EXECUTIVE Q&A: Outlook for independents

OGJ Energy Policies Editor Patrick Crow interviewed Barry Russell, the new Independent Petroleum Association of America president, on July 6 in Washington, DC. Russell outlined the challenges facing his association.

Jul 14th, 2000

The Independent Petroleum Association of America represents about 4,000 US oil and gas producers. Its mission is to promote a strong, viable domestic oil and gas industry that can provide the US with adequate energy supplies. Independents drill 85% of US wells, produce 80% of the oil, and 66% of the natural gas.

OGJ Online: What do you hope to achieve as IPAA president?

Russell: Our goal is to educate the public and Washington policy-makers about the structure of the industry, in a more effective way. An important objective for me is to work for policies here in Washington that reflect the structure of the industry. Often people here tend to think of the oil and gas industry as the majors, and they�re always surprised to learn that many of the companies in the oil industry are small businesses with less than 20 employees�very entrepreneurial and high-tech in nature. Independents collectively produce as much oil as we import from Saudi Arabia. That�s always a surprise to people.
A second goal is to explain the national security aspect of US production. We try to explain to policy-makers and the public the importance of domestic oil production, yet our nation�s level of dependence on imported oil keeps increasing.

OGJ Online: How do you get your message across?

Russell: That�s hard, because we rely a lot on our members, and when the industry goes through a price downturn, we lose membership. So IPAA is an organization trying to do an awful lot of things with very limited resources. We try to maintain a high profile up on Capitol Hill. We are blessed that we have a membership that�s generally politically active. We can bring them to Capitol Hill to educate congressmen about the industry.

OGJ Online: Generally, what are your major issues these days?

Russell: Our members are on the exploration and production side of the industry and don�t have refining and marketing operations, so we�re very concerned about oil and gas supply issues.
As energy markets tighten, we must have access to where that supply is, whether offshore or on public lands onshore. So environmental tradeoffs are one of the big things were dealing with these days. The natural gas market is predicted to grow 30% over the next 20 years, and industry needs access to those public lands. We�re very much involved in that.
We�re also very concerned about getting capital to our industry. We believe that some selected tax incentives�the expensing of geological and geophysical costs, the expensing of delay rental payments, marginal well tax credits�would allow us to go forward and revitalize the industry.
The oil industry is one of the nation�s most important industries, in terms of driving the economy, but the industry is very vulnerable to pricing and production decisions by foreign governments. We think that a revitalization of the industry would allow it to respond to price problems and spikes in a more efficient and effective way.

OGJ Online: Do you have any hopes Congress will grant the industry tax relief in the short time remaining this session?

Russell: It�s always tough to pass legislation in an election year. Politics largely control the agenda, and a lot of housekeeping bills have to be passed. But with the concern over energy policy in general over the past couple of months, we�ve been working hard to try to get a consensus on the tax provisions that we are concerned about.
For the first time in a long time, the industry has a unique opportunity to get legislation passed. A couple of months ago, President Bill Clinton endorsed some of the provisions that IPAA has been talking about. So the administration agrees with us, and many of the congressmen on Capitol Hill, both Democrats and Republicans, agree that�s the way to go. We�ve gotten some very positive support from the Department of Energy. All the players see the importance of a strong domestic oil and gas industry. Now our challenge is trying to get legislation through, given the time constraints.

OGJ Online: Industry always seems to be in a no-win situation. When prices are low, Congress doesn�t want to take actions that would raise them. And when prices are high, Congress doesn�t think producers need help of any kind. What can you do?

Russell: It�s hard to get our message across when prices are high. But during the last industry downturn 18 months ago, more and more we heard policy-makers recognize that these extreme cycles are bad for the oil industry and bad for the nation. The last downturn cost us about 25% of the wells in this country and 500,000 b/d of oil production, and then a year later, we were importing an equivalent amount from Iraq.
The oil industry is still suffering from the damage of the last cycle. We lost about 65,000 persons in the oil industry, and we�ve only recovered about 15,000 since then.
Policy-makers seemed to realize that, if we continue with these cycles and nothing is done to enhance domestic production, that trend will be exacerbated. You�re more vulnerable as you lose more of your production capacity. The last downturn gave us the lowest oil production in 50 years, the lowest prices in 25 years, and the lowest level of employment in 25 years. Those are very heavy costs.
I�m encouraged that people are beginning to understand the need to enhance the stability of domestic production. The more we are dependent on foreign countries, the more vulnerable we are. People are beginning to see that we need an overall energy policy in this country, and a key element of that policy should be the revitalization of our domestic oil and gas industry.

OGJ Online: How has IPAA changed in recent years?

Russell: When I first came here 20 years ago, I think we kept our membership records on index cards. Computer technology has helped an awful lot.
We have many more programs at IPAA than we had when I first started. We�ve been very active in our program to try to bring outside investment capital to the industry. We�ve been more active in educational programs and programs in communities. Those things are relative new.
While we have been always been active on Capitol Hill, we�ve had to do more with less. There are fewer independent operators today than when I started. Our members have been more active because they had to be, because the industry is shrinking. It�s always a challenge to do more and more with a smaller and smaller base.

OGJ Online: How has staffing changed?

Russell: We�ve been going through a transition on the staff and have upgraded it quite a bit with people who are experienced in the energy field. We now have experts in different areas who can get our views across, experts on the Federal Energy Regulatory Commission, environmental laws, natural gas, public land issues, those kinds of things. Almost everybody at IPAA has been involved on Capitol Hill or at an agency, so we have a tremendous amount of experience. We have become a leaner, more efficient organization, and the level of expertise has been raised.

OGJ Online: You�re working more closely with state oil and gas associations too?

Russell: That�s one of our most important programs, working as closely as we can with our cooperating associations. We�ve found over the years that it�s hard enough to get the right policies through Congress, but if we have disagreements within the industry, it�s almost impossible. So we work very, very closely with our state and regional associations. That�s going very well, and it�s been very gratifying. We also work more closely with other oil industry associations in town.
Another thing we have done recently, as opposed to the earlier days of IPAA, is work with other industry groups though our organization, the Environmental Issues Council. We work with farmers, cattlemen, and contractors who are looking at environmental issues and public lands access issues from the point of view of other small businessmen. That�s been very valuable because we�ve found that we all have the same kind of concerns, and that some of the environmental decisions being made by the Bureau of Land Management and other agencies are foreclosing public lands across the board.

Barry Russell received an undergraduate degree from Pennsylvania State University and then a law degree from George Washington University. Russell joined the US Environmental Protection Agency in 1973, working 3 years in the general counsel�s office. After working for a Washington, DC, consulting firm on various energy studies, he joined IPAA in 1980 as an environmental lobbyist. For the last 10 years he has been IPAA�s chief legal and financial officer. Two years ago Russell was named executive vice-president. He was elected IPAA president 3 months ago.

More in Production Operations