Dave Galt - September 25, 2008
Montana Petroleum Industry
Oil and Gas Drilling
There has not been a day in quite some time that the price of gasoline has not been a lead story in a media news source across the country. We are living at a time when America’s economy is suffering, Americans are concerned about being able to provide for their families, many Americans are nervous about their ability to retire now that they have worked all their lives, and America’s lifestyle is the target for despot leaders across the globe who want to do us harm. It is a time when we need to give serious consideration to what direction our future will take and how energy will fit into our future.
Solving our energy problems is going to require many sources, and new ways of fueling our transportations systems and heating our homes. While it takes time to adapt the current infrastructure to allow new and exciting energy sources to deploy, we still need our petroleum based energy reserves, and we will for some time to come. There are significant resources under American control that higher prices have made economically favorable to develop, yet we can’t seem to get past the politics and develop those resources. Right here in Montana there are resources to develop and the question is, will we?
In the last 18 months efforts to stop oil and gas resource development have increased at a frenzied pace. These attacks are coming from a host of environmental organizations that claim oil and gas development will permanently damage our way of life in Montana. In the last 18 months every oil and gas lease sale on Federal lands in Montana has been protested. The reasons behind the protests are infringement on wildlife habitat, failure to account for lifecycle greenhouse gas, and a host of other issues.
When the petroleum industry asks to have lease opportunities expanded to include some of the 40+ percent of federal lands that are off limits, opponents say we have millions of acres that we are not developing that should be developed. Keep in mind that exploration is very expensive and it takes large tracts of land to make the exploration expenses worth the investment. Another important fact is that oil and gas reserves are not located under every piece of ground on the planet. Some significant known reserves are off limits, while many areas of no known minerals are offered for lease. As exploration experts examine geologic structures for oil and gas reserves, those areas that are of questionable resource value are allowed to let their leases expire. It is interesting to note that on state land about 1.3 percent of the lands under lease ever see development.
Taxes are another significant issue when considering an investment in resource development. Montana has a competitive oil and gas tax policy in place since 1993, yet the pressure is building to remove that competitive tax policy when the state legislature convenes in January. Oil and gas producers in Montana are allowed an incentive to drill new wells. That incentive amounts to a reduction in the working interest production tax for the first 18 months on a horizontal well and 12 months on a vertical well. After that time the production tax reverts to the standard rate. Opponents believe that oil and gas companies do not need this incentive in today’s high price.
It is a tough question. There is no doubt that the drilling incentive was a significant factor in the decision to introduce horizontal drilling technology into the Elm Coulee field in Richland County, also referred to as the “bakken play”. Horizontal well technology is very expensive and the decision to make investments of millions of dollars in what could be a “dry hole” is a difficult decision. Thanks to the incentive, the Elm Coulee field became Montana’s largest producing oil field. Oil and gas production tax revenues have increased from $31 million dollars in state fiscal year 1994 to over $324 million dollars in state fiscal year 2008.
Another interesting fact about the current energy situation is the need for natural gas development. Natural gas provides a vital fuel for use in electrical generation, especially to stabilize the variances in wind energy. Also, we are hearing of calls to use compressed natural gas as a transportation fuel. In the year 2000, 50 percent of the natural gas used in America came from wells drilled in the last 48 months, now it comes from wells drilled in the last 40 months. Keeping pace with America’s energy demands is not an easy task.
Since 1915, the petroleum industry has drilled nearly 40,000 wells in Montana. More than 25,000 of them have been plugged, abandoned and reclaimed once the resource was developed. We have proven our dedication to Montana’s heritage. Our petroleum industry is committed to continuing to find oil and gas resources to solve our energy needs. We are an important part of Montana’s economy. According to an economic analysis the petroleum industry supports 12,000 jobs, directly or indirectly, and has a total economic impact over $9 billion dollars. This coming legislature will take or not take actions that will have significant impact on our ability to continue to be a vibrant industry in Montana. It is time all Montanans give some serious thought to our energy needs, and we hope that you do.
Representing the Montana Petroleum Industry, I am Dave Galt
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