[Congressional Record Volume 145, Number 96 (Thursday, July 1, 1999)]
[Senate]
[Pages S8075-S8076]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PLIGHT OF THE DOMESTIC OIL AND GAS INDUSTRY
Mr. DOMENICI. Mr. President, the Wall Street Journal yesterday wrote:
What is not in dispute is how hard a hit small domestic oil
took during the recent downturn in oil prices. While larger
oil companies with their huge asset bases and integrated
businesses were able to weather the storm, many of the
smaller producers, which operate on low margins and minuscule
volumes, lurched toward ruin.
These small producers, who mop up the tailings of the
country's once-great oil fields primarily in the West and the
Mid-west collectively produce about 1.4 million barrels of
oil daily, an amount roughly equivalent to that imported to
Saudi Arabia. And the total number of such subsistence wells,
defined by the Interstate Oil and Gas Compact Commission as
ones producing 10 barrels of crude a day or less were
abandoned at an accelerated rate during the downturn, experts
say.
The Wall Street Journal is not the only entity noticing the plight of
the domestic independent oil and gas industry. DOE recently wrote:
``Domestic crude oil producers have seen the price of their product
(adjusted for inflation) fall to levels not seen since the 1930's.''
Independent oil and gas producers have wells in 32 States. Senators
from these producing States have heard from the producers, oil and gas
service small businesses, Governors, mayors and county commissioners.
The situation was so bad in Oklahoma that the Governor held a special
session of the legislature. In New Mexico, we have oil and gas
producers organizing marches and rallies calling attention to their
crisis. When the oil and gas industry suffers a cash flow problem and
credit crunch, so do Federal, State and local governments. The recent
oil and gas crisis has cost States and localities $2.1 billion in lost
royalties alone. One community had to chose between keeping the
hospital or the school open. Oil tax revenues were, not sufficient to
keep both operating.
The number of oil and gas rigs operating in the United States is at
the lowest count since 1944, when records of this tally began. The
industry is predicting that the U.S. will loss an additional million
barrels a day of domestic production as a result of the last price
collapse. This production shrinkage will be felt in the marketplace in
12 to 18 months.
Beginning in November 1997, the oil and gas exploration and
development industry began experiencing the lowest inflation-adjusted
oil prices in history.
Recent Independent Petroleum Association of America (IPAA) statistics
speak for themselves:
55,000 jobs lost out of an estimated 338,600 total industry
jobs.
Additional 68,000 oil and natural gas jobs (20 percent) are
at risk of being lost.
136,000 oil wells (25 percent of total U.S.) and 57,000
natural gas wells shut down.
Every barrel of domestic that we lose will have to be replaced with
barrel of foreign produced oil and our dependence on foreign oil is
already too high--in excess of 57 percent and trending higher.
The industry we are trying to help includes royalty owners in all 50
States. Many of these royalty owners are retired and depend on their
oil royalty checks to pay for their daily expenses. When the price of
oil dipped to $10 a barrel several months ago, these royalty owners saw
their royalty checks drop by half.
At $18 to $19 a barrel our independent producers barely break even.
At $14 a barrel they lose $10.30 a day per well or $3,752 a year per
well.
The oil and gas industry is a very capital intensive industry on the
front end--exploring and drilling wells and also on the back end--
shutting in wells or going out of business. The drilling costs for a
well range from $600,000 to $15 million for an off-shore deep water
well. Getting out of the business is capital intensive industry, too.
On average it costs $5,000 to $10,000 a well to decommission a well.
It is an industry dependent on banks and credit. The independents get
about 40 percent of their capital from financial institutions. The
price of oil has just recently improved, but the bankers have been
reluctant to restructure loans or to make new loans.
Capital budgets to develop new production and replace depleting
existing production have been cut dramatically. Most independents are
not drilling new wells. The industry has a viable future but they have
to get through this current credit crunch, and they need loan
restructuring to keep them going until they can recover from the big
price drop of 1997 through mid-1999.
This is why I joined with Senator Byrd to propose an emergency loan
[[Page S8076]]
program for oil, gas and steel--two important core industries. I am
hopeful that the House will quickly name conferees and move the bill
through the legislative process. Domestic oil and gas production is
America's true national strategic petroleum reserve and we need to make
sure there is an industry in the U.S. capable of meeting our strategic
oil and gas needs.
I ask unanimous consent that an article that appeared in the June 30,
1999, Wall Street Journal be printed in the Record.
There being no objection, the article was ordered to be printed in
the Record, as follows:
[From the Wall Street Journal, June 30, 1999]
Oil Producers File Antidumping Suit
group of independent firms says four countries sold at cheap prices in
u.s.
(By Helene Cooper and Christopher Cooper)
WASHINGTON--Thirty years ago, after a two-day debate over
the difference between material injury and immaterial injury
in America's dense antidumping laws, Sen. Russell Long issued
a commentary still bandied about in international trade
corridors today. The antidumping debate, he said, ``sounds
more like the difference between mumbo-jumbo and jumbo-
mumbo.''
Yesterday, that jumbo-mumbo erupted into a case that could
smack consumers right in the wallets--and just before an
election year, no less. A group of independent oil producers
has filed an antidumping suit with the Commerce Department
and the International Trade Commission. The oil companies--
representing an industry that 20 years ago was a cartel that
kept prices high--say four countries ``dumped'' cheap oil on
the U.S. market in 1998 and 1999.
