January 21, 2009
WASHINGTON, DC – U.S. Senator Jim Inhofe (R-Okla.), Ranking Member of the Environment and Public Works Committee, today introduced with Rep. Dan Boren (D-Okla.), a Member of the House Natural Resources Committee, the Marginal Well Production Preservation and Enhancement Act. This bipartisan and bicameral bill ensures that the nation’s policies recognize and reflect the economic importance of marginal well production. The average marginal well produces less than 2.2 barrels of oil per day.
Inhofe: “A vast majority of Americans support expanding and taking advantage of our domestic resources of oil and natural gas,” Senator Inhofe said. “I have been proud to work with Congressman Dan Boren to advance this important effort by reintroducing in the 111th Congress our Marginal Well Production Preservation and Enhancement Act. This legislation will reduce our dependence on foreign oil by streamlining and clarifying government regulations, prolonging economic feasibility, and enhancing production volumes from marginal wells, a well which produces 15 barrels or less daily. In addition to reducing our dependence on foreign oil, a producing well provides both state and federal taxes, pays royalties to land and mineral owners, and keeps jobs and dollars on American soil and in American pockets. A plugged well provides none of this. In fact, the latest Interstate oil and Gas Compact Commission (IOGCC) report demonstrated that plugged and abandoned marginal wells resulted in the loss of $1.77 billion in economic output, $369.2 million in earnings reductions, and 8,223 lost jobs in 2006.
“Marginal wells produced more than 335 million barrels of oil in 2006. That’s equivalent to more than 60 percent as much as the United States imports annually from Saudi Arabia or 67 percent as much as the nation imports annually from Venezuela. In my own state of Oklahoma, it is the small independents, basically mom-and-pop operations that produce the majority of oil and natural gas, with 85 percent of Oklahoma's oil coming from marginal wells.”
Boren: “I’m proud to join Senator Jim Inhofe in reintroducing the Marginal Well Production Preservation and Enhancement Act. Even though energy prices have fallen recently, we cannot let that deter us from enacting sound energy policy that increases our domestic energy supply and helps reduce our dependence on foreign energy,” Congressman Boren said. “Congress must ensure that we are taking full advantage of every option available to us. This bill achieves these goals by prolonging and enhancing production from marginal wells. Producers who operate marginal wells are smaller, independent operations that infuse our local and state economy with job creation and additional revenue. This legislation ensures that our government’s policies recognize the economic importance and energy contribution of marginal well production.”
Recent Support for the Marginal Well Production Preservation and Enhancement Act
Oklahoma Independent Petroleum Association: “The Oklahoma Independent Petroleum Association appreciates the bipartisan leadership of Senator Inhofe and Congressman Boren as they work to make America more energy secure,” said OIPA Chairman John Pilkington. “By fixing the marginal well percentage depletion rate at 27.5 percent, eliminating the net income limitation for percentage depletion, allowing the accelerated depreciation of tertiary injectant properties, and providing common-sense regulatory relief, this bill would help independent producers more effectively meet the demands of operating marginal wells and enhance producers’ ability to develop new domestic crude oil and natural gas resources.”
National Stripper Well Association: “The National Stripper Well Association would like to thank Congressman Boren and Senator Inhofe for sponsoring the Marginal Well Production Preservation and Enhancement Act,” said NSWA Chairman Dewey Bartlett Jr. “America’s marginal wells collectively produce half as much oil as America imports from Saudi Arabia each year and are an important part of the domestic energy security equation. We hope Congress will consider this bipartisan bill as part of a comprehensive solution to our nation’s energy supply challenges.”
Oklahoma Commission on Marginally Producing Oil and Gas Wells: “The State of Oklahoma Commission on Marginally Producing Oil and Gas Wells would like to express its appreciation on behalf of Oklahoma marginal oil and gas well operators to Senator Inhofe and Congressman Boren for their bipartisan leadership as they work to make America less dependent on foreign oil and improve national security,” said Marginal Well Commission Executive Director James M. Revard. “At this critical time, this bill will help the independent producer more effectively meet growing market demands while operating in a cost-effective manner. This bill will allow operators to offset the rising cost of operations while making it possible to reinvest in new development of domestic oil and gas.”
Independent Petroleum Association of America: “With approximately 20 percent of American oil production and 10 percent of American natural gas production coming from marginal wells, they are America’s true strategic petroleum reserve. However, they remain America’s most vulnerable production assets faced with the highest operating costs. This legislation is designed to encourage and protect continuing operation these essential American resources,” said Barry Russell, President and CEO of the Independent Petroleum Association of America.
Association of Energy Service Companies: Charlie Swift, President of the Association of Energy Service Companies, said, “On behalf of the Association of Energy Service Companies, I would like to extend my support to the Marginal Well Production Preservation and Enhancement Act introduced by Senator Inhofe and Representative Boren. Marginal wells are a vital resource to our domestic oil and gas industry, and I applaud these Congressmen for recognizing their importance and working to promote their use."
About the Marginal Well Production Preservation and Enhancement Act:
Increases the Percentage Depletion Rate for Marginal Wells
Similar to depreciation, percentage depletion is an important financial tool for independent producers who operate high cost, low production yield oil and natural gas wells. The Marginal Well Production Preservation and Enhancement Act would increase the percentage depletion allowance for marginal wells from 15 percent to the historical rate of 27.5 percent exclusive of daily production levels. This provision is not available for integrated major oil companies.
Eliminates Net Income Limitation on Percentage Depletion
The net income limitation on percentage depletion prohibits taxpayer use of percentage depletion when it would exceed the net income from an individual property. Congress has recognized that the net income limitation discourages investment to maintain marginal wells and instead encourages producers to plug wells. Therefore, beginning in 1998, Congress has temporarily suspended the net-income limitation on a recurring basis. The current suspension expired in 2007. The Marginal Well Production Preservation and Enhancement Act would continue this policy by permanently eliminating the net income limitation. This provision is not available for integrated major oil companies.
Oil and Gas Wells and Pipeline Facilities Technical Amendment
The Clean Air Act (42 U.S.C. 7412(n)(4)(A)) prevents the Environmental Protection Agency (EPA) from aggregating emissions from exploration and production equipment, pipeline compressors, and pump stations for purposes of the Act’s Hazardous Air Pollutants, Section 112. This bill would make clear the intent of Congress to not aggregate emissions from these individual sources, precluding unrealistic and unnecessary regulation of marginal well properties.
National Response System
The Marginal Well Production Preservation and Enhancement Act would amend the Federal Water Pollution Control Act to define produced water tanks as water treatment facilities to the same extent as are similar facilities in other industrial sectors. It also would provide regulatory relief for small facilities with oil storage capacities of less than 50,000 gallons at which no single tank has a capacity of greater than 21,000 gallons. Since marginal wells provide minimal risk to the environment as compared to larger bulk crude oil storage facilities and refineries that have high throughput and large single tank storage volumes, a more streamlined plan and relief from requirements are needed.
Accelerated Depreciation of Tertiary Injectant Properties
Tertiary injectants are typically fluids or gases injected into crude oil and natural gas reservoirs to stimulate oil and gas flow left behind after primary and secondary pumping and water flooding techniques. Tertiary injectant properties and pipelines are typically classified as 7-year properties for purposes of depreciation. This bill would classify qualified tertiary injectant properties and pipelines as 3-year properties for purposes of depreciation.