By the OGJ Online Staff
WASHINGTON, DC, Sept. 28 -- Tax credits for nonconventional fuel production were a key factor in the growth of the major companies' US natural gas production in the 1990's.
The Energy Information Administration said nearly half of the major oil and gas producers submitting data to EIA's Financial Reporting System (FRS) received tax credits for nonconventional fuel production under Sec. 29 of the "Windfall Profits" Tax Act.
Coalbed methane accounted for most of the majors' production qualifying for Sec. 29 credits. It accounted for 7% of gas production in 1999 and 57% of the growth in the 1990's. Majors reporting to the FRS had two thirds of US coalbed methane production in the 1990's.
EIA said the credits appeared to be a stimulus to the majors' gas output. Majors receiving Sec. 29 credits increased their gas production 26% between 1990 and 1999 (the most recent year of FRS data) while other majors' output declined 14%.
Although production from wells drilled after 1992 is not eligible for Sec. 29 credits and the credit is due to expire at the end of 2002, the majors continued to develop coalbed methane resources. EIA said after 1992, majors receiving the credit drilled about 900 wells/year more than other majors and several acquired independent coalbed methane producers, spending a total of $3.4 billion.
The report noted that the major energy companies' shift to gas production has been part of a trend that began in the mid-1980s, long before the growth of coalbed methane production. Beginning in 1986, natural gas grew steadily from 38% of the majors' combined US oil and gas production to 52% in 1999. This trend was a reversal of the majors' earlier flight from gas.
EIA said that trend was driven by the profitability of gas production relative to the profitability of oil. Beginning in the early 1980s, the profitability of gas generally increased compared to oil, and from 1993 on, exceeded the profitability of oil in all but 2 years.
