Profession Has a Lot at Stake in Budget Battle

American Association of Petroleum Geologists (AAPG)

Sitting at his Oval Office desk on Aug. 2, President Obama signed into law the compromise agreed to by the House of Representatives and Senate to lift the nation’s debt ceiling and trim federal spending.

It was the end to a spectacle that had veteran political pundit Charlie Cook shaking his head.

“Right now, we are at a very, very low point – the worst I’ve seen since I moved to Washington in September 1972,” Cook wrote in his July 29 column for National Journal. “Never in my memory have both parties and both ends of Pennsylvania Avenue appeared as dysfunctional as they do today. The stakes are so high and the performance is so utterly disappointing.”

The American people seem to agree.

According to an Aug. 3 poll taken by Scott Rasmussen, only 22 percent of those adults polled approved of the compromise, probably because 58 percent did not believe it would result in any significant reduction in government spending.

And the next day he reported that 62 percent of American voters want to “replace the entire Congress.”

But the election is more than a year off, and the job is not yet finished.

As legislators return from their August recess, they need to identify spending cuts over 10 years that equal $1.2 trillion. The specific proposal will be developed by a 12-person bipartisan, bicameral “super committee.” And if the proposal passes committee, it will be subject to an up-or-down vote in both the House and the Senate.

Failure to pass a bill by Nov. 23 sets into motion a series of deep and painful cuts in discretionary, entitlement and defense spending that do not appeal to either party. Therein is strong incentive to develop and pass a consensus proposal.

Meanwhile, at the other end of Pennsylvania Avenue, weak economic growth and persistently high unemployment numbers have the president focused on job creation.

The oil and natural gas industry can make a significant contribution both to economic growth and jobs, as highlighted in a recent study by IHS Global Insight.

The role of U.S. independent oil and natural gas producers continues to grow. According to the study, independents:

  • Drill nearly 94 percent of the wells in the United States.
  • They operate most of the nation’s marginal wells.
  • Onshore they produce 65 percent of the nation’s natural gas and nearly 45 percent of crude oil supplies.

In the study IHS assessed and forecasted “direct contributions of the onshore independents; indirect contributions from their supplier networks; and those contributions induced via spending of income by the direct and indirect employees” through 2020.

The study assessed upstream and mid- and downstream activities separately.

They found that upstream activities alone represented 2.1 million jobs in 2010, which equates to 1.6 percent of total U.S. jobs. And by 2020 jobs attributable to upstream activities were expected to grow to 2.6 million jobs, or 1.8 percent of U.S. jobs.

The economic contribution to the nation’s Gross Domestic Product of upstream activities was $321 billion in 2010, and projected to be $467 billion in 2020. And this economic activity generated $69 billion in federal, state and local tax and royalty income in 2010 and $102 billion in 2020.

And as the Independent Petroleum Association of America explains in its 2009 Profile of Independent Producers, the firms engaged in this economic activity are the epitome of small business:

“[t]he median firm has been in business for 26 years and has median gross revenues of $7,851,000 and median net taxable income of $1,242,315. In addition, the median independent employs 11 full-time and three part-time employees.”

But in order to realize the job gains and economic contribution of onshore oil and gas activities, lawmakers have to make wise policy choices.

And that brings us back to Congress.

Two areas that we are watching as deliberation on federal spending begins are the Department of Energy’s oil and natural gas technology R&D programs and suggested revisions to the tax code for oil and natural gas operators.

Terminating research programs and removing tax preferences could jeopardize the jobs and economic boost provided by domestic oil and natural gas development.

The FY2012 Energy and Water Appropriations bill that passed the House in July preserves the natural gas technologies program, although the bulk of the funding is to be used for methane hydrates research. Senate appropriators have yet to pass their bill through committee. These programs have regularly faced opposition from both Republican and Democrat administrations, and yet Congress has repeatedly restored the funding.

DOE’s oil and natural gas technology development programs, together with the ultra-deepwater and unconventional resources program, provide essential technology development for independent oil and natural gas producers.

They also support the academic research community and fund graduate students – our future work force.

A recent study by Bloomberg Government looked at the impact on independents of repealing the three largest oil and gas tax preferences: expensing of intangible drilling costs, the domestic manufacturing tax deduction and percentage depletion.

Bloomberg found that the repeal would have minimal impact on the five large “majors” – but it would have reduced 2010 drilling activity, and thereby economic activity, of independents in the United States by more than 1,500 wells.

It also would disproportionately affect natural gas activity, because the United States gets more natural gas from domestic supplies than it does crude oil.

There are other policies, such as access to public lands, which are important to a comprehensive approach to energy and the economy. But R&D spending and tax preferences related to oil and natural gas face heavy scrutiny.

And GEO-DC will be monitoring and reporting as Congress and the president confront the nation’s daunting fiscal and economic challenges in the months ahead.

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AAPG Delegation Visits Capital

Past AAPG President Will Green (left) and AAPG member Clint Moore (right), part of the 2011 Congressional Visits Day delegation, with U.S. Rep. Bill Flores (R-Tx).
Past AAPG President Will Green (left) and AAPG member Clint Moore (right), part of the 2011 Congressional Visits Day delegation, with U.S. Rep. Bill Flores (R-Tx).

GEO-DC welcomed eight AAPG members to Washington, D.C., in May for AAPG Congressional Visits Day 2011.

This annual event is an opportunity for AAPG members to meet with legislators and their staff – as well as regulators and policy makers in the Executive Branch – to talk about energy issues facing the nation.

Our conversations in May centered on the interrelationships of energy, gas prices, the economy and the environment. We also discussed the need for a federal role for research and development in the petroleum geosciences, and talked about hydraulic fracturing technology.

Sincere thanks to all of our participants: Paul Britt, Ross Clark, Cheryl Desforges, Mike Fogarty, Pete MacKenzie, Clint Moore and AAPG past presidents Will Green and Dan Smith. Thank you for helping bring science to our nation’s policy makers.

If you’d like to join us for a future CVD please email to be added to the invitation list.

We’ll publish dates for our next CVD as soon as they’re available.