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Energy Policy Fact Sheets
Inactive Well Recovery Act
U.S. Representative Mac Thornberry (R-TX) and Senator Kay Bailey Hutchison introduced legislation (HR 497; S 325) that would help reduce the United States’ dependence on foreign oil and increase jobs and production for domestic oil and gas. This will be accomplished by providing producers with a federal income tax exemption for bringing back wells into production that have been shutdown during the oil price crisis – also known as inactive wells.
Reasons for Change
- To provide an Incentive for Recovery -- The majority of inactive wells have been idled because they became uneconomic during the oil price crisis of 1998-99. This legislation will restore the economic incentive for producers to bring inactive wells back on line by letting them keep the part of their revenues that would otherwise go to pay federal income taxes.
- To Expand Federal Revenues -- The Inactive Well Recovery Act would increase the stream of revenue going into the federal government in two important ways. First, royalty owners will still pay federal taxes on income generated from the recovered well. Since these individuals are currently paying no taxes on these wells at all, every dollar of additional revenue will be a net gain. Secondly, because the legislation is expected to increase the number of jobs in the oil and gas industry, it will increase the number of workers who will be paying taxes on their wages and earnings.
- To Maintain a Viable Domestic Oil and Gas Industry -- The facts speak for themselves. In 1981, there were more than 3,900 rotary drilling rigs active in the United States. By 1999, the annual average count had dropped to 625. Likewise, in 1981 nearly 700,000 people were employed in the upstream part of the oil and gas industry. By 1997, this employment had dropped to 335,000 jobs. The oil price crisis of 1998 and 1999 reduced employment by another 65,000. Total job losses during this 18 year period has exceeded 400,000.
- To Reduce U.S. Dependence on Foreign Oil Imports -- In 1981, the United States imported just under 4.4 million barrels per day of crude oil. By 1998, crude oil imports had increased to over 8.5 million barrels per day. Oil imports exceeded 55 percent of demand in 1998. And, the federal government has again concluded that oil imports pose a threat to national security. Oil imports constitute one of the largest components of the nation’s imports and are a significant factor in the country’s trade deficit. It also costs us in another important way – national defense. Protecting against the potential instability of Middle Eastern oil supplies consumes significant amounts of the U.S. budget. CNN reported in 1998 that "military buildups that have kept U.S. ships, planes, and troops within striking distance of Iraq since the 1991 Persian Gulf war have cost U.S. taxpayers about $6.8 billion…." This $6.8 billion figure is in addition to annual expenditures of about $50 billion to maintain a strong military contingent in the Gulf. The Inactive Well Recovery Act won’t solve all of the country’s problems in this regard; it will be a step in the right direction.
This bill was modeled after the three-year inactive well incentive program that was enacted in Texas in 1993. Since that time, nine other states have adopted a similar program. According to then-Texas Railroad Commissioner Barry Williamson, Texas realized more than $1.65 billion in revenue from 6,071 wells returned to production under the state program.
March 2001
