestic producers. This fee should be put in 
place, regardless of price, as long as America continues to allow 
foreign governments have a competitive advantage.
    At normal prices the wells in which I own an interest, and that are 
losing money today, still have thousands of barrels of recoverable oil. 
But I, as anyone, can only lose money for so long. My wells that are 
losing money must now be plugged and abandoned. I have no choice. Once 
these wells are plugged they can never be brought back on production, 
as the remaining reserves would not justify the substantial investment 
required to do so. If Congress fails to act, the United States of 
America stands to lose a substantial portion of a precious national 
asset as well as turning over an even greater share of our future 
energy requirements to foreign governments that don't have America's 
best interest at heart.
    Mr. Chairman and members of the sub-committee, we, as citizens of 
the United States, face a crisis that will have far reaching 
consequences if left unabated. I urge each of you, on behalf of our 
domestic oil and gas industry and your country, to take action to curb 
excess production from Iraq. The Energy future of America, now and for 
generations to come, is in your hands.
    It has been my honor to address you and I thank you for the 
opportunity to be heard on this issue.

    Mr. Barton. Thank you. We want to hear from Mr. Bole. Mr. 
Hall has a plane at 1:45, so Ralph, do you want to ask a 
question?
    Mr. Hall. May I say something here? I am the loser by not 
getting to stay here and talk to you for another hour, because 
this is the group I would listen to more than all the others 
put together, because you are my folks, and your testimony 
means more to me than any that I have heard or will hear. I 
think you can gather from the things that the chairman has said 
and I have said--by the way, you are not just talking to the 
two of us. This goes into the record and it is read by 
certainly the committees and by the members. So I thank you for 
your time. I will have some questions. I have questions built 
around whether or not the State Department has consulted with 
any of you or the domestic industry on this food program, and 
you know, I am pretty sure they haven't listened to you, but I 
would like to know if they have even made any effort, and that 
will be part of my questions. But I do have to be on a plane in 
34 minutes and I have to clear off my desk and put the fire out 
and call the dogs and get out.
    Mr. Barton. Actually, he is leaving a little early. I have 
seen Ralph make it in less than 10 minutes.
    Mr. Hall. Well, they close the door on you now. But I thank 
you very much. And Joe, thank you for holding the hearing.
    Mr. Barton. We appreciate you, Congressman Hall. 
Congressman Hall has agreed to sign some of the letters that I 
just talked to the Deputy Assistant Secretary of State about, 
so we are going to be working on this in a bipartisan way.
    Mr. Bole, we are delighted to have you up from Houston. We 
will put your testimony in the record again in its entirety and 
give you 5 to 7 minutes to elaborate on it.

                   STATEMENT OF DAVID L. BOLE

    Mr. Bole. Thank you, Mr. Chairman, and also my thanks to 
Mr. Hall. My name is David Bole. I am Vice President of 
Corporate Research and Development for Randall and Dewey, Inc., 
a Houston-based company that facilitates transactions in the 
upstream part of the petroleum industry for all segments of the 
industry, major companies, large and small interests, both 
public and private. In this business we have seen the 
disruptive effects of the current price crisis not only on the 
stability of this critical portion of the industry, but in the 
direct loss of producers' equity value. Today, I am 
representing the Independent Petroleum Association of America. 
IPAA submits that the current problems facing domestic 
producers are related in large part to the abuse of the U.N. 
Oil-For-Food sanctions program by Saddam Hussein.
    The industry has faced low oil prices for more than a year, 
beginning with a combination of events: the collapse of Asian 
economies, which we have heard a lot about this morning, a 
warmer than normal winter in the Northern Hemisphere, and 
OPEC's decision to increase production quotas. However, as 1998 
progressed, key OPEC countries and other significant non-OPEC 
countries curtailed production to try to diminish surplus 
inventories around the world and stabilize oil prices at levels 
that permit profitable operation. As other countries cut 
production, the U.N. sanctions program created an opportunity 
for Iraq's leaders to influence the price of oil in ways that 
no one would have expected. The U.N. sanctions structure was 
changed in two significant ways in early 1998. First, the Oil-
For-Food Program has always been based on a dollar amount 
rather than a volume allowance, and we have heard a lot about 
that this morning. The dollar amount has increased to $5.3 
billion per 6 months, which we have talked about, an amount at 
current prices that effectively allows Iraq to pump unlimited 
volumes.
    Second, the $400 million every 6 months allocated to 
improve Iraq's oil production capacity allows them to increase 
their production. Thus, as other countries were making economic 
decisions to reduce production as prices fell, Iraq was given a 
perverse incentive to increase production.
    At the beginning of 1998, Iraq was exporting approximately 
700,000 barrels of oil per day. By the beginning of 1999, it 
was exporting as much as 2.5 million barrels per day. In 1998, 
Iraq was the only country to increase its oil production. This 
more than threefold increase, coupled with OPEC's decision to 
curtail production, has allowed Iraq to become the world's 
swing producer. That is, the producer that sells the last 
barrels into the market and thereby defines the price for the 
entire market.
    Let me explain what allows Iraq to become the swing 
producer. Currently, many industry analysts estimate that 
worldwide oil productive capacity exceeds demand by only about 
4 percent. As forecast demand increases at a rate of 1.5 to 2 
percent per year, this excess capacity will rapidly disappear. 
Current low oil prices have decimated upstream capital 
development budgets by an estimated 40 percent. My good friend 
Pete here knows that. There is just not enough money out there 
to continue drilling.
    Simply put, without the expenditure of enormous development 
funds, current capacity will not be expanded to keep pace with 
increasing demand. This is the situation we now face. As a 
result, any country with exports matching the excess productive 
capacity, has the ability to be the world's swing producer. 
Iraq now supplies about 3 percent of the world's demand, and 
has the ability to dramatically influence prices by either 
cutting or increasing its production. As demand increases and 
excess capacity drops, the export volume needed to drive prices 
will decrease. In the not too distant future, if not already, 
Saddam Hussein will be in the position to drive prices upward 
and punish consumer countries, perhaps when sanctions are 
lifted and all the money from Iraqi oil sales goes to him.
    We submit that Iraq is using this position for its leader's 
own political purposes. Saddam's objectives differ from other 
oil producers. We have heard a lot about that this morning. He 
wanted higher oil prices when he invaded Kuwait, money he 
needed to build his military forces. Now, he can't spend money 
to buy arms. But, he can, by keeping oil prices low, punish his 
enemies, first by reducing the income to Saudi Arabia, Kuwait 
and all the exporting countries; and second, to increase market 
share by driving down prices and causing critical U.S. 
production to be shut down and plugged forever, and that hurts 
the guys sitting right here. Thus, while condemning the U.N. 
sanctions and thwarting efforts to deliver to his people the 
humanitarian aid the sanctions purchase, Saddam is effectively 
manipulating the world oil markets for his own political 
purposes. This is where we stand today, and that is why we are 
here.
    At issue, then, is what will happen next. Last week, the 
Secretary of Energy argued that Iraq's ability to increase its 
production is limited and is not expected to go up measurably 
this year. As a result, EIA believes that whatever effect Iraqi 
production has had on prices has already occurred, because Iraq 
cannot increase oil production much more over the next year or 
two.
    While we agree with the Secretary that Iraqi production has 
impacted prices, the statement that Iraq cannot increase 
production is a costly assumption that must be proven. Given 
that the current sanctions program continues to fund additional 
improvements to the oil export capabilities of Iraq, there is 
no certainty that exports will not increase further. Clearly, 
today's crude market is forcing other major oil exporting 
nations to develop elaborate plans to limit their production. 
The success of these efforts is limited by the ability of Iraq 
to add more oil to the market. If the current Oil-For-Food 
Program results in further Iraqi oil production increases, it 
will allow Iraq to continue to hurt the other oil producing 
countries and the strategically essential domestic production 
of the United States. If it does, the U.N. sanctions will 
continue to be fatally flawed at two levels. First, they will 
have failed in its primary mission to provide humanitarian aid 
to the Iraqi people. Second, they will have handed Saddam 
Hussein the victory he lost in the Gulf War.
    For the United States these options reflect policies we 
must change. They make no sense. The world fought a war to 
prevent Saddam Hussein from controlling world oil prices. Now, 
we have, however inadvertently, handed him this ability without 
a fight, and we are handing him control of the future of our 
domestic resources, an unbelievable policy choice. Current 
national policy on Iraq is flawed. Today, domestic production 
is at risk, while tomorrow the U.S. consumer may soon feel the 
shock of higher energy prices brought on by the actions of a 
rogue nation, a policy that hurts producers and consumers 
alike.
    Our domestic oil production resource is the true national 
strategic petroleum reserve. We must value that resource. With 
respect to Iraq, we must recognize that its role in oil pricing 
may not have been planned, but it is now significant and it is 
not benign. If we fail to act in the short term, precious 
domestic resources will be lost forever. As we have heard this 
morning, in the last year we have lost nearly 600,000 barrels 
per day of domestic production, which has reduced the U.S. 
crude production to a level that has not been seen since 1950. 
Since 1986, when the last price free-fall crippled the 
industry, domestic oil production has dropped 2 million barrels 
per day. We need to act now to prevent a similar consequence 
from the current price crisis.
    We thank you for your interest, we thank you for your time 
today, and God bless you for being on the side of the 
producers.
