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Oil politics 2009 -Speech to the OCPAC

The Politics of oil and gas 2009

Mike Cantrell

OCPAC 12/22/09

It’s a pleasure being here today with the most  conservative voice in Oklahoma.

While I don’t always agree with my good friend Charlie, I  have always admired and supported his voice.

Sir Winston Churchill said in the early 1940s on a trip to DC to try to get the US to engage against Hitler “the US congress will always do the right thing, only after exhausting all of the other possibilities”

While that quote I have always found as funny and at times even comforting, I have to tell you that today I am afraid I must take exception with my historic hero. I am afraid we are at a time when this congress will never do the right thing and will exhaust all the wrong possibilities and in the process severely diminish America’s standard of living and her position of leadership in the world.

The engagement in the  politics of oil has been a lifelong exercise for me. 

I have never before witnessed an assault on our industry so complete, along so many fronts, and as hypocritical and demagogic as we face today.

I want to quickly focus on three initiatives being pursued by this administration and this congress to illustrate the point.

The first action is the administrations attempt to end the expensing of Intangible drilling cost, to end percentage depletion, to end the passive loss exemption and several other tax provisions that the industry has counted on for capital formation since the 1920s. I won’t bore you with an explanation of any of these unless you want to explore it in Q&A.

I will just say that if enacted into law drilling budgets by US domestic oil and gas producers will be slashed by at least 1/3. On one hand they call for less dependence on foreign oil and on the other they want to punish the only American industry capable of stemming the time of that oil. By the way big oil is not really affected by any of this. They do get foreign tax credits on the royalties they pay foreign governments that they deduct strait off their US tax bills.

Independents drill 93% of all wells drilled in the US today.

We produce 86% of the gas and 68% of the oil. Twenty percent of our domestic oil comes from low volume stripper wells that would be prematurely plugged by the enactment of this tax increase.

The second and probably the most far reaching initiative by this administration and congress is the so called “Cap and Trade” bill.  Disguised as a bill to stem “global warming” from the emission of CO2 or greenhouse gases this would be the largest tax increase and the biggest growth in the federal bureaucracy in the nation’s history.

Let me just read what the Congressional budget office, the New York Times, and the CRA International (released by the National Black Chamber of Commerce) says about the cost.

December 18, 2009

CAP & TAX – On Wednesday, the Congressional Budget Office (CBO) reported that S.1733, the bill passed by the Senate EPW Committee despite a Republican boycott, would create a $21 billion surplus over the next decade.

December 9, 2009

Climate Deal Likely to Bear Big Price Tag

So what is all this going to cost?

The short answer is trillions of dollars over the next few decades……………….. the transformational ambitions that delegates to the United Nations climate change conference are expected to set in the coming days will cost more than $10 trillion in additional investment from 2010 to 2030, according to a new estimate from the International Energy Agency.

According to a May 2009 study performed by CRA International and released by the

National Black Chamber of Commerce, the enactment of H.R. 2454 would result in the

Following economic impacts:

• The United States would face a net reduction in employment of 2.3 million to 2.7 million jobs

in each year of the policy through 2030. These reductions are net of substantial gains in

“Green jobs.”

If domestic cap-and-trade legislation were passed, it could result in a loss of 1.9 million American jobs in 2012 and 2.5 million American jobs by 2025. From 2012-2019, the CBO estimates direct government spending at $822 billion with revenue at $845 billion from taxes Analysts believe the increased taxes and fees will cost the average American household upwards of $1,600 to $3,000 or more each and every year!

If anyone ever believed this was about protecting the environment from CO2 emissions just look at the bill passed out of Henry Waxman the Chairman of the house energy committee. It virtually exempted coal, by far the biggest CO2 emitter. This is a tax bill not an environmental bill. The most bitter ironies is the hypocrisy of disadvantaging US industries with those in third world countries who have already put us on notice that as the India Prime Minister recently told Secretary Clinton “you have had 100 yrs to use fossil fuels to build your economy, now it’s our turn.” Transferring manufacturing and refining to third world countries that don’t have the same environmental safeguards make the CO2 emissions worse! It doesn’t matter where they come from, if you buy the idea that these emissions are bad why the hell would you want more of them?

The third and probably the most bizarre attack on the Domestic oil and gas industry is the action to ban Hydraulic fracturing. This procedure has been used to get oil and gas out of the country’s reservoirs since 1959 without a single incidence of contamination of ground water or of harm to human health or the environment.

What’s most unbelievable is that The United States has three times the amount of natural gas it thought it had in 1966 — and 40 percent more than just a few years ago. In fact, more than 2,000 trillion cubic feet of natural gas is estimated to be available; at present consumption levels, that’s enough to heat all U.S. households for the next 519 years.

  This increase in gas reserves has been made possible by the technology just developed in the past 5-10 yrs whereby we can extract gas from shale. These shale deposits are all over the country. Not only in Texas, Oklahoma, LA and Arkansas but up the eastern seaboard from the Carolinas to Pennsylvania to New York.

But they all depend on hydraulic fracturing. Without these new frac techniques none of this new energy wealth would be produced.

And now we have developed the Baaken shale in N. Dakota and Montana which could have as much as 8 billion bbls of reserves (according to the USGS). This discovery has resulted in our nation’s oil production increasing from 2007 to 2008, which is the first time in decades we have had any increase in total production.

We are winning!! And these guys want to capitulate. For what? Why?

My own belief and the only conclusion I can come up to is that this congress and this administration want to end America as we know it. They want us relegated to mediocrity in the world. Their world view is that we have done too well and its time we let the rest of the world pass us by. As bizarre as that sounds it sure seems like the only plausible explanation to me.

Heck the ole Democracy has survived a lot of hits before. Its an amazing country. I take hope in the recent poll numbers of this President and this Congress. They are falling like a rock.

They have way overestimated what the American people meant by responding to their message of change.

Thank you and I will be happy to try and answer any questions.