[Congressional Record Volume 145, Number 16 (Thursday, January 28, 1999)]
[Senate]
[Pages S1093-S1094]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. HUTCHISON (for herself, Mr. Domenici, Mr. Nickles, Mr. 
        Murkowski, Mr. Bingaman, Mr. Breaux, Mr. Brownback, Mr. 
        Cochran, Mr. Conrad, Mr. Enzi, Mr. Gramm, Mr. Inhofe, Ms. 
        Landrieu, Mr. Roberts, Mr. Rockefeller, Mr. Stevens, Mr. 
        Thomas, Mr. Burns, and Mr. Lott):
  S. 325. A bill to amend the Internal Revenue Code of 1986 to provide 
tax incentives to encourage production of oil and gas within the United 
States, and for other purposes; to the Committee on Finance.


                  the u.s. energy economic growth act

 Mrs. HUTCHISON. Mr. President, today I am pleased to introduce 
the U.S. Energy Economic Growth Act.
  Mr. President, the oil and gas industry in this country is in a state 
of crisis. In energy producing states, we are hearing daily from our 
constituents about this crisis.
  This week the oil and gas rig count hit an all-time low of 588 rigs 
nationwide. This is down from nearly 5,000 rigs operating in 1981. 
Crude oil prices are at their lowest point in decades, and some think 
they will fall further.
  According to the Texas Comptroller of Public Accounts, for every 
dollar drop in the price of oil, ten thousand Texas jobs are at risk. 
Last year, the energy industry lost 30,000 jobs in the United States.
  Mr. President, not only is this an economic issue, it's a national 
security issue. We are importing more oil than we produce. This is not 
a healthy situation for shaping our foreign policy agenda.
  To reverse these trends and increase our energy independence, I have 
worked, on a bi-partisan basis, to develop the U.S. Energy Economic 
Growth Act.
  This legislation provides tax incentives in two significant areas to 
boost U.S. oil production. First, the legislation would provide a $3 
dollar a barrel tax credit, on the first three barrels that can offset 
the cost of keeping marginal wells operating at a time of low prices.
  Marginal wells are those that produce 15 barrels a day or less. On 
average, they produce two barrels a day. There are close to 500,000 
such wells across the U.S. that collectively produce 20 percent of 
America's oil. To put this in perspective, we import 20 percent of our 
oil from Saudia Arabia. Texas, alone, has 100,000 marginal wells. 
Regrettably, 48,000 wells have been idled or shut in the past year.
  In recent months, some marginal well producers report prices as low 
as $6 per barrel. If we don't act soon, these producers--and the 
thousands they employ--will go out of business.
  These marginal wells can still be profitable for all of us. In 1998, 
these low-volume wells generated $314 million in taxes paid annually to 
state governments.
  Second, Mr. President, the bill would provide incentives to restart 
inactive wells by offering producers a tax exemption for the costs of 
doing so.
  In Texas, a similar program has resulted in 6,000 wells being 
returned to production, injecting approximately $1.65 billion into the 
Texas economy.
  Mr. President, improving the production and flow from both marginal 
wells and inactive wells will do a great deal to improve our energy 
production. This is vital to improving the state of the U.S. oil and 
gas industry.
  I am pleased that this legislation has 18 co-sponsors from both sides 
of the aisle. I would invite all members of the Senate to join me as a 
co-sponsor.
  This morning I testified before the Senate Energy Committee on this 
bill. Certainly that Committee recognizes the gravity of this 
situation. I would hope that, with the introduction of this bill, the 
Senate as a whole will begin to focus on this problem and we can begin 
finding solutions.
 Mr. NICKLES. Mr. President, I rise today to join in offering 
the U.S. Energy and Economic Growth Act. This legislation is an effort 
to help revive our domestic oil and gas industry which plays such a 
vital role in our national security. If our domestic industry is to 
survive, then Congress needs to act now to provide tax incentives to 
encourage energy production in America.
  Since the early 1980's, oil and gas extraction employment has been 
cut in half. Employment in the oil and gas industry has declined by 
almost 500,000 since 1984. Imports of crude oil products were $71 
billion in 1977, and the import dependency ratio now exceeds fifty 
percent. From 1973 to 1998, crude oil production dropped 43% in the 
lower 48 states. We must take action now to save domestic production 
not only for the sake of the oil and gas industry but for the sake of 
the national security of this nation.
  To date, the Clinton Administration has done nothing to encourage 
domestic production. In the President's State of the Union address, he 
named no initiatives to aid this troubled industry and recently, his 
Administration has conspired with the U.N. to almost double the amount 
of oil Iraq can export under the so-called food-for-oil program.
  The U.S. Energy and Economic Growth Act is intended to do just what 
its name implies--preserve and revitalize the domestic oil and gas 
industry through economic incentives to production. This bill would 
accomplish these goals through specific tax proposals.
  Marginal wells are those which produce less than 15 barrels per day 
or gas wells which produce less than 90 thousand cubic feet per day. 
The United States has over 500,000 marginal wells producing nearly 700 
million barrels of oil each year and contributing 80,000 jobs and $14 
billion to the annual economy.
  This legislation provides incentives to keep these valuable wells in 
production through a $3 per barrel tax credit on the first three 
barrels of daily production, or $0.50 per mcf for the first 18 mcf of 
daily natural gas production. These credits would only apply when low 
market prices necessitated them for the survival of the industry, and 
are phased out when prices increase.
  In an effort to reclaim oil lost to closed wells, this bill allows 
producers to exclude income attributable to oil and natural gas from a 
recovered inactive well. The provision only applies to wells which have 
been inactive for at least two years prior to the date of enactment, 
and which are recovered within five years from the date of enactment.
  The U.S. Energy and Economic Growth Act would also allow current 
expensing of geological and geophysical costs incurred domestically 
including the Outer Continental Shelf. These costs are an important and 
integral part of exploration and production for oil and natural gas, 
and should be expensed.
  Furthermore, this bill clarifies that delay rental payments are 
deductible, at the election of the taxpayer, as ordinary and necessary 
business expenses. This clarifies an otherwise gray area in Treasury 
regulations and eliminates costly administrative and compliance burdens 
on both taxpayers and the IRS.
  Lastly, the legislation includes hydro injection and horizontal 
drilling as tertiary recovery methods for purposes of

