Inhofe and Boren's bill focuses on US marginal oil and gas wells

Nearly lost in the energy issue shuffle as Congress took its August recess was a bill which its sponsors say could actually increase domestic oil and gas production.

Aug 15th, 2008

Nearly lost in the energy issue shuffle as Congress took its August recess was a bill which its sponsors say could actually increase domestic oil and gas production.

US Sen. James M. Inhofe (R-Okla.) and Rep. Dan Boren (D-Okla.) each introduced the Marginal Well Production Preservation and Enhancement Act on their respective sides of the Capitol on July 31. The bill aims to streamline and clarify regulations, prolong economic feasibility and enhancing production volumes from US marginal, or "stripper," wells, its sponsors said.

Individually, these wells are not big producers. They recover less than 10 bbl of oil or 75,000 cubic feet of gas daily, according to the National Stripper Well Association.

But there are approximately 400,000 of them in 36 states, representing about 80% of all domestic wells and producing almost 20% of the nation's oil and gas, the Tulsa group says. "In fact, US stripper wells collectively produce more than 1.2 million b/d, as much as we import from Saudi Arabia," it adds.

"In addition to reducing our dependence on foreign oil, a producing well provides both state and federal taxes, pays royalties to land and mineral owners, and keeps jobs and dollars on American soil and in American pockets. A plugged well provides none of this," Inhofe observed.

Smaller independents

"Most importantly, the producers who operate marginal wells are smaller, independent operations that assist local and state economies with job creation and added revenue streams. This bill ensures that the nation's policies recognize the economic importance and energy contribution of marginal well production," Boren said.

The bill would increase the percentage depletion allowance for marginal wells from 15% to the historical rate of 27.5%, exclusive of daily production levels. This provision would not be available for major oil companies, the sponsors noted.

Another provision which majors could not use would permanently eliminate the net income limitation on percentage depletion, which Congress temporarily suspended on a recurring basis beginning in 1998 after recognizing that it discourages investing to maintain marginal wells. The current suspension expired in 2007.

Inhofe and Boren noted that their bill clarifies a Clean Air Act provision which keeps the US Environmental Protection Agency from aggregating emissions from exploration and production equipment, pipeline compressors and pump stations under the law's hazardous air pollutants section.

Their bill would make clear congressional intent to not aggregate emissions from small engines and other E&P-related equipment so as to drive up marginal wells' costs that they become unfavorable relative to their actual production, the two federal lawmakers said.

Other provisions

They said that the bill also would amend the federal Water Pollution Control Act by defining produced water tanks as water treatment facilities to the same extent as similar facilities in other industrial sectors. It also would provide regulatory relief to small facilities with less than 50,000 gal of oil storage capacity at which no single tank has more than 21,000 gal of capacity.

Finally, the bill would accelerate depreciation of tertiary injectant properties and pipelines from seven to three years. Tertiary injectants are typically fluids or gases injected into oil and gas reservoirs to stimulate flow after primary and second pumping and waterflooding has occurred.

Oil and gas associations and state agencies applauded the bill. "At this critical time, this bill will help the independent producer more effectively meet growing market demands while operating in a cost-effective manner. It will allow operators to offset the rising cost of operations while making it possible to reinvest in new development of domestic oil and gas," said James M. Revard, executive director of Oklahoma's Commission on Marginally Producing Oil and Gas Wells.

"With approximately 20% of its oil production and 10% of its gas production, marginal wells are America's true strategic petroleum reserve. However, they remain America's most vulnerable production assets faced with the highest operating costs. This legislation is designed to encourage and protect continuing operation of these essential American resources," Independent Petroleum Association of America President Barry Russell said.

Contact Nick Snow at nicks@pennwell.com

More in HSE