    [The prepared statement of David L. Bole follows:]
Prepared Statement of David L. Bole, Vice President, Corporate Research 
                 and Development, Randall & Dewey, Inc.
    Mr. Chairman, my name is David Bole. I am Vice President of 
Corporate Research and Development for Randall & Dewey, Inc., a 
Houston-based company that facilitates transactions in the upstream 
part of the petroleum industry for all segments of the industry--major 
companies, large and small independents, both public and private. In 
this business, we have seen the disruptive effects of the current price 
crisis not only on the stability of this critical portion of the 
industry but in the direct loss of producers' equity value. Today, I am 
representing the Independent Petroleum Association of America. IPAA 
submits that the current problems facing domestic producers, and 
potentially significant future problems, are related in large part to 
the abuse of the UN ``oil for food'' sanctions program by Saddam 
Hussein.
    The industry has faced a low oil price crisis for more than a year, 
but today's problems are very different. Just over a year ago, the 
price crisis was started by a combination of events--the collapse of 
Asian economies, a warmer than normal winter in the Northern 
Hemisphere, and OPEC's decision to increase production quotas. The 
production most at risk was marginal oil wells in the United States--
wells that produce about 20 percent of America's domestic production, 
an amount equivalent to our imports from Saudi Arabia.
    However, as 1998 progressed, key OPEC countries and other 
significant non-OPEC countries curtailed production to try to diminish 
surplus inventories around the world and stabilize oil prices at levels 
that permit profitable operation. As other countries cut production, 
the UN sanctions program created an opportunity for Iraq's leaders to 
influence the price of oil in ways that no one would have expected. The 
UN sanctions structure was changed in two significant ways in early 
1998. First, the ``oil-for-food'' program has always been based on a 
dollar amount rather than a volume allowance. The dollar amount was 
increased to $5.265 billion per six months--an amount at current prices 
that effectively allows Iraq to pump unlimited volumes. Second, $300 
million every six months was allocated to improve Iraq's oil production 
capacity. Thus, as other countries were making the economic decisions 
to reduce production as prices fell, Iraq was given a perverse 
incentive to increase production.
    And, increase it did. At the beginning of 1998 Iraq was exporting 
approximately 700,000 barrels of oil per day. By the beginning of 1999 
it was exporting as much as 2.5 million barrels per day. In 1998 Iraq 
was the only country to increase its production of oil. This increase 
has allowed Iraq to become the world's swing producer--the producer 
that sells the last barrels into the market and thereby defines the 
price for the entire market.
    Let me explain what allows Iraq to become the swing producer. 
Currently, many industry analysts estimate that worldwide oil 
productive capacity, that is production that could quickly be added to 
the world market, exceeds demand by only about 4 percent. As demand 
increases at a rate of 1.5 to 2 percent per year, this excess capacity 
is rapidly disappearing. Current low oil prices have decimated upstream 
capital development budgets by an estimated 40 percent. Simply put, 
without the expenditure of enormous development funds current capacity 
will not be expanded to keep pace with increasing demand. This is the 
situation we now face. As a result any country with exports matching 
the excess productive capacity, has the ability to be the world's swing 
producer. Iraq now has about three percent of the world's demand and 
has the ability to dramatically influence prices by either cutting or 
increasing its production. As demand increases and excess capacity 
drops, the export volume needed to drive prices will decrease. In the 
not too distant future--if not already--Saddam Hussein will be in the 
position to drive prices upward and punish consuming countries--perhaps 
when sanctions are lifted and all the money from Iraqi oil sales goes 
to him.
    We submit that Iraq is using this position for its leader's own 
political purposes. Saddam's objectives differ from other oil 
producers. He wanted higher oil prices when he invaded Kuwait--money he 
needed to build his military forces. Now, he can't spend money to buy 
arms. But, he can--by keeping oil prices low--punish his enemies, first 
by reducing the income to Saudi Arabia, Kuwait, UAE, Iran, and all the 
exporting countries; second, to increase market share by driving down 
prices and causing critical U.S. production to be shutdown and plugged 
forever. Thus, while condemning the UN sanctions and thwarting efforts 
to deliver to his people the humanitarian aid the sanctions purchase, 
Saddam is effectively manipulating the world oil markets for his own 
political purposes. This is where we stand today. And that is why we 
are here.
    At issue then is what will happen next. Last week, the Secretary of 
Energy argued that ``Iraq's ability to increase its production is 
limited and is not expected to go up measurably this year. As a result, 
EIA believes that whatever effect Iraqi production has had on prices 
has already occurred, because Iraq cannot increase oil production much 
more over the next year or two.'' While we agree Iraqi production has 
impacted prices, the statement that Iraq cannot increase production is 
a costly assumption that must be proven. Given that the current 
sanctions program continues to fund additional improvements to the oil 
export capabilities of Iraq, there is no certainty that exports will 
not increase further. In the middle of 1998 most experts believed that 
Iraq could not reach the export levels it is currently sustaining. 
Clearly, today's crude market is forcing other major oil exporting 
nations to develop elaborate plans to manage their production, the 
success of these efforts is limited by the ability of Iraq to add more 
oil to the market. If the current ``oil-for-food'' program results in 
further Iraqi oil production increases, it will allow Iraq to continue 
to hurt the other oil producing countries--Saudi Arabia, Kuwait, 
Venezuela, Russia, Indonesia, Mexico, and the strategically essential 
domestic production of the United States. If it does, the UN sanctions 
will continue to be fatally flawed at two levels. First, they will have 
failed in its primary mission to provide humanitarian aid to the Iraqi 
people. Second, they will have handed Saddam Hussein the victory he 
lost in the Gulf War.
    For the United States these options reflect policies we must 
change. They make no sense. The world fought a war to prevent Saddam 
Hussein from controlling world oil prices. Now, we have--however 
inadvertently--handed him this ability. And, we are handing him control 
of the future of our domestic resources--an unbelievable policy choice. 
Current national policy on Iraq is faulty. Today, domestic production 
is at risk, while tomorrow the U.S. consumer may soon feel the shock of 
higher energy prices brought on by the actions of a rogue nation--a 
policy that hurts producers and consumers alike.
    Our domestic oil production resource is our true national strategic 
petroleum reserve. We must value that resource. IPAA has presented an 
array of options for Congress to address in response to the current 
price crisis. With respect to Iraq we must recognize that its role in 
oil pricing may not have been planned, but it is now significant and it 
is not benign. If we fail to act in the short term, precious domestic 
resources will be lost forever. Then, in the longer term when Saddam 
shuts in production, we will not have the production needed to respond. 
In the past year we have lost nearly 600,000 barrels per day of 
domestic production, which has reduced the U.S. crude production to a 
level that has not been seen since 1950. Since 1986, when the last 
price crisis crippled the industry, domestic oil production has dropped 
by 2 million barrels per day. We need to act now to prevent a similar 
consequence from the current price crisis.

    Mr. Barton. Thank you. Seeing no other member present, the 
Chair is going to recognize himself for questions. And I am not 
going to use the clock.
    I am going to ask Mr. Hall's question since he had to 
leave. Was anybody at TIPRO or IPAA or any other producer, 
maybe the API, consulted before this Oil-For-Food Program was 
put in place last year? Does anybody know?
    Mr. Taylor. Not that I am aware of.
    Mr. Brown. No.
    Mr. Barton. Mr. Sieminski, do you remember?
    Mr. Sieminski. Well, I do talk to people at the State 
Department and elsewhere, but it seems to me that that program 
was being driven mainly out of the United Nations and some of 
the issues there I don't think that that domestic oil 
consideration has gotten a lot of attention as part of that 
program.
    Mr. Barton. As far as anybody on this panel knows, there 
was no formal attempt by the State Department or the Energy 
Department or the United Nations directorate to contact the 
production sector of the United States?
    Mr. Bole. Not at all.
    Mr. Barton. That is a fair statement.
    Is there anybody on this panel that is opposed to providing 
in some way food and medicine for the Iraqi people?
    Mr. Bole. No.
    Mr. Taylor. No.
    Mr. Brown. No.
    Mr. Sieminski. Not at all.
    Mr. Barton. So we are not in opposition to at least the 
publicized purpose of the program, which is to provide for 
basic food, nutrition and medicine and humanitarian programs.
    Is it in the national interest for us not only to allow 
this production that is currently under way, but to give them 
spare parts to increase production? Does anybody think that 
makes sense from a national security standpoint, or even in the 
interests of the United States standpoint?
    Mr. Bole. Well, it makes absolutely no sense to allow Iraq 
to increase production, while other OPEC nations are working in 
concert to lower production so that we have a viable supply of 
oil at a reasonable price to continue development.
    Mr. Barton. Well, you all heard one of my final questions 
to the gentleman from the State Department. Congressman Hall 
and I are going to send a letter next week asking that they not 
go forward with the spare parts program while we review it. I 
would assume that you all would support that position that we, 
at a minimum, while we review the larger program, we at least 
stop the ability to increase production in Iraq.
    Mr. Sieminski. Absolutely.
