When elephants wrestle, mice get trampled. Independent producers in the US must know how the mice feel.
For years, independents and their trade associations have pursued a reasonable set of tax reforms that would help them survive price distress and raise capital for drilling. The reforms range from current-year expensing of geological and geophysical costs to phased-in credits for small oil and gas wells when prices fall below perilous thresholds.
These changes wouldn't represent huge giveaways by the government. In many cases, they'd affect only the timing of government receipts. Other measures would prolong the lives of old fields or encourage development of new ones, extending or creating sources of domestic production and taxable revenue. Most would be available only to independent producers.
Preserving production and stimulating drilling by independent operators would serve national economic and energy interests. But Congress, with industry encouragement, tucked the minor tax changes essential to these benefits into monstrous legislation that once again seems doomed by grander disputes.
Catch-all bills
The industry and its congressional supporters should give up their dream of comprehensive energy legislation. Catch-all energy bills succeed only in catching all ill-informed ideas about energy that circulate in Washington, DC, where ideas like that abound. In pursuit of illusions such as energy independence, an environment free of human influence, and a market immune to price variation, politicians turn the broad subject of energy into an experiment in cultural manipulation. And producers of commercially hopeless energy forms turn it into a business opportunity.
The process inevitably yields a fragile assembly of unrelated initiatives and intersecting controversies that lawmakers find impossible to compromise into a package acceptable to majorities of both houses. Last year, comprehensive energy legislation collapsed under its own weight. It's happening again this year.
On Oct. 24, leaders of the House-Senate committee trying to reconcile this year's energy bills announced a further delay in their already protracted conference (see related story, p. 26). They voiced hope that an energy bill would emerge as pressures for compromise build. But they set no time limit. Earlier, lawmakers hinted at delaying work until next year. In fact, prospects for enactment of incoherent legislation should be no better then—or a year from then—than they are now.
The list of issues officially blamed for the impasse underscores the problem: tax treatment of ethanol, alternative energy, and environmentally friendly coal plants; liability protection for producers of methyl tertiary butyl ether; and amendments to the Clean Air Act. Not mentioned were quarrels still simmering over subsidies and trade protections for a natural gas pipeline transiting Alaska, controls on emissions of carbon dioxide consistent with the unratified Kyoto Treaty on Climate Change, and regulation of electricity.
Energy legislation doesn't have to include all this. In fact, it shouldn't. The ethanol mandate has less to do with energy than with corporate welfare for grain distillers. Implementation of Kyoto controls deserves its own discussion and vote. So does regulation of electricity. MTBE liability, a potentially serious problem for refiners, more properly attaches to the larger issue of unbridled litigation and tort costs, which Congress so far refuses to address. Submission of such diverse issues to a contest of compromise under the auspices of energy makes no sense. It would be charitable to say the same for energy policy forged this way after the expulsion of measures promoting oil and gas exploration on promising federal land.
Deepwater relief
Industry trade associations support comprehensive energy legislation because they consider it the only way to win constructive action on energy policy. History disproves their assumption. The country's best energy move in many years, temporary royalty relief for deepwater production in the Gulf of Mexico, wasn't part of an omnibus energy bill. Congress debated it as stand-alone legislation for 3 years before passing it in 1995 as part of a law allowing export of crude oil produced on Alaska's North Slope.
The arguments that won deepwater royalty relief in 1995 apply just as forcefully now to incentives for drilling by independent producers and preservation of marginal wells: energy supplies and future tax revenues that otherwise wouldn't exist. The targeted approach employed in 1995 can succeed now, too. Comprehensive energy legislation too readily becomes an elephant fight that crushes the good under toppling monsters.
