Independents converge on Washington as natural gas advocates

Independent producers converged on US Senate and House members’ offices Mar. 2 to advocate for federal policies that encourage the development of natural gas.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Mar. 2 -- Independent producers converged on US Senate and House members’ offices Mar. 2 to advocate for federal policies that encourage the development of natural gas.

“So much is at stake. This is a generational opportunity. More domestic natural gas development offers so many energy, environmental, and economic opportunities,” said Marc W. Smith, the executive director of the Independent Petroleum Association of Mountain States who brings several members east each spring.

“But there are proposals under consideration which would severely constrain the transition, especially administration recommendations to end what it considers oil and gas tax breaks and subsidies,” he continued.

“Their logic and spin are wrong,” added George H. Solich, president of IPAMS and of Cordillera Energy Partners in Greenwood Village, Colo. “These are cost-recovery mechanisms that are part of any business. It just happens that independent producers have to deal with intangibles. Taking them away would remove 40% of the capital being used to fund new domestic energy resource development.”

IPAMS’s member call-up this year was part of a bigger effort by the Independent Petroleum Association of America to bring producers to Washington for meetings with other members of Congress as well as their own representatives. “When taxes are increased, investment goes down and production drops,” explained IPAA Chairman Bruce H. Vincent, who also is president of Swift Energy Co. in Houston.

‘Shut in immediately’
“Natural gas clearly needs to be a part of any American energy solution and should be advocated,” he told reporters during a Mar. 1 briefing at IPAA’s headquarters. “If the government took away incentives such as percentage depletion, some of the nation’s production would be shut in immediately.”

IPAA and IPAMS members received materials outlining key issues to raise. They included environmental regulations, from greenhouse gas emissions to efforts to place hydraulic fracturing under federal controls; the White House’s tax reform proposals; commodity regulation reforms; and access to federally managed resources.

The Obama administration is sending mixed signals, according to Vincent. “The president has expressed support for developing more natural gas and making tough decisions about oil and gas on the Outer Continental Shelf. But when I look at how the [US Department of the Interior] is implementing administration policies, I’m not convinced they’re serious about developing more domestic energy resources,” he said.

IPAA members were meeting with members of Congress not only from their own states, but others who had been identified (sometimes by producing states’ members and staffs) as potential supporters of more aggressive gas development. “This could put pressure on [DOI],” Vincent said.

Smith said that 32 high-ranking political appointees in the Obama administration came from environmental organizations representing a broad range of views, which may be creating confusion. “I don’t think it’s unusual for policies in an administration’s first couple of years to seem disjointed,” he told OGJ on Mar. 2. “Within the environmental community, however, there’s a strong effort to preserve more federal land as wilderness competing with efforts to address climate change and, implicitly, use more natural gas.”

The biggest change for gas has been its movement from declining domestic supplies to an abundant resource in the last 36 months, Solich said. “During most of my career, I’ve had to work with just-in-time inventories. We can now say that we have more than 100 years of domestic supplies, and potentially 300 years in some parts of the world,” he noted.

‘Eye-opening experience’
“How we got here is important,” said Solich. “We’ve been in a drilling boom the last decade that’s been fueled by technology and prices. We find ourselves having spent massive amounts of capital to get this far and wondering [why] more of our economy doesn’t want to use more gas. It’s an eye-opening experience.”

He said that gas’s potential contribution now is dramatically different from the 1970s when energy policymakers considered it suitable only for heating homes and businesses, and looked more to coal to generate electricity. “We have an opportunity now to look again at the power generation mix, which is 44% coal and 24% gas, much of which is underutilized,” Solich said. “We also are learning more about wind and solar power, which are intermittent, and which fuel works best to back them up without creating more greenhouse gases.”

Continued federal efforts to control GHG emissions by putting a price on carbon dioxide or administratively imposing onerous limits could cause serious damage, Vincent warned. “Having an environment with fewer emissions is a goal we can all agree on,” he said. “But [the US Environmental Protection Agency’s] GHG endangerment finding bypasses the legislative process and relies on questionable data. My view is that Congress should decide major policy shifts, not a government agency.”

He said capital markets have become more cautious in their outlook toward the domestic oil and gas industry since the 2008 election because so many questions about the administration’s energy, environment, and economic strategy haven’t been answered. The uncertainty also is hurting independents’ operations, Smith and Solich told OGJ.

“Better technology not only lowers costs but also increases initial production. But you can’t do it in a start-and-stop mode,” said Solich. “If you put a rig and crew together, you’ll build efficiencies as you continue to use them. They learn about a play’s characteristics as they work it, but it has to be continuous.”

“We’ve seen plays emerge in Utah over decades,” said Smith. “But permits have dried up there now and companies are shipping crews elsewhere. Local officials realize that jobs are disappearing, which is why our groups include county commissioners from Utah and mayors from Wyoming. We could see a real grass-roots effort to get [DOI] to move ahead in the next few months.”

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