    Mr. Taylor. Mr. Barton, I might even go a step further and 
ask if you could somehow get through to them that a very 
minuscule amount of that money would help restructure our own 
industry here, and that they might consider the cost--it is bad 
enough that Mr. Brown and I have to plug our wells. We lose the 
production, and we have been taking a loss for quite a time on 
these. When you decide to finally plug them on top of that, you 
get a golden ring of about another $5,000 or $10,000 hit that 
you have to pay to plug these wells in accordance with the 
environmental regulations. So I would like for them to consider 
our industry here that you know, maybe they would consider, 
since they are encouraging them to dump all this oil on the 
market over this, for the humanitarian reasons over there, that 
they would consider the humanitarian reasons over here in the 
United States and possibly give us some of that money for our 
plugging costs. Maybe that will make them realize just how much 
oil we are losing.
    Mr. Barton. Interestingly enough, we didn't get--at least I 
didn't understand the State Department's answer on how much 
money had been collected, but I did understand that a large 
portion that had been collected had not been spent for food. 
Its label is oil for food, but in practical effect, they are 
paying reparations to the Kuwaiti government and they are 
paying for the cost of the U.N. bureaucracy, and they are 
paying for the cost of the inspections which are not even going 
on, and he upped his ante from $900 million I think to about 
$2.5 billion for food, so I would guess about half the money so 
far collected has gone for food. There are numerous ways to get 
$2.5 billion worth of food to the Iraq people without allowing 
the Iraqi government to produce oil.
    Mr. Taylor. I have a tip from all the other oil producers. 
We would like to get on that list of helping Kuwait and the 
other oil countries that have gotten hurt.
    Mr. Barton. We are going to give you an opportunity, I 
think, to consult with the State Department, and if you want to 
divert the spare parts to west Texas, that is fine with me. My 
daughter is a teacher at South Elementary in Midland, Texas, 
and she has seen the negative effects of what has happened, so 
I don't think it would be a burden to reverse some of those 
parts.
    Yes, sir.
    Mr. Sieminski. Mr. Barton, as bad as this Oil-For-Food 
Program seems to you today, there are two ways that it could 
get worse. The first one is if our policy of getting rid of 
Saddam Hussein were to be successful and there were a new, 
let's say, politically friendly regime in Iraq that somehow 
changed the political course over there that would allow that 
country to come out from under sanctions, and at that point 
they would be like every other producer. They would produce 
whatever they could economically want to do.
    Mr. Barton. Well, they would be within the OPEC cartel.
    Mr. Sieminski. Right.
    Mr. Barton. Which although they are now, they are being 
given a free ride apparently for political considerations 
within the Arab world. The rest of the cartel is trying to 
limit production, but they are not requesting even a 
proportionate cut of Iraqi production.
    Mr. Sieminski. I think the Iraqis are making the assumption 
that their production was held down for so long that they have 
a lot of catch-up to do before they are going to cooperate with 
their other cartel members.
    Mr. Barton. Well, they can assume whatever they want. That 
doesn't mean the U.S. Congress----
    Mr. Sieminski. Has to give it to them.
    The second way that I think that again is worth more 
questioning, that where things could get worse is there are 
proposals that have been advanced on the Security Council to 
allow foreign investment in the Iraqi industry, even as the 
full sanctions are still on. There are a number of companies 
and countries that are eagerly awaiting the opportunity to go 
in and develop fields in Iraq, and one way perhaps to get at 
the head of that line would be to assist the Iraqis in 
rebuilding current facilities.
    I think that you might want to look into the issue of how 
the Oil-For-Food Program could be structured in such a way as 
to delay that kind of activity, which I think would be 
detrimental to U.S. foreign policy, certainly as long as that 
regime in Iraq is in place, that there is a very definite 
danger that the level of Iraqi production exports could rise 
fairly dramatically and fairly quickly if companies were 
allowed to go in and make investments in Iraq, and then again, 
you would be back to, there wouldn't be any way--I mean if the 
Oil-For-Food Program were to be revamped to allow for that, it 
would be a considerably worse situation for domestic production 
here in the United States than we are looking at now.
    Mr. Barton. I understand that, and I don't advocate this, 
but I don't buy the argument that you have to allow this 
program to continue in order to keep sanctions being enforced. 
Because--and again I am not an advocate of this, so I don't 
want this to be the headline coming out of the hearing, but in 
a worst-case situation, the United States Air Force could bomb 
the oil terminals. We can enforce the ability not to let Iraq 
export oil very easily. Again, that is not the purpose of this, 
but there are ways to prevent the oil from being shipped, and 
we have the military ability to do that. We don't choose to act 
unilaterally, and I am not advocating that we should, but I 
don't buy the argument that we are somehow helpless in the U.N. 
and the world community while our domestic industry is 
decimated. Because it was pointed out in a question that I 
asked, there is no other nation that is losing permanently 
domestic production because of this program except the United 
States and perhaps to a smaller extent Canada.
    If we can get the State Department's attention and the 
Energy Department's attention and the United Nations' attention 
to review this program, I assume that your trade associations 
would be willing to participate in a dialog about how to revamp 
it, is that correct?
    Mr. Bole. Yes, sir.
    Mr. Barton. There is not anybody that is opposed to that.
    Mr. Bole. Mr. Chairman, I just have one comment. Tom made a 
good point here a minute ago about a little financial help to 
the producers as our stripper and marginal production is made 
irrelevant by the sales of Iraq crude. A point of comparison is 
Wes Watkins' marginal well tax credit bill is estimated to cost 
only $600 million over 10 years, compared to billions of 
dollars that we are funneling into Iraq. And I think there are 
other measures that could benefit the plight of the domestic 
producers when compared in dollar amounts to others are 
insignificant, but significant to the producer.
    Mr. Barton. Right. We know that, as a Nation, we are 
importing more oil than we ever have. We know what the Iraqi 
oil production is, and we know the number of barrels that they 
are exporting. We didn't ask the prior panel how much of that 
Iraqi oil is imported into the United States. Now, I have been 
told that it is about 700,000 barrels a day of Iraqi oil into 
the United States. Is that a number that anybody here is 
familiar with, or if that is the wrong number, are any of you 
gentlemen able to tell us approximately how much Iraqi oil is 
coming into the United States?
    Mr. Taylor. Maybe that is just a sheer coincidence of the 6 
to 700,000 barrels we have lost as independent producers. That 
would be a good number.
    Mr. Barton. I am not putting that on the record that that 
is a valid number, but I have been told that. Mr. Sieminski, do 
you know how much Iraqi oil we are importing?
    Mr. Sieminski. I don't have that number available right 
now, but I think you would get that really quick.
    Mr. Barton. Mr. Bole, do you----
    Mr. Bole. Yes. Our staff says that that number has ranged 
from 500, 600, 700,000 barrels and it varies on a month-to-
month basis.
    Mr. Barton. So it is verifiable that not only are we 
importing more oil than we ever have into this country, but 
that between 500,000 and 700,000 barrels per day is coming from 
Iraq.
    Mr. Brown. Mr. Chairman, added to Mr. Smith's testimony are 
some graphs indicating select imports to the United States 
which indicates that in August Iraqi oil was in the range of 
650,000 barrels, and that, from January, steadily increased 
upward. If you will look at, I think it is this lower chart 
here. It is in Mr. Smith's testimony.
    Mr. Barton. I have it right here in front of me.
    Mr. Brown. I will be glad to pass this up to you.
    Mr. Barton. No. We have it. We appreciate your offer to 
help the chairman do his job, but I think I have it right here 
in front of me.
    We are going to do a number of hearings on the domestic oil 
and gas industry on this subcommittee this year. We are 
obviously going to look at this issue very closely and very 
skeptically based on what testimony we heard from the 
administration representative today.
    Are there any other items? Mr. Bole, you mentioned the 
Watkins bill. Are there any other items that would be of 
immediate benefit that we should address in our hearings that 
you would like to put on the agenda today?
    Mr. Bole. Yes, and it is not a specific item, it is more of 
a question. In listening to the testimony today and the 
interests of you and the committee members, I am impressed by 
the agreement, the majority agreement here that we, as a 
Nation, our oil and gas-producing States are in trouble, that 
the Iraqi policies and other things are hurting us. But the 
question that I would like to have answered, not today but 
perhaps in the future, is if you are not from a producing oil 
and gas State, why should you care?
    Mr. Barton. Well, that is a dilemma that we have. If you 
are from a producing State or a producing region, you see the 
negative effect of low prices, and again, my daughter is a 
sixth grade social studies teacher in Midland, Texas. She has 
lived out there this year and she teaches in a lower-income 
school, and she has firsthand knowledge of people who have lost 
their jobs and who have been thrown out of work and children 
who have had to go on food stamps because their parents do not 
have a job. So it is a real problem. But the other side of 
these low oil prices is gasoline, and in my part of Texas, just 
south of Dallas, for 75 cents a gallon, and people get used to 
that.
    Mr. Bole. Yes, sir.
    Mr. Barton. Gas prices have gone back up a little bit in 
the last couple of weeks to about 89 cents a gallon or 85 
cents, and people are complaining of price gouging. They get 
used to 75 cents, and of course up here it is a little bit 
higher. So we do have to have a very good answer to that.
    The question why should Congressman Markey from 
Massachusetts or Congressman Pallone from New Jersey care as 
members of the subcommittee what is happening, and the long-
term answer is national security and the best interests long 
term of the people of the United States of America. But we are 
going to have to do some research to make sure that we give a 
good short-term answer. I agree with that.
    We have had a good hearing today. Most of our members who 
stayed for the hearing come from regions of the country that 
see the negative side of this issue. But it is not going to be 
easy to convince a majority of the Congress and the Senate and 
the President to make some of these changes that I think need 
to be made.