The group, called Save Domestic Oil Inc., wants the Clinton
administration to impose dumping duties on oil from the four
alleged offenders--Mexico, Venezuela, Saudi Arabia and Iraq--
which together account for more than half of the oil imported
into the U.S. The duties requested range from 33.37% (Mexico)
to 177.52% (Venezuela). Many of the bigger U.S. oil
companies, which import much of their oil, oppose the
complaint.
In Washington, where politicians are still reeling from the
steel industry's recent attempt to limit steel imports, the
case is bound to be politically explosive. ``This oil thing
could kill us,'' says one Clinton administration official.
Indeed, if the oilmen win--and in the world of U.S.
antidumping statutes, he who complains usually wins--the
Clinton administration could well find itself blamed for
increased prices at the pump.
Energy Secretary Bill Richardson called the complaint a
``serious charge, with potentially serious consequences.'' He
added that the administration should seek to ``bring all the
parties together to see whether there is a way to resolve the
concerns raised by this petition.''
Many economists and trade lawyers who dislike the U.S.
antidumping law say it's crazy to file an oil antidumping
complaint because oil is a commodity regulated by world
markets; as a commodity, oil's properties tend to be
consistent, so the markets set a standard price. But Danny
Briggs, proprietor of tiny Pickrell Oil Co. in northwest
Kansas and a member of Save Domestic Oil's executive
committee, says he's tired of watching cheap oil from
abroad drive down the prices here. ``We tried everything
we could think of'' before turning to the trade action,
Mr. Briggs says. ``It's been used by the apple growers and
the steel manufacturers--why not the oil producers?''
Although most of the plaintiffs, advancing the trade
complaint are small oil producers--strippers, as they're
known in the business--one exception is Houston's Apache
Corp., one of the nation's largest independent oil companies.
Raymond Plank, Apache's chief executive, said he personally
put up $10,000 and his company anted up another $10,000 to
help pay the costs of the trade complaint, which is
ultimately expected to cost the plaintiffs $1.5 million in
legal fees.
They hired Charles Verrill, a powerful Washington trade
lawyer who, for 30 years, has represented U.S. businesses,
including steelmakers, that complain about unfairly low
prices from foreign competition. In this oil case, he says,
``imports have increased significantly while prices have
declined,'' noting that the price per barrel plunged to close
to $10 earlier this year before rebounding in the second
quarter.
Economists opposed to the antidumping law said they want
the oilmen to lose, but they relish the thought of a win
embarrassing politicians into changing the law, which they
see as protectionist and biased, ``If this case succeeds, it
may actually help put antidumping reform on the international
trade agenda, where it should have been all along,'' says
Robert Litan, an economist at the Brookings Institution and
co-author of ``Down In The Dumps,'' a book about antidumping
law.
``Any economist who knows this subject will tell you these
laws are ridiculous,'' Mr. Litan says. ``They punish
foreigners for selling below cost, activities which American
companies do all the time in their domestic markets.''
U.S. lawmakers, prodded by companies that wanted to protect
their domestic sales from competition from cheap foreign
imports, devised and refined the antidumping law as one
weapon in the home-team arsenal. The rationale behind the law
was simple: Hit the foreign countries with stiff duties to
stop them from flooding the U.S. market with cheap goods and
sending the U.S. companies out of business.
The wildcatters complain that Mexico, Venezuela and Iraq
have been selling their oil in the U.S. at below the cost of
production--the most widely accepted definition of dumping.
Saudi Arabia, they complain, sold oil in Japan at higher
prices than the oil it sold in the U.S.
Most trade lawyers say the oilmen have a good shot at
victory. That's because U.S. antidumping law--conceived in
the 1920s--has been refined by successive lawmakers to
heavily favor the plaintiff. Indeed, in more than 90% of the
cases filed, the Commerce Department finds in favor of the
plaintiff.
The case will work its way through the Commerce Department
and the International Trade Commission. The Commerce
Department has as many as 20 days to decide whether to
initiate an investigation. If the investigation goes forward,
the department has 190 days to determine if dumping occurred.
The ITC then determines whether ``material injury'' to the
oilmen occurred. Duties, if warranted, would follow.
The four countries deny the allegations and say they will
fight them. Roberto Mandini, president of Venezuelan state-
oil monopoly Petroleos De Venezuela SA, says that ``pushing
down oil prices would be suicidal for Venezeuela.'' Adds Luis
de la Calle, Mexico's undersecretary for international trade
negotiations: ``Mexico is not in the practice of unfair
commercial practices.''
What is not in dispute is how hard a hit small domestic oil
took during the recent downturn in oil prices. While larger
oil companies with their huge asset bases and integrated
businesses were able to weather the storm, many of the
smaller producers, which operate on low margins and miniscule
volumes, lurched toward ruin.
These small producers, who mop up the tailings of the
country's once-great oil fields primarily in the West and the
Mid-west collectively produce about 1.4 million barrels of
oil daily, an amount roughly equivalent to that imported to
Saudi Arabia. And the total number of such subsistence wells,
defined by the Interstate Oil and Gas Compact Commission as
ones producing 10 barrels of crude a day or less, were
abandoned at an accelerated rate during the downturn, experts
say.
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