[Congressional Record Volume 145, Number 69 (Thursday, May 13, 1999)]
[Senate]
[Pages S5280-S5281]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. HUTCHISON (for herself, Mr. Breaux, Mr. Domenici, Mr. 
        Bingaman, Mr. Lott, Ms. Landrieu, Mr. Cochran, Mr. Thomas, Mr. 
        Brownback, and Mr. Gramm):
  S. 1042. A bill to amend the Internal Revenue Code of 1986 to 
encourage domestic oil and gas production, and for other purposes; to 
the Committee on Finance.


       DOMESTIC ENERGY PRODUCTION SECURITY AND STABILIZATION ACT

 Mrs. HUTCHISON. Mr. President, I am pleased today to introduce 
with my colleague from Louisiana, Senator Breaux, the Domestic Energy 
Production Security and Stabilization Act. This bill represents a 
necessary and workable proposal to ensure that the United States does 
not lose even more of its energy independence.
  Mr. President, the oil and gas industry in this country is in a state 
of unprecedented crisis. Over the last year-and-a-half, oil and gas 
prices have been a historic lows. This has led to the closing of over 
200,000 domestic oil and gas wells, has brought new exploration to a 
virtual standstill, and has cost an estimated quarter of a million 
American jobs.
  Not only is this an economic issue, it is also a national security 
issue. We are importing more oil than we produce. This is not a healthy 
situation for shaping our foreign policy agenda. If our domestic 
industry is to survive, then Congress needs to act now to provide tax 
incentives to encourage energy production in America.
  To reverse these trends and increase our energy independence, I have 
worked on a bipartisan basis to develop the Domestic Energy Production 
Security and Stabilization Act. The bill provides tax incentives in our 
significant areas to ensure that our domestic energy infrastructure is 
not decimated during prolonged periods of low energy prices.
  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 during periods of critically low oil and gas prices. 
Marginal wells are those that produce 15 barrels a day or less. There 
are close to 500,000 such wells across the U.S. that collectively 
produce 20 percent of America's oil, more oil than we import from Saudi 
Arabia.
  Second, the bill would provide some relief from the alternative 
minimum tax (AMT), again during prolonged periods of low energy prices. 
In a time of financial crisis for the oil and gas industry, this tax 
has had the effect of exacerbating the impact of low commodity prices 
and driving even more producers out of business. The AMT was enacted to 
ensure that companies reporting large financial income paid at least 
some level of taxes. Unfortunately, for the oil and gas industry, the 
AMT has only served to make a bad situation worse.
  Third, Mr. President, this legislation would change the net income 
limitation on percentage depletion by eliminating the 65 percent 
taxable income limitation. Carried-over percentage depletion could also 
be carried back ten years. This would enable companies to fully utilize 
their percentage depletion allowance, which many have not been able to 
do since the onset of the oil and gas crisis.
  Finally, Mr. President, this bill brings the U.S. Tax Code in line 
with the present-day realities of the oil and gas industry by allowing 
oil and gas exploration (geological and geophysical) costs to be 
expensed rather than capitalized, and by allowing delay rental lease 
payments to be deducted in the year in which they are paid, rather than 
when the oil is actually pumped. Even the Treasury Department has 
tacitly endorsed these proposed changes as making for sound economic 
and tax policy.
  Taken together, these four major tax provisions will help the job-
creating oil and gas sector of the economy to withstand the volatility 
of the international oil and gas markets. We simply must not allow our 
nation to become even more dependent on foreign oil. Nor can we afford 
to shut-down our domestic gas production capability, particularly since 
natural gas consumption is expected to grow rapidly in the near future, 
and, unlike oil, natural gas is not imported.
  Mr. President, this legislation is long overdue, and I appreciate the 
support of Senator Breaux and my other colleagues who are cosponsoring 
the bill. Most importantly, I urge my other colleagues, particularly 
those from non-energy producing states, to join with us in supporting 
this effort. America simply has too much at stake to stand by and let 
our domestic oil and gas industry jobs and infrastructure be lost to 
the whims of the world markets.
 Mr. BREAUX. Mr. President, I am pleased to join with the 
distinguished Senator from the State of Texas. Senator Hutchinson, in 
introducing the Domestic Energy Production Security and Stabilization 
Act. I believe it is legislation all of our colleagues should support.
  First, I'd like to outline the problem and then discuss how this 
legislation helps address it. Oil prices may be in the early stages of 
recovery, but over the last 17 months, a glut in the world market 
forced crude oil prices down to their lowest inflation-adjusted levels 
in 50 years. The Independent Petroleum Association of America estimates 
that, since November 1997, when the price of oil began to decline, more 
than 136,000 crude oil wells and more than 57,000 natural gas wells 
have been shut down.
  The U.S. petroleum industry last year lost almost 30,000 jobs because 
of falling crude prices, according to the American Petroleum 
Institute's annual report. Despite the recent rise in oil prices, job 
losses continue. Another 3,600 jobs were lost between February and 
March. This brings the loss since December 1997 to about 54,400 jobs, a 
decline of 16 percent. In the first three months of 1999, losses 
amounted to about 24,000 jobs, or a drop of almost 8 percent.
  Mr. President, independent producers account for almost a third of 
Gulf of Mexico oil production on the outer continental shelf (OCS), and 
almost half of natural gas production. According to the Minerals 
Management Service, on a per-day basis, the OCS accounts for 27 percent 
of the nation's natural gas production and 20 percent of the nation's 
crude oil production. In 1997, production on the federal OCS off 
Louisiana resulted in $2.9 billion or 83 percent of the $3.5 billion 
royalties received for all of the OCS. It is not difficult to see that 
as domestic production falls, so will federal royalty receipts.
  And, let's not forget the thousands of jobs created in non-energy 
sectors to service the energy industry: computers, steel and other 
metals, transportation, financial and other service industries. When 
domestic oil and gas production increases, so does the number of jobs 
created in all these sectors.
  This legislation will provide marginal well tax credits, alternative 
minimum tax relief, expensing of geological and geophysical costs and 
delay

