Sunday, March 29, 1998

Energy committee chairman calls for tax, royalty relief

By JIM O'CONNELL / Scripps Howard News Service

WASHINGTON -- Congress should consider offering tax and royalty relief to keep marginal oil wells functioning through the current depressed oil market, the chairman of the senate's energy committee said Friday.

Sen. Frank Murkowski, R-Alaska, the chairman of the Senate Energy and Natural Resources Committee, said he plans to unveil a legislative package of tax and royalty relief Tuesday.

Murkowski said there are 430,000 wells in the nation that pump less than 15 barrels of oil a day. Those so-called stripper wells produce a significant 7 percent of the domestic oil supply, he said. But they are the most vulnerable to being forced to shut down because of low prices, he said.

"And once these stripper wells go down, it's very difficult and very expensive and marginally efficient to bring them back," Murkowski said. "So the question is, can we assist in ensuring that these stripper wells continue to contribute to our economy in times of lowering price of oil."

Although details of the legislation have not been finalized, Murkowski said he would propose tax credits of about $3 per barrel on the first three barrels of daily production if prices are as low as $12 per barrel. The tax credits would diminish as prices rise, and would be eliminated if prices reach about $20 per barrel, Murkowski said.

The price of a barrel of crude oil fell from about $20 six months ago to $13 last week. The price rebounded slightly this week to $16 per barrel.

Murkowski said he was also considering including reductions in the amount of royalty payments oil producers pay to the government for extracting oil from federally owned land.

"It's very important that we make a genuine effort to try and keep these contributions to our domestic oil supply in a state of activity," Murkowski said.

Murkowski said he has not determined how much the proposed tax breaks would cost the government, nor where the budget could be cut to pay for the plan.

"I think its appropriate and necessary that we take the action now, and see what the pleasure of Congress is towards it," he said.

A spokeswoman for the Independent Petroleum Association of America said the group supports Murkowski's proposal.

"There needs to be some type of safety net system when low prices hit the industry," said Colleen Horn, a spokeswoman for the IPAA. Some of the same ideas were discussed but never enacted by Congress last year.

This year, because of the oil price slump, those proposals "seem to be gaining momentum," Horn said.