[Congressional Record Volume 146, Number 25 (Wednesday, March 8, 2000)]
[Senate]
[Pages S1274-S1275]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           GAS AND OIL PRICES

  Mrs. HUTCHISON. Mr. President, I rise today to speak about the high 
gasoline prices that every one of our constituents is finding at the 
gas pump today and about the rise in home heating oil prices my friends 
from Maine and Vermont were talking about that are hurting their States 
so much.
  In fact, I commend Senator Murkowski for holding a hearing today in 
the Energy Committee to talk about this issue and what we can do to 
address it. I was slated to be one of the people testifying at the 
hearing, but because I was visiting with education leaders from my 
State, I could not be there and missed the hearing.
  I want to speak on this issue because this is a crisis coming down 
the road. For the people in Maine and Vermont, it is here already. But 
for our constituents who are going to try to take vacations this 
summer, it is going to hit them right between the eyes because gasoline 
prices at the pump are going up, and I see no relief in sight.
  The common refrain today is, the United States has no energy policy. 
That is not really accurate. The United States does have an energy 
policy, and it is the wrong one. Our policy is to restrict domestic 
exploration, and in those areas where exploration is permitted, there 
are punitive taxes and regulations on producers.
  The result is that at periods of low prices, such as we had last 
year--prices on which a small producer cannot break even--those 
producers leave the business and they do not come back.
  The fact is, when it comes to our most precious commodity, we do not 
control our own destiny. We are seeing our Energy Secretary going hat 
in hand to foreign countries and saying: Please, produce more oil.
  Worse, we had plenty of opportunity to address this crisis. It did 
not just happen in a vacuum. In 1998 and 1999, crude oil prices hit 
their lowest point in decades: $9 a barrel, $8 a barrel. Hundreds of 
thousands of small wells shut down, and thousands of jobs were lost. Of 
course, it made us more vulnerable because we lost the production. We 
have ignored this cycle since the oil price shock of the 1970s. Our 
dependence on oil from foreign countries is now at 55 percent.
  Energy-producing and energy-consuming States share two interests: 
Maintaining a large and reliable source of energy in our own country, 
and reducing volatility in oil and gas prices.
  Unfortunately, the measures proposed by this administration to 
address the current crisis in home heating oil will not address either 
of these priorities. There is talk about increased funding for the 
Energy Department Weatherization Assistance Program, which helps 
homeowners make their homes more efficient. Others support an increase 
in the Federal Low-Income Home Energy Assistance Program to provide 
heating assistance to low-income families. We are discussing a 
temporary adjustment of EPA sulfur content limits in home heating oil. 
I have seen requests for additional appropriations for the Coast Guard 
icebreaking efforts in waterways. We are even considering getting the 
Federal Government into the price-fixing business by releasing oil from 
the Strategic Petroleum Reserve.
  These are stopgap measures. But the most important thing is, if we 
enacted all of them, it would not solve the problem. We need a policy 
that encourages domestic production that is sustainable when prices go 
below break even.
  While the problem is fairly localized now, we are going to see long 
gas lines this summer or we are going to see people not taking their 
summer vacations.
  Instead, we need the quick fixes--we need to address some of those 
areas that need fixing right now for low-income families--and we need 
an energy policy that goes along with it that will sustain domestic 
production through the busts we have seen in the last 2 years. We need 
price stability.
  The first step toward breaking that cycle is a simple one: 
Understanding that cold Vermont households and out-of-work Texas 
wildcatters are two sides of the same coin--our overdependence on 
foreign energy sources.
  At the heart of our growing dependence on overseas sources has been 
the steady decline in the number of small producers. Wildcatters--small 
producers--once drilled more than 9,000 wells a year. Last year, there 
were 778. You wonder why we have an oil shortage? Many of these wells 
are so small that once they close, they cannot be reopened; it is not 
financially sound to do so.
  What are we talking about? What is a wildcatter? A wildcatter is a 
person who has a well that produces 15 barrels or fewer a day. There 
were close to 500,000 such wells across the United States. Together, 
those wells, at just 15 barrels a day, have the capacity to produce 20 
percent of America's energy needs. This is roughly the same amount of 
oil that is imported from Saudi Arabia. During last year's oil price 
plummet, more than one-fourth of these small wells closed, most of them 
for good. We have it within our capacity, in our country, to produce 
that 20 percent of the oil that is consumed here, which is the same 
amount we are importing from Saudi Arabia.

