As worldwide energy woes compounded, AAPG twice provided invited testimony before Congress in March, with AAPG President Marlan W. Downey telling the U.S. House Resources Committee the United States has an ample supply of natural gas — provided lawmakers take action positive for exploration.
Also testifying later in the month was Naresh Kumar, vice chair of the AAPG Committee on Resource Evaluation. Kumar testified before the Subcommittee on Energy and Mineral Resources. Kumar was invited to address the validity of the U.S. Geological Survey’s resource evaluations.
Kumar told the committee that since its formation, CORE has consulted with the USGS on its 1995 National Assessment of U.S. Oil and Gas Resources, the 1999 Arctic National Wildlife Refuge 1002 Area assessment and the 2000 World Petroleum Assessment.
For all of these, Kumar told the committee that AAPG, on the recommendation of CORE, “has not endorsed specific resource numbers generated by the assessments, but has endorsed the sound scientific process used to generate the probability distributions.
“Resources assessments are a vital planning tool for policymakers and industry,” Kumar said. “The agencies that perform these assessments and track oil and gas resources and reserves need continued support. They have done a good job to date.”
Kumar also took advantage of the opportunity to underscore Downey’s earlier testimony concerning abundant energy resources.
David Applegate, of the American Geological Institute, accompanied Kumar in his presentation before the subcommittee, along with G. Warfield “Skip” Hobbs, president of the AAPG Division of Professional Affairs. Applegate said Kumar answered questions from congressmen for about an hour following his testimony.
At one point, Rep. Barbara Cubin, (R-Wyo.), chair of the committee, made a comment on Kumar’s comments on ample supply and lack of access to prospective areas, citing Downey by name and recalling the comments he made the week before.
Downey, invited on Rep. Cubin’s behalf, told the committee of ample U.S. onshore and offshore natural gas resources, and the need for access to federal public lands.
Accompanied by Applegate and others, Downey told the committee of studies showing a “more than adequate” resource base to meet the projected needs. Downey, however, also told the committee of roadblocks to access to the U.S. resources.
“Areas of highest immediate potential are in the Gulf of Mexico, the Rocky Mountain basins and the deep basins in Texas and Oklahoma. Other areas of importance include the offshore East Coast, South Florida Basin and the North Slope of Alaska.
“Unfortunately,” Downey’s written testimony noted, “not all of these areas are currently available for exploration and development.”
While Downey’s written testimony provided specifics of the natural gas situation, it was his brief, opening comments spoken without notes that seemed to carry most impact with the committee, according to observers.
He told the panel that the United States needs an additional 1,000 rigs to be operating to meet future gas demand estimates, approximately doubling the present number of active rigs.
“The good thing is that we do have enormous (gas) resources undiscovered, unproduced but estimated in the U.S.,” Downey told the panel. “That is the good news. The bad is that we do not get to go to Saudi Arabia or Quatar or Mexico or Venezuela for any of those supplies as can do for oil.
“America has to solve its gas problems all by itself, within its own boundaries, with possibly a little help from Canada.”
In noting that it takes putting rigs to work to produce the gas needed for the future, Downey said “we have another subtlety to the problem. Shell won’t help us, ExxonMobil won’t help us, Arco and BP Amoco won’t help us. All the majors have left the domestic onshore. The problem is going to be almost entirely with the small mom-and-pop operators, the independent producers that are drilling most of those thousands of rigs — using those thousand rigs currently.”
As to the mom-and-pop operators’ ability to provide the supply, Downey said “there is a world of difference in how they need to operate in a tax system than the large companies. They are capital short. They need to get their money back from each well they drill before they can drill another one. Currently you have to wait seven years to recover your expenses, your general expenses, from drilling a well.
“That doesn’t bother Shell or Exxon, but it does bother small companies,” he continued. “And something that allows small companies to recover their cost the same year they start recovering revenue would make a world of difference.
“No less tax to the government, no greater benefit to the small company, but cash flow — little companies live on cash flow.”
Rep. Cubin asked Downey about the gas potential in the OCS off the northeast U.S. coast.
“Sure,” Downey replied, “there is potential because we haven’t been allowed to explore there, but all you have to do is go across the state line into Canada. They are finding all sorts of gas in that same setting — and thanks to Canada, they are keeping the northeast U.S. warm with offshore Canadian gas while (the) U.S. refuses to allow it to be drilled and produced from our own offshore. I hope Canada stays friendly.”
Downey’s written comments said that action needs to be taken to permit expanded exploration and development of these currently restricted public lands.
“These lands were established to serve all of our nation’s citizens …,” Downey said. “The best way to serve the interests of all citizens is to permit the development of vitally needed natural gas resources on these lands, under careful registration.”
Concerning taxation, the written comments stated “It will take several years to mobilize the efforts of the oil and gas companies, but Congress can assist by reviewing the 1986 Tax Reform Act and addressing repeal of the Alternative Minimum Tax and the restoration of the ability off the passive investor to expense Intangible Drilling Costs against a revenue stream.”
Those actions, Downey said “would go a long way in assisting small companies and independents to generate the needed capital to finance expanded exploration activities.”