Producers reinvesting earnings, association officials tell senator

Nov. 11, 2005
Oil and natural gas producers are already reinvesting much of their substantially higher earnings in exploration, production, and refining, officials of three leading trade associations told US Sen. Charles E. Grassley (R-Iowa).

Nick Snow
Washington Correspondent

WASHINGTON, DC, Nov. 11 -- Oil and natural gas producers are already reinvesting much of their substantially higher earnings in exploration, production, and refining, officials of three leading trade associations told US Sen. Charles E. Grassley (R-Iowa).

Their responses were to Grassley's Nov. 1 letter to the American Petroleum Institute, the Independent Petroleum Association of America, and the Natural Gas Supply Association in which the senator said, "You have a responsibility to use these record profits to invest in more exploration, production and refining capacity to increase the supply of petroleum products.

"Beyond that, you have a responsibility to help less fortunate Americans cope with the high cost of heating fuels," he continued. Grassley suggested that it's reasonable to expect companies "with 50, 75 or 100% growth in earnings this quarter to contribute a mere 10% of those profits" to fuel fund programs that supplement the Low Income Heating Energy Assistance Program.

"This is especially true in the case of some of the largest integrated oil and gas companies that currently have tens of billions of dollars in cash on hand," said Grassley, who asked the associations to relay his request to their members and to provide status reports on their contributions.

Recognizes hardship
"The US oil and natural gas industry recognizes the hardship on needy families of high energy costs and has consistently supported full funding of the LIHEAP program each year," API Pres. Red Cavaney responded in a Nov. 7 letter to Grassley.

Higher oil and gas prices have significantly increased royalties and income taxes that producers pay to the federal government, he added. "These increased revenues should more than cover full funding for LIHEAP," Cavaney said.

He said that while the industry is reporting record earnings for the third quarter, the results in perspective "are very much in line with the average profit rates of all other industries and often they are lower—even given recent returns."

Cavaney added, "And many oil and gas companies have announced large increases in their capital expenditure budgets for exploration and production of crude oil and increases in refining capacity."

IPAA Chairman Michael C. Linn said that a recent study found that 150% of independent producers' cash flow is being invested in new domestic E&P projects. He also pointed out that the average US independent producer has 12 employees.

"Our members are active leaders in their communities and this leadership extends to their commitment to helping their local communities and those who will need assistance this winter," he wrote Grassley on Nov. 7.

"In the aftermath of Hurricanes Katrina and Rita, our industry donated hundreds of millions of dollars to relief efforts and we've created a special 'job network' for those displaced from employment," said Linn, who is also vice-chairman of Linn Energy LLC in Pittsburgh.

"Of course, at the same time we will also be spending up to $30 billion to rebuild the infrastructure that was damaged and that resulted in an interruption of supply," he added.

LIHEAP backed
Linn noted that IPAA strongly supports LIHEAP and has urged Congress to increase funding for the program. NGSA also backs LIHEAP and its members believe full government funding for it "is the most efficient way to help those in need, while also preserving a competitive marketplace that allows for more supply and ongoing economic expansion," said NGSA Pres. R. Skip Horvath.

"At the same time, these companies are also spending billions of dollars to bring production and refining capacity back on line to increase supplies of crude oil and refined products for American consumers," Horvath said in a Nov. 10 letter to Grassley.

"This winter, energy costs will be a top concern for many Americas—including those not eligible for LIHEAP assistance," Horvath indicated.

"The passage of comprehensive energy legislation this summer was a good step, but all Americans struggling to pay their home heating bills should no longer be forced to wait for additional access to economic supply," he maintained.

Cavaney said that supply is an important force in helping low-income families pay increasingly higher heating bills. He suggested that Congress could address this directly by providing access to oil and gas resources that are off-limits or severely restricted in western nonpark lands and off US coasts.

"These recoverable resources would provide enough natural gas to heat 100 million homes for 30 years. In addition, there are 42 billion bbl of recoverable oil, enough to produce gasoline for more than 20 million cars and fuel oil for 20 million homes for 30 years," API's president told Grassley.

Contact Nick Snow at [email protected].