Washington Watch

Production slide
The American Petroleum Institute reports U.S. oil production for the first 6 months of 1999 it was 8% lower than a year ago. API said this year's first half production was the lowest of any 6-month period since 1950.

U.S. oil output dips
The American Petroleum Institute reports U.S. oil production fell 5.5% in June to 5.922 million b/d, vs. June 1998, and for the first 6 months of 1999, it was 8% lower than a year ago. API said this year`s first half production was the lowest of any 6-month period since 1950. It said although oil prices have doubled for U.S. producers since the low of $8/bbl last December, the industry`s recovery from economic depression has been slow. It said despite the fact that New York Mercantile Exchange crude oil prices have been hovering at $20/bbl, the highest in 1? years, most rigs are searching for natural gas rather than oil.

Western Gulf sale
The Minerals Management Service has scheduled its annual Western Gulf of Mexico offshore lease sale Aug. 25 in New Orleans. Sale No. 174 covers 3,651 blocks totaling 19.86 million acres. They are 9 to 200 miles offshore in waters ranging from 8 m to more than 3,000 m of water. MMS said 2,122 blocks in more than 200 m will be eligible for consideration under the Deep Water Royalty Relief Act. MMS said 1,701 blocks in less than 400 m will carry a 16 2/3% royalty rate while 1,950 blocks in more than 400 m will have a 12.5% royalty rate.

Tax legislation
The House Ways and Means Committee has approved a bill easing some oil industry tax burdens. It would apply the 90% limit on Alternative Minimum Tax credits against the regular tax for corporations, as well as individuals, after 2007. The bill would suspend the 65% of taxable income limit on percentage depletion until 2005 and would allow the current deduction geological and geophysical expenses beginnning Dec. 31.

Dumping petition
The International Trade Commsision plans to decide by Aug. 13 on a petition by Save Domestic Oil Inc., which alleges that Iraq, Saudi Arabia, Venezuela, and Mexico have been dumping their oil production on the U.S. market. The group asked ITC to impose antidumping tariffs, and the agency has scheduled a hearing for 9:30 a.m. July 20 to hear their oral arguments. After ITC makes its determination, it will report the results to the Commerce Department, which would be responsible for setting dumping and countervaling duties. The Independent Petroleum Association of America is supporting the petition as an interested party.

Alaska oil exports
The U.S. General Accounting Office reports that lifting the export ban on Alaskan North Slope (ANS) crude in 1995 has increased oil prices for ANS oil and should increase future production. GAO said prices are between 98?/bbl and $1.30/bbl higher than they otherwise would have been. Removal of the ban has not let to a large volume of exports, only about 60,000 b/d or 5% of ANS output. Sen. Frank Murkowski (R-Alas.) said, "This review confirms what we projected back in 1995. Lifting the ban would increase domestic production, bring higher prices for crude oil, bring additional revenues to Alaska and more jobs to the U.S. maritime industry-all with no adverse impacts to the environment."

API restructuring
The American Petroleum Institute`s management committee has approved a reorganization that will reduce API from the $60 million/year, 364-person organization of a year ago to $40 million, 203-person operation within 2 years. API will be realigned into three councils: advocacy, research analysis and services, and industry operations. Each will be headed by a vice president and will interact with each other in a team-based environment.

Y2K readiness
According to the latest U.S. oil and gas industry survey, companies supplying 93% of domestic demand expect to be Y2K ready by Sept. 30. All respondents reported they will have checked, tested, and upgraded their computer systems by the end of the year to prevent shutdowns on Jan. 1, 2000. Ron Quiggins, chairman of API`s Year 2000 Task Force and director of Shell Services International Co.`s Year 2000 program, said companies now are focusing on their suppliers` Y2K readiness. "It is taking more effort to assess other companies` readiness than we had envisoned," he said.

