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Understand the Industry to Create Effective Energy Policies

Washington, D.C. (April 27, 2006) With energy prices and company earnings rising simultaneously, domestic oil and natural gas producers are under attack from Congress and the White House. Politicians are considering the introduction of harmful legislation including:

• A Windfall Profits Tax on All Domestic Producers
• Increases in Royalty Rates
• Elimination of tax provisions related to Geological and Geophysical Costs and Intangible Drilling Costs
• Repeal of Deepwater Royalty Incentives

These policies will do not lower gasoline prices. Instead, they will only do harm by forcing the American oil and natural gas production industry to scale back their domestic investment in exploration, while increasing our reliance on imported oil.

The oil and gas industry is made up of not only large multi-national, integrated companies but also 5,000 smaller domestic "independent" companies. These are American businesses trying to supply the nation with more domestic oil and natural gas. In fact, these independent producers drill 90 percent of the nation's wells, produce 68 percent of the country's domestic oil and 82 percent of our natural gas.

Harming independent oil and natural gas producers would simply hurt the nation's ability to maintain and increase its own oil and natural gas resources in America. With less oil and gas produced here at home, the nation will increase its reliance on foreign and often unstable countries for its energy supply.

• Adequately fund the agencies needed to issue federal permits.
• Discourage counterproductive regulations that prevent development.
• Allow access to federally owned, non-park, non-wilderness lands, especially in the Intermountain West, the eastern Gulf of Mexico and the Atlantic and Pacific coasts.

These positive policy changes would result in having enough recoverable natural gas to heat 125 million homes for 120 years and enough recoverable oil to produce gasoline for 73 million cars AND fuel oil for 30 million homes for 30 years.

By repealing existing tax incentives or instituting harmful new tax policies for domestic oil and natural gas producers, we are placing a stranglehold on homegrown opportunities for energy security.

For example, in the 1980s, the Windfall Profits Tax removed some $38 billion that otherwise could have funded new energy supplies that we could be using today. On September 12, 1990, the Congressional Research Service (CRS), the policy analysis arm of Congress, issued a report on the impact of the Windfall Profits Tax on Crude Oil that was enacted between 1980 and 1988. The CRS found that the Windfall Profits Tax "…may have reduced domestic oil production anywhere from 1.2% to 8.0% (320 to 1,269 million barrels). Dependence on imported oil grew from between 3% and 13%." Also, between 1982 and 1988, the industry lost about a third of its jobs.

The report even predicts what would happen with a future tax on oil: "Reinstating the windfall profit tax would reduce recent oil industry windfalls due to high crude and petroleum prices but could have several adverse economic effects. If imposed as an excise tax, the WPT would increase marginal production costs and be expected to reduce domestic oil production and increase the level of oil imports, which today is at nearly 60% of demand."

The essential progress domestic energy companies are making to provide reliable energy for this nation would be impeded by regulation, stemming from a political reaction to pain at the pump.

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IPAA is the national trade association representing oil and natural gas producers that drill 90 percent of the nation's oil and natural gas wells. These companies account for 68 percent of America's oil production and 82 percent of its natural gas production.