Independent producers are back fighting what has become an annual spring battle to preserve federal support for domestic oil and gas research and development. But the stakes are much greater than a few tax breaks, an Independent Petroleum Association of America official said.
“This has become an ongoing dispute between the Bush administration and Congress,” said Lee O. Fuller, IPAA’s vice-president for government affairs. “The administration apparently believes high oil and gas earnings no longer justify government support.”
Major oil companies’ R&D is targeted where they’re spending money, which is mostly overseas and largely proprietary, he explained. Service companies also do a lot of research, but again it’s directed to regions where their biggest customers work.
“Independent producers generally aren’t structured with an R&D component. They reinvest what they earn in exploration and production,” Fuller said.
The US Department of Energy’s oil and gas R&D program’s main contribution has been to create a structure for research, about 85% of which is directed at independent producers and 65-70% toward smaller producers in programs such as reducing environmental footprints and extending reservoirs, he said.
“It’s a cooperative effort that also involves universities, which use it for petroleum engineering graduate programs. This has been steadily reduced the last 5 years,” said Fuller.
A rite of spring has developed in which the administration submits a dramatically lower oil and gas R&D budget request that Congress tries to bring back to its previous level. Even if the lawmakers succeed, however, the program has been undermined for the coming year because it has been designed on the basis of the lower budget request.
One result, said Fuller, can be that projects are quickly chosen so the additional money can be spent. The projects might not have the quality of those that would have been undertaken following a longer, more careful selection process.
Historic aversion
This leads to questions from the White House Office of Management and Budget, which historically has had an aversion to DOE’s oil and gas R&D program. “It has perceived it as corporate support for the majors. We have tried to explain that it isn’t, but it’s a heavy lift,” said Fuller.
OMB also uses the Program Assessment Rating Tool, which the IPAA official said uses metrics that emphasize present benefits and don’t recognize future contributions. Oil and gas R&D, by its nature, produces real but longer-term benefits, he observed. “The results of 3D and 4D seismic, horizontal drilling, and coalbed technologies all had their roots in 1980s R&D,” he said.
“Gas hydrates, which everyone hopes will contribute to supplies in another 25 years, need to be worked on now. Yet their R&D program has been zeroed out in DOE’s budget request. So has deep well data evaluation research,” Fuller said.
He suspects that there’s also pressure within DOE to support hydrogen and other future-fuel initiatives while meeting OMB spending reduction goals.
The Bush administration also wants to repeal an ultradeep onshore gas well research program directed at small producers that became part of the 2005 Energy Policy Act through the efforts of Rep. Ralph M. Hall (R-Tex.), who chairs the House Energy and Commerce Committee’s energy and air quality subcommittee, and former House Majority Leader Tom DeLay (R-Tex.).
Fuller said the program, which would be run outside DOE by an industry-academic consortium, includes a component directed at producers with 1,000 b/d or less of output.
Many state geologists and other officials in the Interstate Oil & Gas Compact Commission recognize that there would be no domestic oil and gas R&D infrastructure without continued federal support, he added.
“Meanwhile, the Bush administration is criticized for allegedly being too close to the oil and gas industry. That makes it hesitant to stay involved in complex programs with benefits that are hard to quickly explain,” said Fuller.✦