Loan guarantee program
The U.S. Senate has voted 63-24 to approve a $500 million federal emergency loan guarantee program for independent oil and gas producers and service and supply firms. Companies could borrow up to $10 million each, repayable by Dec. 31, 2010. The measure now goes to a House-Senate conference committee.

FTC gasoline probes
The Federal Trade Commission has expanded its investigation of California gasoline price increases that occurred this spring, and has linked it to its review of oil company mergers. At the request of Sen. Ron Wyden (D-Ore.), FTC expanded the price investigation to include Oregon and Washington.

FTC also said it would look at the West Coast gasoline pricing issue in connection with its merger reviews. FTC is looking for possible antitrust problems resulting from the planned Exxon Corp. and Mobil Corp. merger, and the BP Amoco Co. and Atlantic Richfield Corp. merger.

Southern Ute case
The U.S. Supreme Court has ruled 7-1 that oil companies hold valid leases to coalbed methane gas on the Southern Ute Indian reservation in Colorado. Congress gave the rights to coal in the area to the tribe in the early 1900s but did not mention the methane, then considered both hazardous and worthless. In the last two decades, methane has become a valuable resource, and oil companies began producing it from tribal and private lands in the reservation. In 1991 the tribe sued Interior and oil companies, alleging it owned the coalbed methane because it owned the coal. It lost in district court but won last July before the 10th Circuit Court of Appeals. BP Amoco, Phillips Petroleum Co., and Mobil Corp. appealed to the high court. The case, valued at $1 billion, allows private landowners of about 200,000 acres the right to collect royalties for the gas.

Imports eyed
As requested by congressmen, the U.S. Commerce Department has launched an inquiry under Sec. 232 of the Trade Expansion Act to determine how rising crude and product imports are affecting national security. Interested parties were invited to submit comments by June 3. The law requires the study to be completed by Jan. 29, 2000, but Commerce Sec. William Daily pledged, "We will do everything possible to expedite the process." A similar study in 1994 concluded imports threatened national security, but the Clinton administration determined no radical actions were necessary.

Sulfur rule
Carol Browner, Environmental Protection Agency administrator, has said her agency may give small refiners more time to meet the proposed gasoline sulfur rule. Browner strongly defended the rule in testimony before the Senate Environment Committee. The measure would slash the sulfur content of gasoline from the current average of 330 ppm to 30 ppm between 2004 and 2006. EPA plans to issue a final rule by year end. J. Louis Frank, President of Marathon Ashland Petroleum LLC, testified for the American Petroleum Institute. He said the rule would add 5?/gal to the cost of gasoline, costing U.S. consumers about $5.7 billion/year, and could cause some small refiners to close operations. Clint Ensign, Sinclair Oil Corp.`s government relations vice president, said 53 small refineries, not the 17 that EPA estimated, may have difficulty meeting the new standard. (OGJ, May 31, p. 34).

Gasoline oxygenates
A National Research Council panel has concluded that the two principal types of oxygen additives used in reformulated gasolines in the U.S. contribute little to reducing ozone pollution. The NRC study examined the differences between the additives ethanol and methyl tertiary butyl ether (MTBE), and concluded reformulated gasoline made with ethanol is less effective, but that the overall impact of either oxygen additive on reducing ozone (a major component of smog) is very small. The study said auto emissions of chemicals that form ozone pollution have decreased, but because of better emissions control equipment and components of reformulated gasolines-other than oxygen additives-that improve air quality. (OGJ, May 24, 1999, p. 39).

EPA smog/soot rule
The Environmental Protection Agency plans to appeal to the U.S. Supreme Court a federal appeals court decision which overturned the agency`s controversial smog and soot standards. In a 2-1 opinion, the District of Columbia Court of Appeals said the Clinton administration`s EPA overstepped its constitutional authority in promulgating the rule. The justices said when EPA drafted the rule 2 years ago, it failed to show that the tougher rules were justified by health protection considerations, and had acted on legal assumptions that Congress had delegated powers to EPA which, under the Constitution, it cannot. The opinion said EPA exceeded its authority because the standards for distinguishing between healthy and unhealthy levels of pollution were too vague. (OGJ, May 24, 1999, p. 39).