    Mr. Bole. Would it be appropriate to suggest a partial 
answer to why they should care?
    Mr. Barton. You can--my plane doesn't leave until 4:15. I 
am going to have to take a personal convenience break at some 
time, but I will listen as long as you want to talk.
    Mr. Bole. You have a great constituency, and I will be 
uncharacteristically brief.
    The oil and gas industry is no longer an oil and gas 
industry, it is an energy industry. As you know, Congress is 
deregulating electricity.
    Mr. Barton. We are trying to.
    Mr. Bole. We are trying to.
    Mr. Barton. This same subcommittee.
    Mr. Bole. Absolutely. And so what we are looking at is a 
domestic energy industry which is made up of electricity, oil, 
gas and all the other fuels. The utility business, and I have a 
background of working for the utility companies, estimates that 
it is going to take Pete and others to invest $180 billion over 
the next 10 years in domestic drilling to allow us to grow from 
a 21.5 TCF market to a 30 TCF market. There are 1,300 
independent power projects on the drawing boards; 1,150 are 
supposed to be powered by natural gas, a 3-year backlog from 
General Electric and General Electric's turbines to build the 
cogen plants.
    Mr. Barton. I am aware of them.
    Mr. Bole. The utility industry only has to invest $40 
billion to reconfigure the pipe to get this gas to the markets 
to fuel the power plants. They are making 15 to 17 percent 
return on their investment. These guys are making no money on 
their investment. As an industry, the Oil and Gas Journal 200 
gets 6 percent return on total capital.
    Now, I don't think it is going to happen that our industry 
is going to invest $180 billion for a 6 percent return to get 
from 21 to 30 TCF.
    The second thing that has happened in our business is we do 
a lot of transactions. We sell to Mobil, Exxon, Amoco and BP. 
We are seeing the major companies divest properties in the 
United States.
    Mr. Barton. Right.
    Mr. Bole. We have seen the total amount of sales, property 
sales in the 1990's go from an average of $7 billion a year, 2 
years ago, $23 billion, last year, $82 billion. These 
properties are being sold to the independents. Where are the 
independents going to get the money to develop these properties 
and continue to drill them to keep our production up to satisfy 
the total energy demands of the U.S. if the price of oil is at 
$12 to $14, and gas is, you know, under $2.
    Mr. Barton. What is a reasonable price that brings some 
stability, yet protects consumers against price spikes, if we 
could somehow come up with a policy that kept oil prices within 
a certain range, what would that range be, so that we would 
have reasonable prices at the pump for our motorists, and yet 
enough revenue so that we could do some of the things that Mr. 
Bole just talked about?
    Mr. Bole. Well, I would stick my neck out and let the other 
guys comment, but the number that seems to be most prevalent is 
oil staying in the range of say $18 to $22 a barrel and gas 
closer to $3 than $2.
    Mr. Barton. In MCF.
    Mr. Bole. In MCF, yes, sir.
    Mr. Barton. Do you agree with that, Mr. Brown?
    Mr. Brown. My company just did a study on that to find out 
what would it take for us to go back out and drill for oil 
again. I mean right now all we do is drill for gas. But to 
drill for oil it would take $22 a barrel plus in a stable 
market. The problem is the volatility in the market. And you 
have to understand that when oil prices are low, gas prices are 
competitive with oil; in other words, home heating oil versus 
natural gas. So gas gets pushed down at the same time, and it 
just takes revenue out of our ability to go out and drill for 
more oil. I am like a grocery store owner. I mean I have to 
restock my shelves. I am going out of business if I don't drill 
for oil.
    Mr. Barton. Right. Mr. Taylor.
    Mr. Taylor. I don't know about Mr. Brown, but in our area, 
and I am taking in quite a bit of Texas, our lifting costs are 
anywhere from $12 to $15 a barrel, and that is not taking into 
consideration if you have to pull a down hole pump or your rods 
part, your maintenance and repairs. One of the big fields in 
Texas, the Kelly Snyder field, that thing produces a tremendous 
amount of oil and lifting costs are at $15 per barrel.
    Mr. Barton. So we need kind of a floor at the $15 range and 
it would be nice to go to the $25, so kind of a $10 range.
    Mr. Taylor. Of course we get nervous when the price gets 
over $20 a barrel, because this is what happens. I mean all of 
a sudden we realize that we are basically the stepchildren of 
this booming economy. Mr. Brown and I, I have four little kids 
I am trying to raise, and I am trying to make a living, and if 
I can get $18 to $20 a barrel, you know, I think I can do it. 
But if I am making less than $15 I am losing money.
    Mr. Barton. Do any of you know what the OPEC model is for, 
what is their optimal target price that they shoot for in their 
5-year program?
    Mr. Brown. I asked Dr. Mankin, who is in charge of the 
Oklahoma Geological Survey, that very question and he said that 
OPEC would probably shoot for something around $17 a barrel.
    Mr. Barton. Okay.
    Mr. Taylor. It would equate to us to be $21. I think there 
is maybe $3 between tanker charges, et cetera.
    Mr. Barton. How many wells, Mr. Taylor, that you have had 
an interest in have had to be plugged in the last year? That 
you had personal financial interest?
    Mr. Taylor. Personal interest, I would say probably 28 to 
32 percent, and then of the remaining wells that I have 
interest in, we continue to lose money or we shut them in. But 
as far as wells that have been plugged, I live on a small ranch 
south of Abilene, and we had 12 wells out there and they all 
made a barrel or two a day. And the company that was operating 
those wells turned them over to the pumper. Because he couldn't 
make any money, the pumper just recently turned them over to a 
salvage company. So they pulled the pumping units off of them. 
They haven't plugged them yet.
    Mr. Barton. Now, if we hadn't had the collapse in prices, 
how many more years would those wells have produced?
    Mr. Taylor. They have been out there for approximately 18 
years and they would produce for another 10 years. Once they 
get down to a level of a barrel or 2 to 5 barrels a day, they 
will maintain that level. You have a low-fluid entry, but when 
you pump them for a few hours, you turn them off, you nurse 
those wells, you can pump them for another 10 years.
    Mr. Barton. There were substantial amounts of oil yet to be 
obtained if, in fact, we could have kept the wells flowing and 
the fact that, you know, at one time west Texas, the actual 
price at the well had gotten down to about $6.50 a barrel.
    Mr. Taylor. That is correct.
    Mr. Barton. And nobody, I mean God couldn't keep those 
wells going at $6.50 a barrel for very long.
    Mr. Taylor. In the event you have a landowner such as 
myself that was encouraging that operator to go ahead and 
continue those wells, I gave them an extension on the lease, 
they kept the wells shut in, but when you do that for an 
extended amount of time, your down hole pumps start corroding, 
your rods start corroding, so the equipment starts rotting and 
you can't keep them shut in for so long.
    Mr. Barton. Mr. Brown, you said you are principally looking 
at gas now, but have you had to plug some oil wells that you 
had an interest in in the last year?
    Mr. Brown. In my testimony I talked about 57 percent of the 
wells in December lost money, and one of my problems is getting 
the operators to plug them. They don't want to give them up, 
and they know they are losing money, but they just think well, 
the price, it is just around the corner, it is going to go back 
up and they are going to start making money again, but we keep 
losing money every month. And as I say, you can only lose money 
for so long.
    So I think a lot of the wells that need to be plugged are 
yet to be plugged. We have shut a lot of them in, but at some 
point in time, like you said, your equipment starts to 
deteriorate and when you try to start it back up, it means a 
sizable investment, so you are better off plugging the well 
than spending the money trying to put it back on production.
    Mr. Barton. I am going to conclude the hearing.
    I want to thank you all for coming. The issues that we are 
going to look at, we are going to continue to look at the Iraqi 
Oil-For-Food Program. We have a possibility to reauthorize the 
Strategic Petroleum Reserve this year in this subcommittee, we 
are going to look at that to use the petroleum stripper well 
production. I have had one suggestion from an independent in 
Texas that we might relax some of the antitrust rules that 
would allow small producers to form co-ops in which they could 
pool their oil for transportation at the refinery. That is not 
allowed under current antitrust laws. If you have any other 
suggestions, a number of the tax issues are not before this 
subcommittee's jurisdiction. They go to the Ways and Means, but 
Bill Archer of Texas and Wes Watkins of Oklahoma are very 
interested.
    Did you want to put something else in the record, Mr. 
Chairman?
    Mr. Smith. Thank you. Mike Smith again. One thing I forgot 
to mention in my testimony----
    Mr. Barton. We don't normally have witnesses want to come 
back.
    Mr. Smith. I know of at least one that doesn't want to come 
back that was on my panel. But there has been a lot of 
conversation about the cost to produce a barrel of oil, and the 
Oklahoma Marginal Well Commission, which is a State agency in 
Oklahoma that is in my cabinet jurisdiction, in concert with 
Oklahoma State University, spent about a year making an 
exhaustive study in Oklahoma on the true cost of producing a 
barrel of oil. And the average well in Oklahoma costs about $14 
a barrel simply in lifting costs. That is electric, pumper, 
environmental costs. That does not include if you have rods 
part, or you have a pump problem or any down hole problem. And 
no rework. It is strictly day-to-day production.
    Mr. Barton. Well, thank you. As I said at the top of the 
hearing, this is the first, but it is not the last. We are 
going to be working with the State Department on the specific 
issue, but we are going to look at a wide range of issues in 
the domestic oil and gas industry, and your input will be 
appreciated as we continue these hearings.