[[Page S1094]]

the Enhanced Oil Recovery Credit. Although the Treasury Department is 
tasked with continued evaluations and editions to the list of recovery 
methods covered under this credit, they have proven notably lax in 
pursuing this objective. By legislating this outcome, this bill keeps 
domestic production of our endangered marginal wells on the cutting 
edge of available technology.
  Collectively, the provisions of this bill provide much needed 
incentives to an industry that is vital to our national security. The 
sooner the Administration and Congress acknowledge the critical 
importance of the domestic oil and gas industry and stop burdening this 
industry with high taxes and regulatory obstacles, the sooner we can 
take the necessary actions to preserve and revitalize this important 
sector of our economy. Passage of the U.S. Energy and Economic Growth 
Act would be a significant step in that direction. I urge my colleagues 
to support this legislation which will positively impact the domestic 
oil and gas industry by helping to bridge the gap in these lean 
economic times.
 Mr. BURNS. Mr. President, I rise today to join Senator 
Hutchison, many members of the Energy and Natural Resources Committee, 
and other Senators who recognize the importance of our domestic energy 
market in presenting the United States Energy Economic Growth Act. This 
act is extremely important given the current state of our domestic oil 
and gas industry. The current market, coupled with government inaction 
and misguided regulation, has created an environment that is forcing 
many of our producers out of the energy market.
  I have risen many times before, and unless things change I will rise 
many times again, to voice my concern over that fact that we are 
running our producers into the ground. Agriculture, timber, mining and 
energy; it doesn't seem to make a difference these days which natural 
resource market you work in, you don't get a fair price for an honest 
day's work.
  This morning in the Energy and Natural Resource Committee, we had a 
hearing on this very problem. I must say, I heard some of the best 
testimony that I have ever heard before a Senate Committee. It just 
made good sense. We didn't have people asking for handouts. We didn't 
have people placing blame. We had some hard working oil and gas 
producers, state governors and representatives of oil and gas producing 
states outline the problem and offer solutions.
  One of the biggest problems discussed was the loss of domestic 
production capability in the form of marginal wells. We are losing 
these wells at an alarming rate. As a result our reliance on foreign 
energy sources is skyrocketing. We are running our producers out of 
business, increasing our dependence on foreign oil, and throwing our 
trade balance askew.
  This legislation will help our independent producers running marginal 
wells stay in business. Much more needs to be done, but this bill will 
help relax the heavy hand of government on an ailing industry. As 
pointed out this morning, the current administration stepped in to help 
the straw broom industry when less than a hundred jobs were at risk. 
It's time this Congress takes a stand, and hopefully the administration 
will join us, in supporting an industry where tens of thousands of 
jobs, our national security, and our economic well-being are all being 
placed at risk.
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