OCS revenues
Oil state congressmen plan to push legislation this session to allocate at least half of the federal revenues from Outer Continental Shelf oil and gas production for coastal states and nationwide conservation and wildlife programs. The Senate bill would use 50% of OCS revenues, or $2.296 billion/year. The House bill earmarks 60%, or $2.74 billion/year. The sponsors will face opposition from some environmental groups, the problem of how to divide the revenues, and especially how to fund the multi-billion dollar program. Unless they can obtain a waiver of budget laws, they will have to find offsetting revenues. (OGJ, May 24, 1999, p. 45).

Breakout tank rule
The U.S. Transportation Department`s Research and Special Programs Administration (RSPA) has proposed tighter standards for pipeline breakout tanks. The tanks are used to relieve surges in hazardous liquid pipelines or to store liquids for continued transportation in the line. The rule, which would become effective in 18 months, incorporates 13 consensus standards the National Fire Protection Association and the American Petroleum Institute have developed. RSPA has jurisdiction over 9,200 above ground breakout tanks operated by the pipelines that it regulates. (OGJ, May 10, 1999, p. 29).

Rosenbusch to MMS
Walt Rosenbusch, a former Interior Department aide, has been named U.S. Minerals Management Service director. He succeeds Cynthia Quarterman, who resigned in February. Rosenbusch has been a senior tax manager for Ernst & Young`s Houston energy service since July 1996. Prior to that, he worked on federal oil, gas, and mineral royalty issues as an aide to the Assistant Interior Secretary for land and minerals. Before joining Interior in 1993, Rosenbusch was Deputy Lands Commissioner of Energy Resources for the Texas General Land Office. Rosenbusch, 43, is a native of Austin, Tex. He has a bachelor`s degree in business administration from the University of Texas. He belongs to the Petroleum Accountants Society of Houston, the Institute of Professional Taxation, Interstate Oil and Gas Compact Commission, and the Institute of Internal Auditors.

Landowners rule
The Federal Energy Regulatory Commission has proposed a rule to require interstate gas pipeline companies to notify landowners of proposed routes when they file applications for the construction and operation of facilities. FERC said the proposed rule would ensure that landowners affected by pipeline construction would have sufficient opportunity to participate in its pipeline certificate process. FERC would notify landowners within 3 business days of the date that the pipeline files its construction application. And the commission will consult with affected landowners before pipelines abandon facilities and right-of-way easements to give landowners the opportunity to request that the pipeline remove the facilities from their property.

Carbon sequestration
The U.S. Department of Energy has begun developing a plan for research to capture and store carbon dioxide emitted from the combustion of fossil fuels. DOE plans to hold a public workshop soon to begin developing a joint government-industry-academia "road map" for future carbon sequestration research and technology development. The report focuses on ways to reduce carbon dioxide levels in the atmosphere. DOE said options such as increased use of wind, solar, and other renewable energy sources, and greater energy efficiencies may not be sufficient to substantially reduce greenhouse gas emissions. It said low cost carbon sequestration would offer another option for managing carbon emissions. (OGJ, May 3, 1999, p. 49).

Coking research
The U.S. Department of Energy has launched a 3-year research project led by the University of Tulsa to upgrade the environmental performance of refinery coking processes. DOE said reducing the amount of energy consumed by the coking process could improve a refinery`s economics and significantly lower the release of greenhouse gases and airborne pollutants. Guided by an industry-led steering committee, researchers will conduct experiments to determine if lower temperatures applied in specially modified furnaces or preheaters can effectively crack the residuum into higher quality products and reduce coke formation. (OGJ, May 3, 1999, p. 58).

