[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.

                          ____________________