  The overwhelming majority of producing wells in Texas are these 
marginal wells. In fact, marginal wells account for 75 percent of all 
crude production for small independent operators, up to 50 percent for 
midsized independents and 20 percent for large companies. So even the 
major companies can make a go of it with the small wells if we do not 
saddle them with so many costs that it is not financially feasible.
  A more sensible energy policy would be to offer tax relief to 
producers of these smaller wells; that would help them stay in business 
even when prices fall below break even.
  For 2 years I have been working with my great cosponsors--Senators 
Domenici, Nickles, Breaux, and Landrieu--on legislation that would 
provide incentives to these small producers. When they can stay in 
business during these low prices, supply will go up and we will not see 
that supply shortage causing high price spikes.
  I think our legislation provides a quite reasonable tax credit: A $3-
a-barrel tax credit for only the first three barrels of daily 
production in one of these small wells. We offer similar credits for 
small gas wells.
  The marginal oil well credit would be phased out when prices of oil 
and natural gas actually go up. For oil, it would phase out at $14 to 
$17 a barrel. We are not talking about having tax credits today when we 
are paying $30 a barrel for oil; we are talking about tax credits when 
the price falls below break even. At 14 to 17 barrels a day, a small 
producer can make it. So when the price goes up, the tax credit goes 
out. The tax credit is only for the first three barrels in a well. A 
countercyclical system such as this would keep these producers alive 
during these record-low prices. They are not grabbing when the price is 
$20 a barrel; they are trying to stay in business and keep those jobs 
when the price goes below break even.

  There is another benefit to encouraging marginal well production. It 
has a multiplier effect. In 1997, these low-volume wells generated $314 
million in taxes paid to State governments. These revenues were used 
for State and local schools, highways, and other State-funded projects.
  Another part of our plan is to offer incentives to restart inactive 
wells by

[[Page S1275]]

offering producers a tax exemption for the cost of doing so. So going 
in and trying to reopen a well that has been capped, which is very 
expensive, could be done with a tax exemption for the expenses of doing 
it, and that would ensure greater oil availability and increase Federal 
and State tax revenues. Everyone would win--more jobs, more tax revenue 
for our States, and, most importantly, more domestic oil.
  Actual results have shown that this can work. In my home State of 
Texas, a program similar to this has met with huge success. Over 6,000 
wells have been returned to production, with State tax abatements 
injecting $1.6 billion into the Texas economy in a year. Think what we 
could do nationwide.
  A recent study by the Interstate Oil and Gas Compact Commission 
examined State incentive programs and found that the average program 
attracts $1.1 billion in investment over its lifetime, with over $50 
million in net tax collections typically associated with each 
incentive. That incentive will create 6,000 jobs and $16 billion in 
impact for the States.
  There is more to do. We should look for ways to reduce the cost of 
excessive regulation on our domestic producers. This was what the fight 
we had last year over MMS royalty valuation was about. Some said it was 
a giveaway to big oil. It wasn't. It was about keeping costs low so we 
don't push more producers out of business. Maybe those paying record 
prices for home heating oil and gas today have a different perspective 
on that issue now. The MMS is going to release its new oil royalty 
valuations tomorrow, and I challenge everyone to see if they raise the 
price of drilling for oil on public lands. If they do, the President is 
just saying, yes, we are going to continue that policy to try to keep 
domestic production down so we can be held by the throat by OPEC 
countries.
  The overlapping regulations that govern exploration and production 
and refinement add $4 to $5 a barrel to the cost of oil. Compare that 
with the overall cost of production in Saudi Arabia, including capital 
and labor, of $2 to $3 a barrel. Is it any wonder that oil companies 
are drilling in Saudi Arabia instead of in our country, providing jobs 
for our citizens?
  Our fight last year on MMS was over the opposition to adding yet 
another complicated scheme of rules and further raising the cost of 
production. When gas prices were low, few Senators were listening. In 
fact, the major television networks weren't listening either. They were 
pretty brutal during that debate. Today we are seeing the results of 
that brutality.
  We don't have to be at the whim of market forces. We don't have to be 
out of control of our own domestic oil production. What we need is to 
be part of the price setting, not the price taking. We must increase 
our domestic oil supply.

  This is something we can all rally around. I will work with the 
Northeastern Senators to get quick fixes to their problems. I will work 
with all of the Senators whose constituents are going to be affected by 
high gasoline prices. But let us not do a quick fix without also having 
a longer term fix that would keep our jobs in America, that would keep 
our oil prices stable, that would keep the revenue coming into our 
States for schools and highways at a time when prices go below break 
even. We can have a win for everyone, if we can pass legislation that 
will provide help for everybody and provide a stable oil supply for our 
country. We have the opportunity to create a domestic policy for oil 
and gas in this country that makes sense and will benefit all of our 
constituents. Let us take that chance.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Texas.

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