Gas to liquids
The U.S. Department of Energy has selected the University of Alaska-Fairbanks to lead a university/industry team in natural gas-to-liquids research. The team will conduct a 2-year project to develop a "electroceramic membrane," a solid-state device that would separate oxygen from the air and use it to convert natural gas into the chemical building blocks of liquid fuels and chemicals. The technology, if successfully developed, might make it possible to transport currently unmarketable gas, such supplies on Alaska`s North Slope, to market via pipeline. DOE said the technology could extend the life of the Trans-Alaska Pipeline System by 20 years or more. (OGJ, May 3, 1999, p. 62).

Breakout tank rule
The U.S. Transportation Department`s Research and Special Programs Administration (RSPA) has proposed tighter standards for pipeline breakout tanks. The tanks are used to relieve surges in hazardous liquid pipelines or to store liquids for continued transportation in the line. The rule, which would become effective in 18 months, incorporates 13 consensus standards the National Fire Protection Association and the American Petroleum Institute have developed. RSPA has jurisdiction over 9,200 above ground breakout tanks operated by the pipelines that it regulates. (OGJ, May 10, 1999, p. 29).

Global warming bills
Two key senators plan to file bill to refocus U.S. actions to reduce emissions of gasses believed to be causing global warming. Sen. Frank Murkowski (R-Alas.), the energy committee chairman, and Sen. Chuck Hagel (R-Neb.), a leader on the climate change issue, said the legislation would forego narrow, short-term emissions reductions targets like those in the Kyoto Protocol, in favor of a long-term, technology-based global effort. The bill would establish a U.S. research, development, and demonstration program to develop technologies-such as alternative energy, energy efficiency, and clean coal-which avoid or reduce greenhouse gas emissions. It also would promote practices to remove and sequester greenhouse gases from the atmosphere and emission streams. The bill also would create an Energy Department bureau to oversee U.S. climate change efforts. (OGJ, May 3, 1999, p. 53).

Sanctions bills
A broad coalition of congressmen has filed bills in the House and Senate to restrain unilateral economic sanctions by the U.S. The Senate bill had 27 cosponsors and the House bill had 40. They require Congress and the administration to assess if a proposed sanction has clearly defined and realistic goals, and if it is likely to be effective. It requires them to consider the effects of the sanction on U.S. security and exports. Red Cavaney, American Petroleum Institute president, said, "These bills are vitally important to oil and natural gas consumers. The U.S. already has sanctions in place against countries that make up 10% of the world`s oil production and 16% of the estimated reserves."

Iraqi exports
Energy Sec. Bill Richardson defended the United Nations` oil-for-food program for Iraq at a joint Senate Energy Committee and Foreign Relations Committee hearing. The administration is supporting an increase in the $5.25 billion worth of oil that Iraq is allowed to sell every 6 months. Independent U.S. producers have blamed much of the drop in world oil prices on the fact that the U.N. allowed Iraq to increase its output from 500,000 to 2.5 million b/d during the past 2 years. Richardson said raising the ceiling on Iraqi exports would not impact prices significantly. "Iraq`s ability to increase its production is limited and is not expected to go up measurably this year. As a result, whatever effect Iraqi production has had on prices has already occurred, because Iraq cannot increase oil production much more over the next year or two." (OGJ, Mar. 22, 1999, p. 41).

White House summit
Oil industry representatives said they had a productive meeting with White House officials Mar. 16 regarding the industry`s depression. Energy Sec. Bill Richardson arranged the meeting, and moderated it. The 20 oil company and trade association officials met for an hour with Treasury Sec. Robert Rubin, White House Chief of Staff John Podesta, and National Economic Council Director Gene Sperling. Richardson said, "The next step will be the creation of an interagency working group on energy issues which will be led by the National Economic Council. This group will work to ensure these issues receive the continued, high level attention they deserve, while balancing national economic, energy and environmental objectives. (OGJ, Mar. 22, 1999, p. 36).

