Prepared Remarks of
U.S. Secretary of Energy Bill Richardson
to the
National Governors' Association
Washington, DC
February 21, 1999

Thank you for that introduction, Governor Schafer. Let me digress for just a moment and tell you I have scheduled a trip to North Dakota in March and look forward to visiting your state.

When I was in Congress, I represented an energy -rich district, where oil and gas production was key to the economic health of the state. Now, as Energy Secretary, it is my job to help ensure the short and long-term energy security of the nation.

Key to our energy security is affordable, abundant and secure supplies of energy. We must work to enhance domestic production... diversify our international sources of supply...maintain a strategic oil reserve...and develop alternative sources of energy.

I know that many of you here today represent oil producing states -- but we all represent oil consuming states. And from a consumer's standpoint, our economy is the envy of the world.

Six years into this Administration, inflation is the lowest it has been since John Kennedy was President. Unemployment, at 4.5 percent, is at its lowest peacetime level in 41 years. We have the highest rate of home ownership in history. The federal budget is not only balanced for the first time in a generation, but we have the largest dollar surplus on record.

The stock market is booming...hourly wages have increased at their fastest rate in 20 years...over 17 million jobs have been created...and our companies are enjoying record levels of productivity.

While most of us are reaping the economic benefits reflected in these statistics, the story in the Oil Patch is very different.

According to surveys by the Independent Producers Association of America, almost 140,000 domestic oil wells, and 60,000 natural gas wells have been abandoned in a little over a year. Daily domestic oil production is down by 360,000 barrels. Over 41,000 jobs -- almost 10 percent of the industry's workforce -- are being eliminated.

With the national economy doing so well, why should we be concerned about the health of our domestic oil and gas industry?

Most importantly, the industry is key to our national energy security. Defending distant oil supply lines is costly and unpredictable. We already depend on imports for over half of our oil. As domestic production declines, so must imports rise. And these imports will most likely come from remote - often unstable -- regions of the world.

In addition, oil and gas provides the economic foundation for many communities across the nation. We have invested billions of dollars in our domestic oil and gas infrastructure, which supports almost 400,000 high-paying jobs.

The technology-driven oil and gas industry is also an engine for innovation -- it provides a training ground for a highly-skilled workforce. Through American know - how, the industry promotes our businesses and technologies, both at home and abroad.

Finally, we should care because we need to manage our resources in responsible ways.

Sometimes I am asked why we don't just use up everyone else's oil, and keep ours in the ground for a rainy day. To them I say, that as public servants, we have a responsibility to manage our domestic oil resources in ways that maximize their value.

Most of us know that you can't just turn an oil well on and off -- abandoned wells are usually gone for good. Also, one sixth of our natural gas production is a by-product of oil production -- when we lose one, we lose the other.

I know I have taken a complicated route to get to a simple destination, but the point I am making is important -- whether you represent a consuming state, a producing state, or both, we all have a huge vested interest in a healthy domestic oil industry.

Now, before I tell you what we are doing to specifically address the problems of the industry, I want to tell you what we are not doing.

We are not trying to intervene in, or manipulate, markets in any way. Oil and gas are commodities, albeit commodities which are important to our national security. The value of oil and gas rises and falls with supply and demand.

We are not seeking higher oil prices or production cuts by our foreign suppliers or bail-outs for big oil.

We have instead focused our efforts on ways to preserve at-risk production - largely marginal wells -- and on innovative ways to lower the costs of doing business. We are also working on ways to cut government red tape and to protect the interests of the American taxpayer.

Last December, I appointed an internal Oil Emergency Task Force to assess the effects of low oil prices on domestic production. I instructed the Task Force to go out into the Oil Patch to pulse

the industry and its decision-makers. I asked them to identify which measures were reasonable -- what steps could be taken quickly -- and what were the most effective ways to stop the premature abandonment of oil and gas wells.

The Task Force gave me a list of recommendations designed to:

• enhance America's energy security;
• preserve our domestic production capacity;
• lower the costs of production, and;
• improve government decision-making.

We have already announced several initiatives in these strategic areas, and will continue to work on others in the days ahead.

To enhance the nation's energy security, we will shortly be putting 28 million barrels of federal royalty oil into the Strategic Petroleum Reserve. In a related move, we are offering un-utilized space in the Reserve for commercial storage, with storage fees to be paid in oil.

No money has been appropriated to fill the Reserve since 1990 --the last oil that went in was paid for with receipts from a Desert Storm oil sale.

Now, for the first time in recent memory, we have mechanisms to re-fill the Reserve during peacetime. These "first-of-a-kind" efforts are designed to make the most of today's low prices. By putting oil in the Reserve today, we will receive a higher rate of return tomorrow -- increased energy security, more strategic assets, and a great deal for the American taxpayer.

To help preserve our domestic production, the Department of Energy is exploring possibilities for targeted tax relief. Such relief would have to be cost-effective and would require budget offsets. Any tax relief proposal would require the concurrence of the rest of the Administration, and the passage of legislation by the Congress.

The Administration has altered its requirements for federal lease holders to diminish the threat that near-term low prices hold for long-term production. This change would allow stripper well operators to temporarily suspend production, without losing their leases or having to plug their wells. To help see small operators through tough times, the Administration is also offering various types of federal royalty relief, and is actively considering additional categories of relief.

To help lower the costs of production, we just committed $18 million for a technology-driven, industry cost - shared program to improve oil recovery from endangered domestic reservoirs.

We also kicked off a program to assist small independents--those with less than 50 employees--

which have specific production problems, ranging from reservoir characterization to environmental compliance.

We launched a large-scale pilot program in six states--California, Texas, Ohio, Utah, Wyoming and Colorado -- to decrease production costs through the use of new, energy efficient technologies and motor replacements. A similar small-scale pilot in Kansas has shown promising results-- lowering the cost of production by 77 cents per barrel. In today's price environment, 77 cents to a marginal producer could mean the difference between oil production and well abandonment.

Just last Friday, we announced another innovative pilot program in Texas that could be the first step towards paperless regulation. This new on-line permitting system could save the industry millions of dollars in administrative costs and countless hours of labor.

Finally -- and I hope no one underestimates the importance -- we are pushing hard for better dialogue between government decision-makers, and improved coordination with other federal agencies. Energy concerns must be represented at the table when key economic and regulatory decisions are being made.

Our initiative to re-fill the Strategic Petroleum Reserve required the concurrence of high level officials in the Interior and Treasury Departments, the Office of Management and Budget, and the National Economic Council. This same level of cooperation will be critical as we move forward on these and other initiatives.

I would like to make one last point about our national energy and economic security. Our strategic energy interests must be met both at home and abroad. Just recently, I returned from Saudi Arabia. While there, I advocated strongly for U.S. oil interests, including those of independent producers and suppliers. I will continue to push hard -- both here and overseas -- to ensure that we have the energy we need to power our economy into the next century.

In closing, I would like to note the environmental dimension of oil use. We are keenly aware that fossil fuels will meet our energy needs for decades to come -- but as we all know, fossil fuel use comes with a high environmental price tag. We will continue to develop the means to use fossil fuels in more environmentally sensitive ways. At the same time, we are stepping up our research efforts in energy efficiency and alternative energy sources.

We share an obligation to preserve our resources...protect the livelihoods of our citizens...build our economic base...act as careful stewards of taxpayer dollars...and promote our national security. The steps I have outlined today should help to accomplish these goals.

My staff has prepared a package for your information which includes detailed descriptions of our initiatives. We are happy to answer any questions you might have.

Thank you and I look forward to working with you on these and other issues.