    This hearing is adjourned.
    [Whereupon, at 1:50 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

                  United States Department of State
                                     Washington, D.C. 20520
                                                     April 16, 1999
The Honorable Joe Barton, Chairman,
Subcommittee on Energy and Power,
House of Representatives.
    Dear Mr. Chairman, thank you for your letter of April 2 concerning 
the recent testimony before the Subcommittee on Energy and Power by 
William B. Wood of the Bureau of International Organization Affairs.
    Your letter requested information on revenues and disbursements 
under the UN Oil-for-Food program in Iraq, which is included in the 
attachments to this letter. As the Oil-for-Food program runs in six 
month phases, some of the information is presented by program phase. 
The material attached includes information on:

 actual Oil-for-Food sale revenues by phase;
 approved contracts from phases I-IV (12/96 to 11/98) and 
        projected allocations in phase V (11/98 to 5/99); and
 purchases of spare parts and equipment for the Iraqi oil 
        infrastructure from Phase IV, when the special set-aside of 
        funds for this purpose began, to date.
    With respect to these figures, it is worth noting that only two-
thirds of the Iraqi oil revenue is available for humanitarian 
purchases.
    Of the remaining funds, thirty percent goes to the United Nations 
Compensation Commission, which compensates those who suffered economic 
losses--including U.S. citizens and corporations--as a result of the 
Iraqi invasion and occupation of Kuwait, and the remainder goes to fund 
UNSCOM disarmament activities in Iraq and UN Oil-for-Food management 
expenses.
    I hope you find this information useful. We appreciate the 
Subcommittee's interest in the Oil-for-Food program, which is a 
critical element of our Iraq policy. The program is crucial to 
maintaining Security Council and wider international support, including 
the support of other oil-producing nations, for the UN sanctions which 
contain Iraq's ability to threaten its neighbors while we continue our 
efforts for regime change. The Oil-for-Food program helps meet the 
genuine humanitarian needs of the Iraqi people and our support for it 
reinforces the message that the United States is not against the people 
of Iraq-only the regime that is responsible for their plight.
            Sincerely,
                                             Barbara Larkin
                           Assistant Secretary, Legislative Affairs
Attachments:
Tab 1: Oil-for-Food revenues
Tab 2: Oil-for-Food Contracts by phase
Tab 3: Contracts for oil spare parts and equipment

                                     Oil-for-Food Oil Sale Revenues By Phase
----------------------------------------------------------------------------------------------------------------
                                                                    Approved                           Ave Price
                              Phase                                   Oil       Barrels    $ Revenue      per
                                                                   Contracts   (million)   (million)     Barrel
----------------------------------------------------------------------------------------------------------------
I (12/96-6/97)..................................................          51        121      $2150       $17.99
II (6/97-12/97).................................................          34      127.3      $2125       $16.74
III (12/97-5/98)................................................          52      183.9      $2092       $11.49
IV (5/98-11/98).................................................          59      308.1      $3040        $9.36
V (11/98-5/99)..................................................          82      274.9       $983*
  TOTAL.........................................................         278       1015     $10390**
----------------------------------------------------------------------------------------------------------------
*Sales through mid-April
**One third of this total is used for UNCC and UN Oil-for-Food management operations.


                     Oil-for-Food Contracts by Phase
                       [in millions of US dollars]
------------------------------------------------------------------------
                                                  Phases I-
                                                     IV        Phase V
                     Sector                       Approved    Projected
                                                  Contracts  Allocations
------------------------------------------------------------------------
Food...........................................    3797.12        1,026
Medicine & Health..............................        744          240
Water & Sanitation.............................     152.25          150
Electricity....................................     351.54          409
Agriculture....................................     273.70          180
Education......................................     115.99          100
Settlement Rehabilitation......................      41.10           40
Mines..........................................       2.99            9
Nutrition......................................      23.92           16
Infrastructure Support.........................          *          126
Oil............................................     114.31          300
  Total........................................    5616.92        2,596
------------------------------------------------------------------------
*The UN did not report funding for this category


               United Nations Office of the Iraq Programme
  All Oil Spare Parts Contracts Approved as at 16 April 1999 under the
 terms of resolutions 1175 and 1210--funded under Phases IV and V of the
                         oil for food programme
------------------------------------------------------------------------
             Country                 Nature of Spares     Contract Value
------------------------------------------------------------------------
Denmark..........................  PIPELINE EQUIPMENT &       $1,043,090
                                    SPARES (OIL).
Spain............................  Pipeline Equip &             $630,280
                                    Spares.
Germany..........................  Pipeline Equip &             $189,349
                                    Spares.
Germany..........................  Pipeline Equip &           $8,746,858
                                    Spares.
Belgium..........................  Pipeline Equip &             $287,508
                                    Spares.
Denmark..........................  PIPELINE EQUIPMENT &       $2,270,804
                                    SPARES (OIL).
Denmark..........................  PIPELINE EQUIPMENT &         $100,580
                                    SPARES (OIL).
Denmark..........................  PIPELINE EQUIPMENT &          $20,139
                                    SPARES (OIL).
Russian Federation...............  Pipeline Equip &             $976,191
                                    Spares.
Turkey...........................  Pipeline Equip &           $8,600,426
                                    Spares.
France...........................  Pipeline Equip &           $1,140,000
                                    Spares.
France...........................  Pipeline Equip &           $1,283,966
                                    Spares.
France...........................  PIPELINE EQUIPMENT &       $5,000,000
                                    SPARES (OIL).
France...........................  Pipeline Equip &             $177,793
                                    Spares.
France...........................  Pipeline Equip &             $287,622
                                    Spares.
France...........................  Pipeline Equip &             $158,930
                                    Spares.
France...........................  Pipeline Equip &             $148,240
                                    Spares.
France...........................  Pipeline Equip &              $98,478
                                    Spares.
France...........................  Pipeline Equip &             $260,328
                                    Spares.
France...........................  Pipeline Equip &             $276,606
                                    Spares.
France...........................  Pipeline Equip &              $23,520
                                    Spares.
France...........................  Pipeline Equip &              $72,176
                                    Spares.
France...........................  Pipeline Equip &              $82,030
                                    Spares.
China............................  Tug Boats...........       $9,350,000
Italy............................  PIPELINE EQUIPMENT &       $2,885,039
                                    SPARES (OIL).
Italy............................  PIPELINE EQUIPMENT &         $221,100
                                    SPARES (OIL).
Italy............................  PIPELINE EQUIPMENT &       $1,036,000
                                    SPARES (OIL).
China............................  PIPELINE EQUIPMENT &       $4,338,000
                                    SPARES (OIL).
The Netherlands..................  Demulsifier.........       $1,750,000
Turkey...........................  Pipeline Equip &             $580,000
                                    Spares.
Turkey...........................  N/A.................         $226,500
China............................  Pipeline Equip &             $456,000
                                    Spares.
Jordan...........................  Pipeline Equip &             $914,924
                                    Spares.
Jordan...........................  Pipeline Equip &             $914,924
                                    Spares.
Russian Federation...............  Pipeline Equip &             $700,000
                                    Spares.
Denmark..........................  OIL SPARE PARTS.....          $92,298
Denmark..........................  OIL SPARE PARTS.....          $84,370
Denmark..........................  N/A.................         $193,349
Denmark..........................  N/A.................         $374,115
Turkey...........................  OIL SPARE PARTS.....         $555,606
Turkey...........................  N/A.................         $919,260
France...........................  Pipeline Equip &              $32,960
                                    Spares.
Belgium..........................  PIPELINE EQUIPMENT &          $45,323
                                    SPARES (OIL).
France...........................  Pipeline Equip &          $16,692,147
                                    Spares.
France...........................  Pipeline Equip &             $132,288
                                    Spares.
Russian Federation...............  Pipeline Equip &             $383,758
                                    Spares.
Russian Federation...............  PIPELINE EQUIPMENT &         $454,800
                                    SPARES (OIL).
Russian Federation...............  PIPELINE EQUIPMENT &       $1,367,800
                                    SPARES (OIL).
Belgium..........................  OIL SPARE PARTS.....         $277,500
Russian Federation...............  STORAGE TANKS/SPARE        $3,000,000
                                    PARTS.
France...........................  VALVE/PARTS.........          $86,472
France...........................  VALVE/PARTS.........         $153,259
France...........................  VALVE/PARTS.........          $65,507
France...........................  PIPELINE EQUIPMENT &          $27,019
                                    SPARES (OIL).
France...........................  PIPELINE EQUIPMENT &         $539,240
                                    SPARES (OIL).
France...........................  PIPELINE EQUIPMENT &          $94,346
                                    SPARES (OIL).
Russian Federation...............  PIPELINE EQUIPMENT &          $41,603
                                    SPARES (OIL).
Russian Federation...............  PIPELINE EQUIPMENT &         $329,497
                                    SPARES (OIL).
China............................  VALVE/PARTS.........          $18,500
China............................  PIPELINE EQUIPMENT &          $80,000
                                    SPARES (OIL).
China............................  VALVE/PARTS.........          $27,853
France...........................  DEMULSIFIER.........       $1,067,500
Singapore........................  PIPELINE EQUIPMENT &       $3,270,000
                                    SPARES (OIL).
