The government and industry continues to promote the fiction that we can somehow produce our way out of the oil crisis. RMW, OKC, Energy Conservation Printable Pages

Energy industry boost urged

The Daily Oklahoman 2001-02-17 By Paul EnglishSenior Business Writer

It's long past time for the federal government to give a big boost to the energy industry by following the lead of Oklahoma legislators who have helped the industry survive bad times.

That's the view of a lot of people in the energy business and Denise Bode, vice chairwoman of the Oklahoma Corporation Commission.

Bode is a member of President Bush's national energy advisory committee and is a longtime promoter of a comprehensive energy policy for the United States.

She previously served six years as president of the Independent Petroleum Association of America, an advocate for America's independent oil and natural gas producers.

"We are in desperate straits in terms of supplying the energy needs of American consumers right now," Bode said in a recent interview.

"We are in tight supplies of natural gas in this country, and in terms of oil, we are heavily dependent now on foreign imports."

The solutions will require actions by federal regulatory agencies and Congress, which is split almost evenly between Democrats and Republicans.

Bode, a Republican, blames the Clinton administration for much of the nation's energy problem. She said his cheap energy policies put many domestic producers out of business in the last two years.

"We have failing infrastructure that we need to really, seriously examine in terms of pipelines, refineries, and other things that help distribute oil and natural gas, and process it," she said.

"We haven't paid attention to those things."

Bode's solution is to allow "bigger companies," including big independents, to have access to areas in the United States that were put off limits by the Clinton administration.

The top priority should be getting access to build an Alaska natural gas pipeline, she said.

"That should have been done 10 years ago, should have been started because we need that gas supply," Bode said.

She said a tremendous amount of gas is being produced and then being reinjected into the ground.

"That is one of the real answers to our gas supply situation right now is getting that gas back," she said.

Bode said the access problem in some situations was a result of "piling regulations on regulations that make it so difficult to actually either build a road to a site or actually get the processing of the application through."

She said she expects those rules will be dealt with in the regulatory process of the U.S. Department of Interior.

"Those are the kinds of things that need to be dealt with in terms of greater access to areas like ANWR (Arctic National Wildlife Refuge)," she said.

The Sierra Club has said that drilling in Alaska's pristine ANWR "will decimate one of our nation's most important wilderness areas and threaten habitat used by hundreds of animals."

Energy experts and scientists say their evidence proves that the oil estimated to be in the refuge "is just a fraction of our yearly consumption," the Sierra Club said.

The 600,000-member club said that Americans in 2000 "overwhelmingly voted for candidates who stood up for the environment, and Bush will find broad consensus for protecting our air, water and wild lands."

Oklahoma Energy Secretary Michael Smith said modern drilling technology protects the environment.

Ten Western governors earlier this month urged construction of a pipeline to move natural gas from Prudhoe Bay along the Alaska Highway to the lower 48 states.

The governors also called for expansion of natural gas pipeline systems in the lower 48 states.

Another recommendation of the governors was to "encourage rate structures that give utilities an incentive to reduce consumption."

Mickey Thompson, executive vice president of the Oklahoma Independent Petroleum Association, said recently that a number of Oklahoma companies would like to get access to the Rocky Mountains, which have been off limits to drillers for about 15 years.

The Rocky Mountains represent "the greatest untapped resource of natural gas in the country right now besides off-shore," he said.

Bode said another big concern for smaller producers, especially natural gas producers, is the ability to raise capital to drill.

Even with higher gas prices, some potential investors are reluctant to invest in gas drilling because of the industry's "boom and bust" history, she said.

"Not having tax penalties imposed on you is a critical factor in terms of making sure you can attract investment," Bode said.

"Almost half the nation's gas is produced by people who only get their money from one producer investing in their business and another producer's business or from outside investors."

Bode said small independent gas producers "can't go to the capital markets. It's very difficult to get money from banks in terms of investing in these higher risk operations."

"Tax policy is really, really important," she said.

The Internal Revenue Service, by "tightening down on rules" in the last eight years, has imposed "a significant amount of tax penalties," she said.

Examples, she said include "making certain that you can expense geological and geophysical costs -- your finding cost, basically -- and delay rental payments."

Among other changes that "would be really important" to small producers include income averaging and allowing a five-year net operating loss to carryback for small producers, she said.

"Eliminating the net income limitation on percentage depreciation" also would be good for producers, Bode said.

"For long-term relief I think we should focus on drilling incentives like we have built in the (Oklahoma) tax code," she said. "You don't get the drilling incentive when prices are really high."

Bode's proposal is for the drilling incentive to kick in when prices fall, similar to the incentive passed by the Oklahoma Legislature in 1999.

That incentive lowers the state's gross production tax from 7 percent to 1 percent when the price of oil falls below $14 a barrel.

Bode said 28 of the 33 energy-producing states have passed legislation to preserve domestic production and affordable energy for consumers.

Since 1998, 11 states have enacted 25 new incentives to save domestic production, she said.

"Fueling the American consumer is what this effort is all about," she said.

The Interstate Oil and Gas Compact Commission, headquartered in Oklahoma City, said incentive programs "have proven an effective method" of stopping the abandoning of low-volume stripper wells.

"Incentives should be studied and adopted that prolong production from existing wells and encourage exploration and production of domestic oil and gas," the compact said.

The compact also wants a policy to stop U.S. tax dollars used to guarantee loans to develop oil fields in foreign countries with regulation less stringent than in the United States.

-- robert waldrop (rmwj@soonernet.com), February 17, 2001