MMS relaxes rules
The U.S. Minerals Management Service has altered two of its policies to help keep offshore fields in production during the current oil price slump. For the second time in 5 months, MMS devalued the price forecasts that it applies when it considers leaseholders` applications for deep water royalty relief. Operators of fields more than 200 m of water in the Central and Western Gulf of Mexico can apply for a suspension of royalty payments upon demonstrating economic need. The agency also revised its guidelines for leaseholders applying for end-of-life royalty relief. Under the old process, a lessee who has invested significant resources to lower production costs would be required to wait at least a year before applying for end-of-life royalty relief. Now, a lessee who has made a commitment of capital and met additional criteria can apply immediately. (OGJ, Mar. 22, 1999, p. 40).

Exxon-Mobil merger
The chairmen of Exxon Corp. and Mobil Corp. have told a congressional committee they need to merge into a $77 billion conglomerate in order to stay competitive with national oil companies overseas. Exxon`s Lee Raymond and Mobil`s Lucio Noto told the House energy and power subcommittee their stockholders would meet separately May 27 in Dallas to vote on the merger. That vote will probably come before FTC action on their merger request. They expect to complete the merger at mid-year. William Baer, director of the FTC`s Bureau of Competition, testified FTC would examine the effect on local and regional gasoline markets. Baer observed, "Exxon and Mobil face each other at just about every level of the industry-exploration for and production of crude oil, refining of crude oil into petroleum products, manufacture of petrochemicals and lubricants, and the marketing of gasoline and other fuels in many parts of the U.S." (OGJ, Mar. 22, 1999, p. 42).

SBA program
DOE plans to work with the Small Business Administration to help independents and service companies take advantage of the SBA`s loan programs. DOE and SBA will establish a working group to act as a liaison between producers, banks, and federal small business assistance agencies. It will provide administrative and technical support to banks and financial institutions assisting domestic oil producers and it will seek ways to cut red tape in the SBA loan guarantee programs. (OGJ, Mar. 8, 1999, p. 31).

Great Plains deal
Energy Sec. Bill Richardson has announced an agreement that will help keep the Great Plains coal gasification plant near Beulah, N.D., in operation. About 75 miles northwest of Bismarck, it is the only U.S. plant that converts coal into pipeline quality gas. The operator, Dakota Gasification Co., wants to sell carbon dioxide to PanCanadian Petroleum Ltd. for injection at Weyburn oil field in southern Saskatchewan. DOE plans to allow the plant`s owners to convert federal tax credits into the necessary capital to build a 205-mile pipeline. The credits could be used to pay for 90%, or $110 million, of the pipeline and up to $40 million for improved control devices to reduce air pollutants." (OGJ, Mar. 15, 1999, p. 32).

Tax relief
Energy Sec. Bill Richardson says DOE is still working on several options for tax relief for the oil industry, including tax credits for marginal production. He said, "Such relief would have to be cost-effective and would require budget offsets. Any tax relief proposal would require the concurrence of the rest of the administration and passage of legislation by Congress." Meanwhile, Rep. Bill Archer (R-Tex.), chairman of the tax-writing House Ways and Means Committee, wants to give U.S. oil producers a tax credit for their losses for the previous 5 years. He plans to insert the measure, like one the Clinton Administration has proposed for steel companies, in a tax bill this spring. (OGJ. Mar. 8, 1999, p. 30).

SPR storage
The U.S. Department of Energy will allow U.S. producers store up to 70 million bbl of oil, for a minimum of 1 year, at the Big Hill SPR site south of Beaumont, Tex. DOE would charge storage fees in the form of oil. Participating companies were asked to propose the volume of capacity they want to lease, the storage period, the number of times they anticipate withdrawing all or part of the oil, and the fee they are willing to pay. (OGJ, Feb. 22, 1999, p. 24).