Turkey...........................  PIPELINE EQUIPMENT &          $91,280
                                    SPARES (OIL).
France...........................  PIPELINE EQUIPMENT &         $185,693
                                    SPARES (OIL).
France...........................  PIPELINE EQUIPMENT &          $28,982
                                    SPARES (OIL).
France...........................  PIPELINE EQUIPMENT &         $165,000
                                    SPARES (OIL).
France...........................  FIRE FIGHTING TRUCKS/        $954,600
                                    SPARES.
France...........................  VEHICLE.............         $488,000
France...........................  PIPELINE EQUIPMENT &          $95,000
                                    SPARES (OIL).
France...........................  PIPELINE EQUIPMENT &          $62,910
                                    SPARES (OIL).
The Netherlands..................  PIPELINE EQUIPMENT &          $50,357
                                    SPARES (OIL).
Turkey...........................  FIRE FIGHTING TRUCKS/        $218,000
                                    SPARES.
Spain............................  BATTERIES...........         $949,980
China............................  PIPELINE EQUIPMENT &         $945,800
                                    SPARES (OIL).
China............................  OIL SPARE PARTS.....         $133,000
France...........................  PIPELINE EQUIPMENT &         $322,839
                                    SPARES (OIL).
Belgium..........................  PIPELINE EQUIPMENT &          $23,000
                                    SPARES (OIL).
Belgium..........................  PIPELINE EQUIPMENT &         $118,500
                                    SPARES (OIL).
UAE..............................  DIESEL ENGINE MOTOR            $7,496
                                    SPARE PARTS.
UAE..............................  CABLE...............          $26,500
UAE..............................  COMPRESSOR..........          $78,696
UAE..............................  COMPRESSOR..........          $62,511
Cyprus...........................  BATTERY/ACCESSORIES.         $191,440
UAE..............................  OIL SPARE PARTS.....         $173,969
UAE..............................  OIL SPARE PARTS.....         $119,670
UAE..............................  OIL SPARE PARTS.....         $203,500
Belgium..........................  OIL SPARE PARTS.....         $347,605
Jordan...........................  OIL SPARE PARTS.....       $1,450,000
Jordan...........................  OIL SPARE PARTS.....         $166,491
Turkey...........................  PIPELINE EQUIPMENT &         $160,000
                                    SPARES (OIL).
Russian Federation...............  PIPELINE EQUIPMENT &         $117,765
                                    SPARES (OIL).
Jordan...........................  PIPELINE EQUIPMENT &         $271,585
                                    SPARES (OIL).
Turkey...........................  ELECTRICAL SPARE             $336,951
                                    PARTS FOR OIL
                                    SECTOR.
Egypt............................  PIPELINE EQUIPMENT &          $97,834
                                    SPARES (OIL).
Egypt............................  OIL SPARE PARTS.....         $186,192
The United Kingdom...............  PIPELINE EQUIPMENT &         $413,991
                                    SPARES (OIL).
Cyprus...........................  BATTERY/ACCESSORIES.         $270,686
Turkey...........................  PIPELINE EQUIPMENT &         $650,100
                                    SPARES (OIL).
China............................  PIPELINE EQUIPMENT &         $158,243
                                    SPARES (OIL).
China............................  DRILL EQUIPMENT/             $189,872
                                    SPARES.
Turkey...........................  PIPELINE EQUIPMENT &       $2,115,000
                                    SPARES (OIL).
Turkey...........................  PIPELINE EQUIPMENT &         $173,000
                                    SPARES (OIL).
Turkey...........................  CESSPIT EQUIPMENT...          $95,230
Belgium..........................  ROTATING MACHINE             $261,902
                                    SPARES.
Italy............................  PIPELINE EQUIPMENT &         $890,000
                                    SPARES (OIL).
Jordan...........................  AIR COMPRESSOR PARTS         $180,000
Russian Federation...............  PIPELINE EQUIPMENT &         $418,806
                                    SPARES (OIL).
Russian Federation...............  PIPELINE EQUIPMENT &         $105,190
                                    SPARES (OIL).
The United Kingdom...............  AIR COMPRESSOR PARTS         $176,940
The United Kingdom...............  PIPELINE EQUIPMENT &         $597,593
                                    SPARES (OIL).
Jordan...........................  PIPELINE EQUIPMENT &          $58,148
                                    SPARES (OIL).
France...........................  OIL SPARES FOR WASTE          $18,575
                                    WATER TREATMENT.
France...........................  PUMP/PARTS..........          $41,385
France...........................  VALVES/PUMPS/PARTS           $555,340
                                    FOR UNDERGROUND
                                    STORAGE.
China............................  PIPELINE EQUIPMENT &         $226,477
                                    SPARES (OIL).
China............................  PIPELINE EQUIPMENT &          $12,024
                                    SPARES (OIL).
China............................  PIPELINE EQUIPMENT &          $44,480
                                    SPARES (OIL).
China............................  PIPELINE EQUIPMENT &       $1,441,686
                                    SPARES (OIL).
China............................  FERROCHROME                   $25,024
                                    LIGNOSULFONATE.
China............................  OIL SPARE PARTS.....         $155,000
France...........................  OIL SPARE PARTS.....         $178,132
France...........................  PIPELINE EQUIPMENT &       $1,200,000
                                    SPARES (OIL).
Denmark..........................  PUMP/PARTS..........         $676,000
The Netherlands..................  OIL SPARE PARTS.....         $209,032
The Netherlands..................  PUMP/PARTS..........         $177,264
The Netherlands..................  PUMP/PARTS..........         $137,847
UAE..............................  OIL SPARE PARTS.....          $73,752
Jordan...........................  PIPELINE EQUIPMENT &          $10,147
                                    SPARES (OIL).
UAE..............................  WASTE WATER                   $74,952
                                    EQUIPMENT PARTS.
Jordan...........................  PIPELINE EQUIPMENT &         $120,000
                                    SPARES (OIL).
France...........................  OIL SPARE PARTS.....         $273,176
France...........................  OIL SPARE PARTS.....         $360,473
Turkey...........................  PIPELINE EQUIPMENT &          $75,558
                                    SPARES (OIL).
Switzerland......................  PIPELINE EQUIPMENT &         $230,192
                                    SPARES (OIL).
China............................  OIL SPARE PARTS.....         $195,093
China............................  FORKLIFT............         $188,000
China............................  CEMENT..............          $52,137
Russian Federation...............  PIPELINE EQUIPMENT &          $24,308
                                    SPARES (OIL).
France...........................  OIL SPARE PARTS.....         $123,625
France...........................  PIPELINE EQUIPMENT &       $1,479,132
                                    SPARES (OIL).
UAE..............................  AIR CONDITIONER.....          $44,250
Russian Federation...............  PASSENGER BOAT......       $2,650,000
France...........................  PUMPS AND SPARE               $77,254
                                    PARTS.
France...........................  OIL SPARE PARTS.....          $85,758
France...........................  OIL SPARE PARTS.....         $119,760
France...........................  OIL SPARE PARTS.....         $135,468
France...........................  OIL SPARE PARTS.....          $50,159
China............................  OIL SPARE PARTS.....          $25,130
China............................  PIPELINE EQUIPMENT &          $80,779
                                    SPARES (OIL).
China............................  OIL SPARE PARTS.....          $23,272
China............................  PIPELINE EQUIPMENT &         $106,000
                                    SPARES (OIL).
China............................  PIPELINE EQUIPMENT &          $68,000
                                    SPARES (OIL).
Bahrain..........................  ZINC SULPHATE.......          $69,000
UAE..............................  PIPELINE EQUIPMENT &         $145,161
                                    SPARES (OIL).
UAE..............................  PIPELINE EQUIPMENT &         $118,000
                                    SPARES (OIL).
UAE..............................  PIPELINE EQUIPMENT &         $304,510
                                    SPARES (OIL).
Jordan...........................  OIL SPARE PARTS.....         $103,765
Turkey...........................  PIPELINE EQUIPMENT &         $212,700
                                    SPARES (OIL).
UAE..............................  PIPELINE EQUIPMENT &          $39,880
                                    SPARES (OIL).
Russian Federation...............  OIL SPARE PARTS.....         $162,723
The United Kingdom...............  OIL SPARE PARTS.....          $41,987
France...........................  OIL SPARE PARTS.....         $620,000
Italy............................  OIL SPARE PARTS.....          $75,960
Finland..........................  OIL SPARE PARTS.....         $123,643
France...........................  MOTOR...............         $130,937
Italy............................  MOTOR...............         $376,100
Italy............................  OIL SPARE PARTS.....          $71,731
Italy............................  OIL SPARE PARTS.....          $61,436
Germany..........................  OIL SPARE PARTS.....         $750,319
Jordan...........................  OIL SPARE PARTS.....          $32,634
Belgium..........................  FIRE FIGHTING                $119,150
                                    CHEMICALS.
Russian Federation...............  TRANSFORMERS........         $195,400
UK...............................  LABORATORY SUPPLIES.          $18,658
Korea............................  FORKLIFTS...........         $206,176
Finland..........................  INSTRUMENTATION               $25,884
                                    SPARES.
UAE..............................  GENERATOR SPARE              $100,083
                                    PARTS.
Cyprus...........................  CABLE/SPARE PARTS...         $110,000
Belgium..........................  FIRE FIGHTING                $313,976
                                    CHEMICALS.
