Onslaught from Feds Threatens Western Producers

“What you do speaks so loud that I cannot hear what you say.”

-Ralph Waldo Emerson

We’ve been hearing a lot of talk in recent months from some unlikely sources about the benefits of natural gas. Unfortunately, actions don’t always support what’s being said.

Western oil and natural gas producers have a great answer for some of the most pressing economic, environmental and energy challenges facing our region and the country. It’s the natural gas and oil we produce. Both provide obvious opportunities for job creation, revenue growth and economic activity. These energy solutions can help clean up the air, keep our economy moving and reduce our dependence on foreign energy.

Our industry still has a long way to go in telling its story, but our message is starting to catch on, as evidenced by recent editorials and statements from public officials.

In spite of the lip service being paid to natural gas across the political spectrum, producers are facing an onslaught of egregious legislation that could seriously hinder industry’s ability to supply our nation with the natural gas it demands. Increased taxes, redundant layers of regulations, and land management policies that make it extremely difficult and costly to develop energy on public lands, all threaten natural gas producers in the West, including:

Tax Increases- The President’s budget includes a proposed $80 billion tax increase on industry over the next 10 years.

• The natural gas and oil industry is able to deduct the cost of its business, which is in line with every other manufacturing industry in America. These are not subsidies or loopholes as the administration suggests, and to categorize them as such is dishonest.

• Independent producers typically reinvest over 100% of their cash flow back into American projects. Consequently, polices that increase taxes take capital away that could otherwise be invested in projects to stimulate the economy, create American jobs, and produce American energy.

• It is unwise to promote tax policies that will result in less energy supply, higher energy costs, massive domestic job losses, bankruptcy of more U.S. companies and increased dependence on foreign energy sources.

Global Warming- Legislation passed by the House (H.R. 2454) puts clean natural gas at a disadvantage to other fuels. Similar legislation is now being debated in the Senate.

• The expanded use of natural gas is the most obvious and cost-effective way, immediately and over the long term, to reduce greenhouse gas emissions and increase energy security.

• Natural gas is a secure source of energy, with 98% produced in North America.

• Increasing the utilization of existing natural gas electrical generation load capacity from 26% to 50% would reduce annual carbon emissions by 296 million metric tons. For comparison, the Renewable Electricity Standard (RES) in the Waxman-Markey bill would reduce emissions by 425 MM metric tons, but at a staggering cost to taxpayers.

Hydraulic Fracturing- H.R. 2766 would add additional layers of regulation to the time-tested and essential process of hydraulic fracturing, threatening nearly 3 million American jobs and resulting in decreased natural gas production and increased costs for consumers.

•Hydraulic fracturing is a safe, well-tested technology that has been used to develop energy for over 60 years. It is performed thousands of times each year with an exemplary safety record. There are no documented cases of contamination to drinking water from fracking.

•In 2007, a record high 46.1 Tcf was added to natural gas proved reserves, a 13% increase from the previous year, according to the Energy Information Agency (EIA). For the first time in years, the US reported proved reserve additions of oil greater than domestic production, at 2 billion barrels. These increases in reserves would not be possible without hydraulic fracturing.

•Fracking has enabled the United States to increase its reserves to such an extent that we now have the 6th largest reserves in the world, up from 14th a decade ago.

•Like all procedures surrounding the development of energy, hydraulic fracturing is already regulated by hundreds of local, state, and federal laws.

“Use-it-or-lose-it” and repeal of Categorical Exclusions- H.R. 3534 threatens access to the vast amounts of natural gas that lie beneath the lands of the Intermountain West by imposing benchmarks for “diligent development,” creating a new federal bureaucracy, increasing fees, and eliminating live lease auctions and noncompetitive leasing, and repealing statutory Categorical Exclusions.

• When Congress and environmental organizations talk about leased acres supposedly sitting idle, they show no understanding of the business risk associated with oil and gas exploration and the fact that the process to approve and permit natural gas and oil projects is cumbersome and extremely time consuming. Much of the leased acreage is not producing currently because operators are engaged at some stage of the process and cannot start producing until jumping through all the required legal and regulatory hoops.

• CXs are considered to be one of the success stories of the Energy Policy Act and their use in energy permitting has resulted in more time available for field staff to increase environmental inspections and make progress in decreasing the backlog of applications for permits to drill (APD).

Wilderness Designation- Legislation that puts millions of more acres of American land off-limits to domestic energy development.

• H.R. 1925, the Red Rocks Wilderness Bill, would place a significant amount of energy off-limits to development.

• The amount of acreage, 9.4 million, that would be taken away from energy development constitutes about 17% of Utah’s total surface.

• H.R. 1925 would eliminate the productive use of a huge proportion of Utah’s public lands.

Financial Derivatives- H.R. 3795 would dramatically alter the way in which OTC derivatives are regulated through the Commodity Futures Trading Commission.

• Requires capitalization of commodity hedges, and if passed, changes a companies’ ability to manage risk associated with volatility in commodity prices.

• Typically, corporations use OTC derivatives to hedge the operating risks of their businesses or their cost of borrowing. This bill would severely impact drilling and budgets would be hit substantially.

Click here to read about how IPAMS is setting the record straight on these harmful policies.

Help us remind Congress that it is actions, not words, which will help advance the natural gas solution. Click here to send a message to Congress on these important legislative issues.