The National Petroleum Council, in a report for the Department of Energy, has urged the U.S. government to offer new tax credits to prevent premature abandonment of stripper wells.
The Clinton administration has said it is willing to consider allowing Alaskan North Slope oil to be exported and seek tax measures that would keep marginal wells on production and encourage development of deepwater fields.
Deputy Energy Sec. Bill White said DOE is using the NPC study as a basis for its recommendations to the White House on stripper well relief. DOE had asked NPC, the energy secretary's industry advisory panel, to draft the hurry-up report on strippers.
STRIPPER ASSETS
The NPC study said the U.S. has more than 500,000 marginal wells producing 700 million bbl/year of oil equivalent.
It said, "Many domestic oil and gas businesses, large and small, rely on these marginal wells as the backbone of their operations. But as world oil prices fluctuate the economic viability of these wells is precarious.
"Their profitability is extremely sensitive to prices, operating expenses, and regulatory compliance costs. Almost two thirds of the marginal wells, representing over 200 million bbl/year of production, could be lost during a period of sustained low oil prices."
NPC proposed that Congress provide a "safety net" tax credit for marginal wells that would phase in as domestic crude prices fall below a specific level.
Virginia Lazenby, president of the National Stripper Well Association, said the threshold should be about $20/bbl.
NPC also urged Congress to increase the current 15% enhanced oil recovery credit and offer a 15% credit for production from wells that are reactivated after having been shut in for more than 2 years.
It said those three tax credits could boost production by as much as 500,000 bbl during 10 years.
NPC also said Congress should allow the immediate expensing of all capital expenditures to encourage investment in equipment for stripper properties and should grant other regulatory and royalty relief. NPC defined marginal wells as properties producing 15 b/d/well or less of oil equivalent (counting injection wells in calculating production), properties making 25 b/d/well or less where produced water accounts for 95% or more of total production (also counting injection wells), and properties producing oil with a gravity of less than 200.
Michigan's C. John Miller, CEO of Miller Energy Inc., worked on the study. He said, "Marginal wells almost always run out of money before they run out of oil and gas."
OTHER BUSINESS
NPC also issued a report criticizing the Minerals Management Service as being overzealous in its rules implementing oil spill insurance requirements for U.S. offshore operations.
Energy Sec. Hazel O'Leary asked NPC to study the oil industry's research and development needs. She plans to ask for a report, referred to as "the big study" analyzing the state of the U.S. oil industry and recommending changes that must be made if the industry is to remain viable.
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