Reservoir study
U.S. Energy Department will reopen its Reservoir Class Revisit Program, an effort begun in 1992 to encourage producers to adopt techniques for prolonging the life of aging oil fields. DOE will fund part of 10-20 projects for a total of $18 million. Proposals are due May 20 from producers operating in three major geologic classes of oil reservoirs that represent about half of the nation`s unrecovered oil. DOE said the three classes-fluvial dominated deltaic reservoirs (Class I), shallow shelf carbonate reservoirs (Class II), and slope and basin clastic reservoirs (Class III)-contain large amounts of unproduced oil that could be abandoned in the low price environment. (OGJ, Feb. 22, 1999, p. 24).

Technology sharing
U.S. Energy Department has launched "Technology Development with Independents," a program to help independents with production problems that might be overcome by applying innovative field technologies. Eligible operators must have less than 50 employees. DOE said generally, financial aid will be $75,000 or less per project and must be matched by the producer. Total funding for the program is $1 million. Projects will last from 6 months to 2 years. Operators can apply for funding by completing a simplified, 6-page form. (OGJ, Feb. 22, 1999, p. 24).

Production cost
U.S. Energy Department and the National Association of State Energy Officials plan field demonstrations of energy-saving oil field equipment. The 18-month effort would seek to get electric power utilities to help fund energy efficient oil production equipment, through energy efficiency rebates and other financing programs similar to those available to homeowners. At the test sites, an array of energy efficient pumps, motors, and other equipment will be tested under operating conditions. (OGJ, Feb. 22, 1999, p. 24).

Electronic filing
U.S. Energy Department and the Texas Railroad Commission plan to launch an online digital permit application system via the internet. DOE and TRC will both spend $700,000 for a 2-year development and testing effort. TRC will complete a prototype system within 8 months and have it online and functional by late 2001. Although the program will focus on drilling permits, DOE said it could be expanded to include TRC`s entire regulatory and compliance process. TRC has the goal of a paperless data system by 2005. (OGJ, Feb. 22, 1999, p. 24).

SPR fill planned
The U.S. Department of Energy has signed contracts to receive Central Gulf of Mexico royalty oil in the Strategic Petroleum Reserve. The U.S. Energy and Interior departments have arranged to transfer13.2 million bbl to the 561 million bbl SPR. More firms are expected to participate later, until 28 million bbl is stored. The 28 million bbl equals what the government sold to help reduce its budget deficit in fiscal 1996 and 1997. Congress has not appropriated funds to buy oil for the SPR since 1990. The four SPR sites in Louisiana and Texas have capacity for 680 million bbl and hold 561 million bbl. (OGJ, Apr. 12, 1999, p. 37).

BLM updates rules
The U.S. Bureau of Land Management (BLM) has proposed a rule to reduce overlap in current oil and gas regulations and give operators increased flexibility in meeting agency requirements. Rather than have BLM set operating standards for industry, the regulation would require operators to meet published industry standards. In some cases it would allow operators to meet performance standards that would replace prescriptive rules. The rule would increase individual lease bonds from $10,000 to $20,000, and statewide bonds from $25,000 to $75,000. Nationwide bonds would remain at $150,000. The proposed rule would eliminate the "major" and "minor" classification of regulatory violations. Instead, the BLM would require that severe violations be corrected more quickly than less critical violations (OGJ, Dec. 14, 1998, p. 28).

Global warming
The U.S. signed the Kyoto global warming treaty Nov. 13, 1998, as the representatives of 160 nations concluded a second round of negotiations in Buenos Aires. The Clinton Administration said it would not submit the treaty to the U.S. Senate for ratification until further improvements are made in the protocol, including new commitments by developing countries. The Kyoto pact calls for the U.S., to cut its emissions 7% below 1990 levels by the year 2012. At the Buenos Aires meeting, the parties agreed to a late 2000 deadline for resolving issues remaining from the meeting last December in Kyoto, Japan. Also, plan to draft rules for enforcing the Kyoto pact, including penalties for noncompliance. (OGJ, Nov. 16, 1998, p. 42).

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