Belgium..........................  SAFETY & FIRE                 $29,494
                                    FIGHTING EQUIPMENT.
Belgium..........................  SAFETY & FIRE                 $11,332
                                    FIGHTING EQUIPMENT.
Belgium..........................  SAFETY & FIRE                 $60,479
                                    FIGHTING EQUIPMENT.
Belgium..........................  SAFETY & FIRE                 $45,593
                                    FIGHTING EQUIPMENT.
Belgium..........................  SAFETY & FIRE                $150,952
                                    FIGHTING EQUIPMENT.
Belgium..........................  SAFETY & FIRE                 $90,082
                                    FIGHTING EQUIPMENT.
Belgium..........................  FIRE EXTINGUISHER...         $173,938
France...........................  Seals...............          $54,506
Sweden...........................  GAS TURBINE SPARE            $123,743
                                    PARTS.
Ireland..........................  OIL SPARE PARTS.....          $78,580
Ireland..........................  OIL SPARE PARTS.....         $251,772
Ireland..........................  OIL SPARE PARTS.....         $103,220
Ireland..........................  OIL SPARE PARTS.....         $119,729
Ireland..........................  OIL SPARE PARTS.....         $393,310
UAE..............................  COMPRESSOR..........         $161,000
UAE..............................  GENERATOR SPARE               $50,142
                                    PARTS.
China............................  ELECTRIC MOTORS.....           $1,650
France...........................  OIL SPARE PARTS.....         $319,719
France...........................  PUMP/PARTS..........         $343,640
France...........................  OIL SPARE PARTS.....          $71,115
France...........................  OIL SPARE PARTS.....       $1,150,382
France...........................  WATER PUMPING                $386,795
                                    STATION PARTS.
France...........................  PUMPS AND SPARE              $412,079
                                    PARTS.
France...........................  OIL SPARE PARTS.....          $54,768
France...........................  OIL SPARE PARTS.....         $105,324
France...........................  INSTRUMENTATION              $130,569
                                    SPARES.
France...........................  VALVE/PARTS.........         $325,096
Jordan...........................  OIL SPARE PARTS.....         $526,649
Jordan...........................  AIR COMPRESSOR PARTS         $655,563
UAE..............................  VEHICLE/SPARE PARTS.         $750,000
UAE..............................  VEHICLE.............       $1,404,000
UAE..............................  AMBULANCE...........          $54,000
UAE..............................  OIL SPARE PARTS.....         $619,788
Jordan...........................  OIL SPARE PARTS.....          $91,855
Jordan...........................  INSTRUMENTATION               $56,949
                                    SPARES.
Jordan...........................  OIL SPARE PARTS.....          $66,000
Italy............................  PUMPS AND SPARE               $53,524
                                    PARTS.
Italy............................  CENTRIFUGE/SPARE             $115,989
                                    PARTS.
Italy............................  ROTATING MACHINES...         $123,343
Italy............................  INSTRUMENTATION              $140,185
                                    SPARES.
Russian Federation...............  SEALS...............          $41,210
Russian Federation...............  GASKETS.............         $281,129
UAE..............................  OIL SPARE PARTS.....         $163,000
China............................  WORK VEHICLES.......       $1,179,136
France...........................  VALVE/PARTS.........          $42,713
France...........................  PUMPS AND SPARE               $40,346
                                    PARTS.
France...........................  AIR COMPRESSOR PARTS          $24,908
France...........................  MOTOR...............          $14,270
Austria..........................  PUMP/PARTS..........         $221,459
Italy............................  FIELD                        $163,242
                                    INSTRUMENTATION/
                                    SPARE PARTS.
China............................  FORKLIFT............         $140,250
France...........................  OIL SPARE PARTS.....          $31,206
Germany..........................  OIL SPARE PARTS.....         $508,011
France...........................  OIL SPARE PARTS.....         $167,885
UAE..............................  VEHICLE/SPARE PARTS.       $1,180,000
Belgium..........................  OIL SPARE PARTS.....       $1,361,475
Cyprus...........................  OIL SPARE PARTS.....          $25,000
Italy............................  OIL SPARE PARTS.....         $214,230
Belgium..........................  OIL SPARE PARTS.....         $330,000
Belgium..........................  OIL SPARE PARTS.....         $427,000
Egypt............................  BOILER TUBES........          $98,000
Switzerland......................  MOTOR...............          $18,300
France*..........................  PIPELINE EQUIPMENT &         $331,320
                                    SPARES (OIL).
Turkey*..........................  OIL SPARE PARTS.....           $7,260
China*...........................  PIPELINE EQUIPMENT &          $43,716
                                    SPARES (OIL).
China*...........................  PIPELINE EQUIPMENT &          $25,115
                                    SPARES (OIL).
Jordan*..........................  PIPELINE EQUIPMENT &          $61,666
                                    SPARES (OIL).
France*..........................  FORKLIFT/SPARES.....       $2,000,000
Jordan*..........................  OIL SPARE PARTS.....          $74,602
France*..........................  OIL SPARE PARTS.....          $53,462
Jordan*..........................  OIL SPARE PARTS.....         $664,213
Jordan*..........................  OIL SPARE PARTS.....          $68,000
France*..........................  VALVE/PARTS.........         $755,650
France*..........................  CHEMICALS...........          $78,810
France*..........................  GENERATING SETS AND           $79,000
                                    PARTS.
France*..........................  SPARE PARTS FOR              $138,252
                                    COOLING TOWER.
Italy*...........................  CHEMICALS...........         $122,033
France*..........................  OIL SPARE PARTS.....         $112,227
China............................  OIL SPARE PARTS.....       $1,180,000
Jordan*..........................  CONTROL                       $99,363
                                    INSTRUMENTATION.
UAE..............................  PUMP/PARTS..........          $41,152
Italy............................  OIL SPARE PARTS.....         $297,035
UK...............................  OIL SPARE PARTS.....          $93,642
UK...............................  OIL SPARE PARTS.....           $8,387
UK...............................  SPARE PARTS FOR              $184,494
                                    GLYCOL PUMPS.
Malaysia.........................  PIPELINE EQUIPMENT &      $10,299,000
                                    SPARES (OIL.
Malaysia.........................  OIL SPARE PARTS.....       $5,406,000
France...........................  ELECTRIC MOTORS.....          $65,190
Russian Federation*..............  COMPRESSOR/PARTS....         $383,944
France*..........................  OIL SPARES/PARTS FOR         $191,104
                                    LPG FILLING PLANT.
Russian Federation*..............  OIL SPARE PARTS.....         $298,000
Russian Federation*..............  PIPELINE EQUIPMENT &         $596,000
                                    SPARES (OIL).
France*..........................  PIPELINE EQUIPMENT &         $245,911
                                    SPARES (OIL).
UAE*.............................  PIPELINE EQUIPMENT &          $74,355
                                    SPARES (OIL).
France*..........................  OIL SPARE PARTS.....         $626,742
France*..........................  CENTRIFUGAL PUMPING          $235,460
                                    SYSTEM.
France*..........................  PIPELINE EQUIPMENT &          $25,549
                                    SPARES (OIL).
Jordan*..........................  PUMPS AND SPARE              $605,010
                                    PARTS.
Jordan*..........................  PUMPS AND SPARE              $188,782
                                    PARTS.
Jordan*..........................  COMPRESSOR/                  $253,516
                                    ACCESSORIES.
Egypt*...........................  TRANSFORMERS........          $42,500
Jordan*..........................  OIL SPARE PARTS.....         $212,105
Belgium*.........................  BEARING UNITS.......          $58,463
Italy*...........................  OIL SPARE PARTS.....           $8,845
France*..........................  PIPELINE EQUIPMENT &         $284,200
                                    SPARES (OIL).
France*..........................  PUMP/PARTS..........         $128,420
Italy*...........................  OIL SPARE PARTS.....         $312,500
Italy*...........................  ROTATING MACHINES...          $41,877
Belgium*.........................  BEARINGS............          $56,633
France*..........................  PUMP/PARTS..........         $252,868
France*..........................  COMPRESSOR/PARTS;          $1,295,895
                                    TURBINE SPARE PARTS.
France*..........................  CENTRIFUGAL PUMPING          $138,850
                                    SYSTEM.
France*..........................  EXCAVATORS & SPARE           $408,160
                                    PARTS.
France*..........................  OIL SPARE PARTS.....          $29,419
Turkey*..........................  OIL SPARE PARTS.....         $223,150
Italy*...........................  OIL SPARE PARTS.....         $457,485
France*..........................  PIPELINE EQUIPMENT &         $561,127
                                    SPARES (OIL).
Turkey*..........................  PIPELINE EQUIPMENT &         $110,640
                                    SPARES (OIL).
Turkey*..........................  VEHICLE/SPARE PARTS.          $65,983
UAE*.............................  VALVE/PARTS.........          $88,400
France*..........................  ROTATING MACHINE              $69,345
                                    SPARES.
France*..........................  PUMP/PARTS..........         $111,600
France...........................  ELECTRIC MOTORS.....          $65,190
Italy............................  PIPELINE EQUIPMENT &          $49,792
                                    SPARES (OIL).
France...........................  OIL SPARE PARTS.....         $146,560
France...........................  OIL SPARE PARTS.....         $228,760
France...........................  ROTATING MACHINES...         $109,431
France...........................  VALVES & PIPE                 $65,087
                                    FITTINGS.
