Iogcc calls for emergency price response

Jim Stilwell
Associate Presentation Editor/
Equipment Editor

A Look at U.S. Crude Oil Prices, Production [36,029 bytes]

Emergency action to stabilize crude oil prices in the U.S. in the wake of rapidly increasing imports is being called for by an organization that represents the governors of 29 oil and gas producing states.

The Interstate Oil & Gas Compact Commission, Oklahoma City, issued the call this month in Salt Lake City at its annual meeting. The action came as a resolution adopted by the organization.

Elsewhere at the meeting, Iogcc released a report that shows the effect of prolonged low oil prices on the U.S. The report paints a picture of an industry in trouble, a growing threat to national security, and the sizable loss of income to individual royalty owners, states, and the U.S. government.

Price stability

Iogcc's price stability stance calls for the immediate purchase of $420 million worth of U.S. crude oil for the Strategic Petroleum Reserve (see related story, p. 24).

In addition, member states support: efforts to identify the hidden costs of imported oil and gas, consideration of new incentives for exploration and production, and the appointment of a state-federal commission to evaluate the effect of oil imports on the nation's trade imbalance.

The resolution noted that severe losses of revenue, production, oil reserves, and jobs are hurting the industry. Infrastructure is quickly disappearing and will no longer be available, the resolution said. "The President, Congress, and Department of Energy should focus national attention on this precipitous decline in U.S. oil prices and oil production," the resolution stated.

The Iogcc also resolved to continue publishing and distributing information on marginal oil and gas well production, with credible information about the economic benefits of marginal production (see story, p. 25). The organization has been publishing a marginal well report for more than 50 years. It also supports directional drilling for oil and gas under the waters of the Great Lakes, when done in an environmentally sound manner.

Low oil price impact

Iogcc said the vast majority of oil-producing states have seen income from oil production cut in half as prices have fallen and operators shut in wells that are no longer profitable (see chart, p. 26). Nearly 11,000 jobs have been lost in the U.S. as oil field service companies and producers cut back.

Wyoming Gov. Jim Geringer, 1998 Iogcc chairman, released a report entitled "A Battle for Survival: The Real Story Behind Low Oil Prices."

Geringer said, "We have a very real threat that the heart of our oil industry-the independent producers-may be entirely forced out of business, with the loss of as much as 25% of our U.S. production," he said.

"We have an absence of a national energy policy that would and should guide our strategic choices for economic and political security of our nation. We are threatened with the probability that the federal government will, by law or by regulation, strangle the effectiveness of our individual states in their duty to conserve the resource and our environment," he said.

Geringer and several other governors have called for action at the state and national level to address the concerns over low oil prices and the effects on U.S. production.

Oklahoma Gov. Frank Keating, Iogcc's 1997 chairman, has created a special task force to look for ways to minimize the effects of low oil prices on the state and producers.

"What we can do is provide whatever relief possible to lessen the impact on Oklahoma's producers. The trend of Oklahoma crude hovering at $12/bbl is potentially crippling to the 70,000 stripper wells in our state. There are immediate steps that can and will be taken...," Keating said.

"It's not just an energy issue but an issue crucial to Oklahoma's economy. With 50,000 Oklahomans employed in the oil and gas industry and gross production taxes comprising 8-10% of state revenues, we must get a handle on the effect of dropping prices," he said.

New Mexico and Wyoming have also acted to seek solutions to the prolonged price slump.

The report surveyed 24 states and relied heavily on information from government sources and news accounts of industry activity. The report said, "The U.S. oil and gas industry is particularly susceptible to long periods of low crude oil prices. This is true largely because about three fourths of the nation's oil wells are marginally economic.

"About 436,000 of the nation's 573,000 oil wells produce fewer than 10 b/d. On average, these low-volume stripper wells produce 2.2 b/d. At these low prices, wells are idled, produced only sporadically to meet minimum lease requirements, or plugged," the report said. Also low oil prices lead to cutbacks in the technology development that has enabled producers to remain competitive with imported oil, Iogcc's report noted.