POLICY REPAIR WOULD HELP U.S. PRODUCERS

U.S. Sec. of Energy Hazel O'Leary started a firestorm last week with remarks in London that press reports interpreted as meaning she thinks small oil and gas producers represent a dying breed. The Department of Energy had to scramble to clarify the comments and eventually denied that O'Leary used the words "dying breed." Let there be no question: The breed of small oil and gas producer is not dying; it is evolving-and improving in the process.

Nov. 1, 1993

3 min read

Let there be no question: The breed of small oil and gas producer is not dying; it is evolving-and improving in the process.

BACK TO WORK

Small, independent producers are getting back to work, even drilling wells again. It's not a drilling boom. Capital isn't pouring into the business. It's a thinking boom, and capital is responding in measured ways.

Successful small producers concentrate as never before on the financial aspects of their business. They use technology and computer power to identify hitherto unseen prospects. They use new drilling techniques to keep holes on target and costs low. They make money on the small plays that increasingly characterize the U.S. drilling theater. And they do so with oil and gas prices in ranges once considered too low and without special favors from Washington, D.C.

This is not how a dying breed behaves. It is how a troubled industry adapts to difficulty and finds new routes to prosperity.

A troubled industry also seeks help from government. That's only natural. O'Leary's remarks may have been a warning to producers that DOE's imminent oil and gas production initiative won't contain major tax treats, import fees, or price guarantees. So be it. Taxpayers shouldn't have to support any industry not directly employed by government, which is not to say producers shouldn't seek favors as long as favors seem available. What's important is for the producing industry to remain viable on its own, given fair tax treatment, access to opportunities, and reasonable regulation.

Whether or not O'Leary used the words "dying breed," she certainly cast undue doubt on the viability of small U.S. producers. She placed Government in the role of deciding which industries are worthy of help and which are not, then implied questions as to the worthiness of small producers. She even suggested an analysis of the domestic producing industry's importance to U.S. economic security in the long term.

The message this sends investors is harmful and wrong. It was inappropriate for O'Leary to send it. Markets determine which industries die, which ones prosper, and which ones struggle along. The government too often proceeds from flawed assumptions, which then guide everyone's thinking and behavior. This happened during the Carter administration, which O'Leary served, when government asserted that the U.S. had no more natural gas to find. It must not happen now with portrayals of small producers based more on the past than on the present.

NATIONAL INTEREST

In addition to questioning the national economic interests that domestic production might serve, O'Leary rejected security concerns as old-fashioned. So how about federal revenues and employment of Americans? Both of those interests suffer from current energy policy, which devolves more from federal land management, tax policy, and environmental decisions than from any-thing that happens at DOE.

O'Leary should concentrate on removing impediments to producers in these areas and on becoming the chief U.S. advocate of secure energy supply. To the extent she improves energy taxation, land access, and environmental regulation, she'll help producers and serve national interests more than any Energy secretary has so for.