France...........................  VALVE/PARTS.........         $357,138
Italy............................  CHEMICALS...........         $656,370
France...........................  FLOW CONTROL VALVES.         $654,301
France...........................  OIL SPARE PARTS.....         $350,065
Italy............................  CHEMICALS...........          $24,000
Russian Federation...............  GAS TURBINE SPARE          $2,909,000
                                    PARTS.
France*..........................  CENTRIFUGAL PUMPING        $1,454,600
                                    SYSTEM.
Italy*...........................  OIL SPARE PARTS.....       $2,492,260
France*..........................  CABLE...............          $18,000
Italy*...........................  GAS TURBINE SPARE            $165,932
                                    PARTS.
Italy*...........................  ROTATING MACHINES...         $210,059
UAE*.............................  VALVE/PARTS.........          $31,580
Russian Federation*..............  OIL SPARE PARTS.....       $1,368,712
Italy*...........................  PUMP/PARTS..........         $304,500
Italy*...........................  OIL SPARE PARTS.....          $98,660
Korea*...........................  EXCAVATORS & SPARE           $294,000
                                    PARTS.
France*..........................  OIL SPARE PARTS.....         $568,578
UAE*.............................  DRILL EQUIPMENT/             $867,082
                                    SPARES.
France*..........................  OIL SPARE PARTS.....         $284,372
UAE*.............................  VEHICLE/SPARE PARTS$         $880,112
France*..........................  OIL SPARE PARTS.....       $6,725,937
Turkey*..........................  REHABILITATION SPARE        $2118,000
                                    PARTS FOR IT.
China............................  CHEMICALS...........          $16,618
Austria..........................  OIL SPARE PARTS.....          $52,122
Austria..........................  OIL SPARE PARTS.....          $53,510
Austria..........................  PUMP/PARTS..........          $11,562
Austria..........................  OIL SPARE PARTS.....          $14,499
Jordan...........................  BATTERY CHARGER.....          $10,824
Jordan...........................  UPS.................          $42,509
Jordan...........................  ELECTRICAL EQUIPMENT         $223,968
Italy............................  ELECTRICAL EQUIPMENT         $166,682
Lebanon..........................  TURBINE.............       $1,353,767
Italy*...........................  OIL SPARE PARTS.....         $253,000
Italy*...........................  PUMP/PARTS..........         $818,900
Italy*...........................  OIL SPARE PARTS.....         $238,298
Italy*...........................  SWITCH GEAR.........          $66,060
Italy*...........................  OIL SPARE PARTS.....          $38,770
Jordan*..........................  PIPELINE EQUIPMENT &         $139,425
                                    SPARES (OIL).
Turkey*..........................  REHABILITATION SPARE       $5,880,656
                                    PARTS FOR IT2.
Italy*...........................  OIL SPARE PARTS.....         $122,400
Italy*...........................  SPARES FOR FUEL PUMP          $21,155
                                    DISPENSERS.
France*..........................  VEHICLE/SPARE PARTS.         $576,278
France*..........................  VEHICLES/CREW-CAB...         $257,244
France*..........................  PICK-UP TRUCKS &             $153,915
                                    PARTS.
France*..........................  PICK-UP TRUCKS &             $407,518
                                    PARTS.
China*...........................  TRANSFORMERS........          $25,000
France*..........................  FORKLIFT/SPARES.....         $227,748
Korea*...........................  STREET LIGHTING              $364,400
                                    BULBS.
The Netherlands*.................  PIPELINE EQUIPMENT &          $55,126
                                    SPARES (OIL).
The Netherlands*.................  PIPELINE EQUIPMENT &          $46,300
                                    SPARES (OIL).
France*..........................  PIPELINE EQUIPMENT &         $303,361
                                    SPARES (OIL).
France...........................  PIPELINE EQUIPMENT &       $3,645,424
                                    SPARES (OIL).
Italy*...........................  PIPELINE EQUIPMENT &       $3,800,999
                                    SPARES (OIL).
Greece*..........................  OIL SPARES/NOZZLES            $16,446
                                    FOR FUEL DISPENSERS.
France*..........................  OIL SPARES/LIGHTING           $12,315
                                    FIXTURES.
Turkey*..........................  OIL SPARE PARTS.....          $50,050
Italy*...........................  OIL SPARE PARTS.....         $694,300
France...........................  PIPE FITTINGS.......         $514,115
France...........................  PARTS FOR LOADING            $422,966
                                    ARMS.
Germany..........................  OIL SPARE PARTS.....         $309,393
France...........................  VEHICLE/SPARE PARTS.         $839,183
France...........................  SAFETY RELIEF VALVES          $58,761
Ireland..........................  OIL SPARE PARTS.....         $362,981
Jordan...........................  MAINTENANCE.........         $130,119
France...........................  CHEMICALS...........         $437,210
France...........................  PIPE, CARBON STEEL..         $521,693
Sweden...........................  GAS TURBINE SPARE             $25,163
                                    PARTS.
France...........................  COMPLETE PUMPS WITH          $198,748
                                    MOTORS.
Turkey*..........................  OIL SPARE PARTS.....          $54,940
Russian Federation*..............  PIPELINE EQUIPMENT &         $330,900
                                    SPARES (OIL).
Belgium*.........................  PIPELINE EQUIPMENT &          $38,000
                                    SPARES (OIL).
Jordan*..........................  SPARE PARTS FOR              $737,671
                                    DRILLING EQUIPMENT.
Austria*.........................  SAFETY & FIRE                $118,779
                                    FIGHTING EQUIPMENT.
France*..........................   GAS TURBINE SPARE        $15,083,472
                                    PARTS.
France*..........................   PUMP/PARTS.........       230,511.52
UK...............................  OIL SPARE PARTS.....          $38,613
Germany..........................  GENERATING SETS AND        $1,343,042
                                    PARTS.
France*..........................  PIPELINE EQUIPMENT &          $68,850
                                    SPARES (OIL).
France*..........................  WATER TREATMENT/              $68,952
                                    SPARE PARTS.
France...........................  EQUIPMENT &                $6,105,691
                                    MATERIALS-WET CRUDE
                                    PRODUCTION.
UK...............................  PIPELINE EQUIPMENT &          $45,961
                                    SPARES (OIL).
UK...............................  OIL SPARE PARTS.....          $90,323
Italy............................  OIL SPARE PARTS.....         $163,204
India*...........................  CHEMICALS...........         $119,017
Germany..........................  STEAM BOILER/PARTS..         $582,840
Jordan...........................  SPARE PARTS FOR              $198,054
                                    ENGINES.
Italy............................  MEASURING & CONTROL          $107,345
                                    INSTALLATION &
                                    SPARE PARTS.
UK...............................  PUMPS AND SPARE              $359,616
                                    PARTS.
China*...........................  PUMPS AND SPARE               $83,678
                                    PARTS.
Finland*.........................  OIL SPARE PARTS.....          $60,075
France...........................  PUMP/PARTS..........         $277,575
Jordan...........................  SPARE PARTS FOR AIR           $22,422
                                    COMPRESSOR.
France...........................  ELECTRIC MOTOR......          $57,621
France...........................  ELECTRIC MOTOR......          $33,508
Portugal.........................  DESLUDING EQIPMENT..         $329,664
France...........................  VALVE/PARTS.........         $143,199
Russian Federation...............  OIL SPARE PARTS.....          $23,005
Jordan...........................  CRANE...............         $594,000
Russian Federation...............  PIPE FITTINGS.......         $125,173
Turkey*..........................  TRANSFORMERS........         $104,000
Turkey...........................  FIRE FIGHTING TRUCKS/        $356,705
                                    SPARES.
Belgium..........................  SOLAR GAS TURBINE...         $926,852
Russian Federation*..............   SPARE PARTS FOR             $500,020
                                    EXCITER.
France...........................  OIL SPARE PARTS.....         $181,750
Cyprus...........................  BATTERY CHARGER.....          $47,000
Russian Federation...............  INSTRUMENTATION.....         $217,298
Russian Federation...............  OIL SPARE PARTS.....         $432,000
Jordan...........................  PUMPS,COMPRESSORS            $297,598
                                    AND ROTARY MACHINES.
Turkey...........................  AIR COMPRESSORS.....         $301,148
China*...........................  FILTERS.............          $44,748
Turkey...........................  OIL SPARE PARTS.....          $27,075
France...........................  COMPRESSOR/PARTS....         $559,386
Russian Federation...............  FIRE FIGHTING                 $66,500
                                    EQUIPMENT.
Italy............................  HEAT EXCHANGERS AND        $2,270,780
                                    PARTS.
Turkey...........................  CABLE TERMINATIONS..         $195,000
Syria............................  CABLE...............         $312,700
France...........................  ELECTRIC MOTORS.....          $15,803
Cyprus...........................  OIL SPARE PARTS.....         $383,825
France...........................  PUMP/PARTS..........          $92,065
France...........................  ELECTRICAL AND                $62,821
                                    CONTROL INSTRUMENTS.
France...........................  ROTORK ACTUATORS &           $215,323
                                    SPARES.
France...........................  OIL SPARE PARTS.....         $293,280
Jordan...........................  PUMPS AND SPARE              $889,681
                                    PARTS.
Cyprus...........................  BATTERIES...........         $302,475
Portugal.........................  OIL.................        $223,750
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*Released from hold

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