HOUSE MOVE TO LIMIT STATES' GAS PRORATIONING RULES DRAWS FIRE

A federal move to curb states' authority to prorate gas production has drawn sharp criticism from U.S. independent operators.

Under fire is an amendment by Reps. Edward Markey (D-Mass.) and James Scheuer (D.-N.Y.) to the House energy bill.

Gas industry spokesmen said the Markey-Scheuer amendment is an invasion of states' rights that would bring chaos to U.S. gas markets by challenging proration laws in effect for more than 60 years.

Among the critics of the proposal:

Raymond Plank, chairman and chief executive officer of Apache Corp., Denver, said the amendment would throw U.S. gas markets into disarray, increase U.S. dependence on oil imports, hasten the demise of the U.S. oil and gas industry, and eliminate more jobs from an industry that already has lost about 400,000 workers in the past decade.
Employees of Plains Resources Inc., Houston, told members of Congress the amendment interferes with efforts to assure adequate future supplies of gas and threatens survival of the oil and gas industry.
The Texas Independent Producers and Royalty Owners Association (Tipro), Austin, said the amendment would usurp the Texas Railroad Commission's authority to regulate gas production by predicting market demand and setting gas allowables accordingly.
Oklahoma Independent Petroleum Association (OIPA) Pres. F.W. Brown, Brown & Borelli Inc., Kingfisher, Okla., said it is unconscionable that Congress would try to abrogate states' rights to protect their natural resources.
Grier Brunson, chairman of the National Association of Royalty Owners (NARO), Ada, Okla., said the amendment promotes "a race to waste" and stages an economic raid on the U.S. oil and gas industry when U.S. operators are abandoning a well every 30 min and the average count of active rigs is at the lowest level in decades.
James T. Rodgers, president of Anadarko Petroleum Corp., Houston, charged the amendment allows virtually anyone to file suit in District of Columbia federal district court to cancel state conservation laws.

Proponents of gas proration reform said the Markey-Scheuer amendment shows most federal legislators don't understand the gas industry. Many said House members should defeat their energy bill if the amendment cannot be deleted in a House-Senate conference committee.

INDEPENDENTS' VIEWS

Apache's Plank described the Markey-Scheuer amendment as irresponsible, ill conceived, and destructive but typical of short term, quick fix legislation "emasculating America's ability to compete."

Plank said the "open ended" amendment goes far beyond derailing proration reforms in Texas and Oklahoma by challenging states' rights, destroying long standing gas production rules in 11 other states, and throwing U.S. gas markets into disarray.

Plank said Apache deplored legislation pitting producers against consumers when local distribution companies (LDCS) are charging residential customers four times the wellhead price of gas. Selling gas at the wellhead on an energy equivalent basis of about $9/barrel of oil equivalent causes the U.S. "to import oil and export jobs," he said.

Plains Resources employees urged members of Congress to oppose the House measure as amended by Markey-Scheuer because it would cause chaos in the U.S. oil and gas industry by challenging proration laws preventing waste of natural resources.

"Far from making gas less available and more expensive, as opponents have claimed, proration regulation is designed to do just the opposite," said Tipro Pres. Thomas D. Coffman. "Its demise would destroy the concept of a managed surplus that is so important to gas consumers."

OIPA's Brown said Oklahoma's new prorationing law is intended to free the state's gas producers from the "sell at any price mentality" that was causing high volume producers to dump gas on state markets regardless of the economic consequences. The new law was not intended to drive up wellhead prices by shorting the market of supply, he said.

Whether the Oklahoma legislature's action can be construed as prevention of physical waste, Brown said, "there seems to be little question it is prevention of economic waste and most certainly is protection of correlative rights. And those are states' rights issues."

NARO's Brunson said the amendment pollutes the intent of the pending National Energy Security Act and is an ill-advised challenge to the rights of states to regulate gas production in an orderly manner.

Brunson said at stake in the debate over national energy strategy is "survival of an environmentally promising industry of supreme importance to our national welfare."

He said amendment authors Markey and Scheuer appeared to be preoccupied with preserving wellhead prices that value gas at one third of its energy content. If the U.S. gas industry economics are being manipulated, Brunson said, "it is by those who market or purchase, not those who produce."

Anadarko's Rodgers, speaking for the Domestic Petroleum Council, called the amendment "antienvironment."

He said if state conservation rules are invalidated, the producer who drills the most wells and drains his reservoir the fastest is the one who wins. "Quick depletion of America's large natural gas inventory is a big negative for America's energy future because gas is our cleanest burning domestic fossil fuel."