DEBATABLE – Market, not policy, is key to OK’s energy future
Jack Money | The Oklahoman
Debates about ways to support the energy industry both in Oklahoma and across the nation have been part of every presidential and congressional election since the 1980s, and subsequent governmental actions have prompted applause or angst as they have helped or hurt energy production along the way.
That’s no surprise. While the number of Oklahomans employed by oil and gas companies in the state is relatively small, the industry’s impact on the overall health of the state’s economy and the services provided by state and local governments is huge.
A report issued by the Oklahoma State Chamber in September 2016, for example, showed:
- In 2015, the oil and gas industry employed 53,500 Oklahomans who earned $5.6 billion.
- Another 95,000 Oklahomans earned $10 billion in self-employment income from oil and gas activity.
- In total, their earnings represented 13.2% of total state earnings during the year.
Energy industry slowdowns, it observed, typically lead to losses of gross production, property, sales and income tax revenues and an associated loss of discretionary spending.
In short, keeping the industry healthy has been paramount to both industry leaders and state government officials.
As the next administration under President Joe Biden prepares to take office this month, questions again are being asked about how federal energy policies might change and how that might impact Oklahoma’s energy industry.
While the questions are nothing new, answers from at least two Oklahomans might surprise you.
Mike Cantrell, chairman of Postwood Energy LLC and co-chairman of the Oklahoma Energy Producers Alliance, has been an activist in Oklahoma’s oil and gas industry since leading a membership committee for the Oklahoma Independent Petroleum Association (OIPA) in the early 1980s.
Over the years, he represented the industry and its viewpoints on environmental, trade and tax policies that all influenced the success of oil and gas operators in the state.
These days, Cantrell said he has re-assessed many positions he has taken over that time. The industry, for example, lobbied hard to keep foreign oil overseas, despite its role (through an agreement made by President Ronald Reagan with Saudi Arabia) to flood markets with cheap oil to bring the USSR to its economic knees.
He also lobbied hard on behalf of the industry to eliminate the windfall profit tax on oil and gas producers, something they were able to accomplish for owners of stripper wells in 1981 and for producers generally several years later.
“I have done my fair share of that, looking back, and asking whether or not the positions I took were right,” Cantrell said. “The question is: Should we have let the marketplace decide?”
His thoughts are similar to those of Jim Roth, an attorney who is the dean of Oklahoma City University’s School of Law and a past Oklahoma Corporation Commissioner.
Roth said past Congresses and administrations indeed have been able to influence rises and falls in domestic energy production through regulatory and tax-related policies.
“But there are market forces that are evolving, regardless who is in control,” Roth said.
A 40-year itch
Until a decade ago, the most common called-for remedy to support Oklahoma’s energy industry was the need to enact a tax on imported crude oil.
Tulsa consultant Wayne Swearingen argued for a $5 per barrel tax when he addressed the OIPA in 1982, arguing that could help the nation pay down its deficit. He also called for Congress to eliminate windfall taxes on profits obtained through the production of carbon-based energy products.
“That’s the least awful of all ways to tax the industry,” Swearingen said.
Calls for import taxes only grew louder as President Reagan entered his second term, with spot pricing for West Texas Intermediate crude at the Cushing terminal averaging $15.05 in 1986.
The International Association of Drilling Contractors called for the president to save the oil and gas drilling and exploration industry from “imminent collapse” by using his executive authority to impose import fees on both oil and gasoline.
“The collapse of oil prices in combination with punitive actions of the Congress and the federal government in the form of windfall profit taxes, natural gas price controls and the like, threatens to destroy the U.S. independent oil and gas industry and critical drilling and exploration efforts with it and threatens the security of the nation,” said association President Ned E. Simes. “President Reagan used this authority recently to limit the import of cedar wood shingles from Canada. Certainly, the survival of America’s energy industry is at least as strategic as that of the wood shingle industry.”
As the 1988 presidential election between candidates Vice President George H.W. Bush and Michael Dukakis approached, Oklahoma’s energy producers were hopeful Bush would support the industry. But by the time he sought a second term in 1992, markets remained in control.
The average price at Cushing for crude was $20.58 a barrel that year as the nation imported more than 2.2 billion barrels.
“There remains no commitment, or even recognition, from this administration to address the urgent problems and inequities within the domestic oil and gas industry,” said F.W. “Pete” Brown, the OIPA’s president at the time. “President Bush has been criticized for not having an energy strategy. I believe he has an energy policy — cheap oil today, regardless of the cost tomorrow.”
Under President Bill Clinton’s two terms, crude prices generally climbed. But imports climbed as well, growing to more than 3.3 billion barrels in 2000.
And as President George W. Bush served the first year of his second term in 2005, crude’s price averaged $56.64 a barrel as imports reached a record level of nearly 3.7 billion barrels.
When President Barack Obama took office in 2009, the shale revolution was growing. As domestic production climbed, oil imports declined, with only about 2.5 billion barrels imported in 2019.