[[Page S5281]]

rental payments and other measures to encourage domestic oil and gas 
production. It is a safety net. The bill's provisions phase in and out 
as oil prices fall and rise between $17 and $14 per barrel and natural 
gas prices fall and rise between $1.86 and $1.56 per thousand cubic 
feet. It will provide a permanent mechanism to help our domestic 
producers cope with substantial and unexpected declines in world energy 
prices.

  Let's examine how one aspect of this bill--marginal well production--
affects this nation. A marginal well is one that producers 15 barrels 
of oil per day or 60,000 cubic feet of natural gas or less. Low prices 
hit marginal wells especially hard because they typically have low 
profit margins. While each well produces only a small amount, marginal 
wells account for almost 25 percent of the oil and 8 percent of the 
natural gas produced in the continental United States. The United 
States has more than 500,000 marginal wells that collectively produce 
nearly 700 million barrels of oil each year. These marginal wells 
contribute nearly $14 billion a year in economic activity. The marginal 
well industry is responsible for more than 38,000 jobs and supports 
thousands of jobs outside the industry.
  The National Petroleum Council is a federal advisory committee to the 
Secretary of Energy. Its sole purpose is to advise, inform, and make 
recommendations to the Secretary of Energy on any matter requested by 
the Secretary with relating to oil and natural gas or to the oil and 
natural gas industries. The National Petroleum Council's 1994 Marginal 
Well Report said that:

       Preseving marginal wells is central to our energy security. 
     Neither government nor the industry can set the global market 
     price of crude oil. Therefore, the nation's internal cost 
     structure must be relied upon for preserving marginal well 
     contributions.

The 1994 Marginal Well Report went on to recommend a series of tax code 
modifications including a marginal well tax credit and expensing key 
capital expenditures. The Independent Petroleum Association of America 
estimates that as many of half the estimated 140,000 marginal wells 
closed in the last 17 months could be lost for good.
  Mr. President, the facts speak for themselves. The U.S. share of 
total world crude oil production fell from 52 percent in 1950 to just 
10 percent in 1997. At the same time, U.S. dependence on foreign oil 
has grown from 36 percent in 1973 (the time of the Arab oil embargo) to 
about 56 percent today. That makes the U.S. more vulnerable than ever--
economically and militarily--to disruptions in foreign oil supplies. 
This legislation will provide a mechanism to help prevent a further 
decline in domestic energy production and preserve a vital domestic 
industry.
 Mr. GRAMM. Mr. President, I am pleased to join Senator Kay 
Bailey Hutchison and a number of other colleagues in the introduction 
of legislation which we believe will provide critically needed relief 
and assistance to our beleaguered domestic oil industry.
  Our bill contains a number of incentives designed to increase 
domestic production of oil and gas. The decline in domestic oil 
production has resulted in the estimated loss of more than 40,000 jobs 
in the oil and gas industry since the crash of oil prices at the end of 
1997. Our legislation will not only put people back to work, it will 
revitalize domestic energy production and decrease our dependence on 
imports.
  I have sought relief for the oil and gas industry from a number of 
sources this year. As a member of the Senate Budget Committee, I 
strongly opposed the $4 billion tax which the Clinton budget proposed 
to levy on the oil industry. As my colleagues know, that tax is now 
dead.
  Earlier this year I contacted Secretary of State Madeleine Albright 
and urged her to conduct a thorough review of our current policy which 
permits Iraq to sell $5.25 billion worth of oil every six months. The 
revenue generated from such sales is supposed to be used to purchase 
food and medicine but reports make it clear that Saddam Hussein has 
diverted these funds from their intended use and that they are being 
used to prop up his murderous regime. The United States should not be a 
party to such a counterproductive policy.
  Senator Hutchison and I earlier this year introduced legislation 
which contained a series of tax law changes intended to spur marginal 
well production. The legislation which we introduce today contains 
those provisions as well as others, such as reducing the impact of the 
Alternative Minimum Tax (AMT) on the oil and gas industry and relaxing 
the existing constraints on use of the allowance for percentage 
depletion.
  I am looking forward to working with my colleagues in an effort to 
enact the legislation as soon as possible.
                                 ______