Offshore Production and Safety Act of 2011-Motion to Proceed

OFFSHORE PRODUCTION AND SAFETY ACT OF 2011--MOTION TO PROCEED

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Mr. WYDEN. Mr. President, let me start by discussing briefly what happened in 2005. Then-President George W. Bush spoke to the American Society of Newspaper Editors. It was at their convention in 2005. Then, as now, energy was a very important issue--obviously, central to our economy. President George W. Bush made some very important remarks, in my view, at that convention. I would like to read briefly what President Bush said to the convention. On energy, he said:

One of the initiatives I will push, again, is to get an energy bill out. I will tell you with $55 oil we don't need incentives to oil and gas companies to explore. There are plenty of incentives. What we need is to put a strategy in place that will help this country over time become less dependent. It's really important. It's an important part of our economic security, and it's an important part of our national security.

George W. Bush was right then, and he is just as accurate today. His comments with respect to the importance of an energy bill to our economic security and national security, in my view, is indisputably accurate. Because the President, who of course comes from oil country and has been an oil man himself, took this position, I thought it important to look at that in the context of where we were headed in terms of our country's energy policy.

We had a hearing back then, in 2005. We had all the major oil companies with us that day, their executives. In fact, one of them who was before the Finance Committee last week, Mr. Mulva, also was there in 2005. I asked each of the executives of the five major oil companies whether they agreed with the statement George W. Bush had given to the American Newspaper Convention, and all of the major oil companies testified at this joint hearing that they agreed with President George W. Bush. They said they did not need any incentives.

There were no qualifiers, there were no caveats, there was no this, there was no that. The five major oil companies, through their CEOs, said they did not need any incentives to explore for oil. Period, end of discussion. I thought it important to get that on the record to compare it to their views now.

Last week, in the Senate Finance Committee on which I am honored to serve, we got a very different story. In effect, the CEOs did an about-face. Frankly, they did it with a pretty straight face. Each of them defended the $2 billion a year in tax breaks they specifically get for exploration and drilling. These are industry-specific tax breaks. I know there has been a lot of confusion in this discussion. Is this effort somehow about ending something that other people get as well? Why don't we move on to tax reform?

I don't take a back seat to anybody on this tax reform issue. I have been involved in the first and only bipartisan tax reform effort in the last quarter century with our former colleague, Senator Gregg, and now Senator Coats. So tax reform is certainly crucial. But now we are talking about industry-specific tax breaks, and the five major oil companies that said they did not need them in 2005--in fact, basically, said they didn't even get them--now say somehow if they don't continue to get them, we are going to have enormous economic problems.

These are not just plain old tax breaks. Tax credits such as ``expensing of intangible drilling costs'' under section 263 of the Tax Code and ``amortization of geological and geophysical costs'' under section 167 of the code are, in fact, not available to every American business. We are talking, again, about specific sections of the Tax Code. I mentioned two, section 263 and section 167. These oil and gas provisions which President Bush, in 2005, said were not needed--the executives in 2005 said they were not needed--are not like every other business tax provision. How many businesses do we know that have expenses for oil drilling that are not in the oil business?

At the Finance Committee last week the CEO of Chevron said the intangible drilling tax break was like the research and development tax credit that all other American companies get. That is not accurate.

First of all, as I reminded that CEO, oil companies also get the R&D tax credit. When they have legitimate R&D expenses, they can claim the credit. If intangible drilling costs were just like research costs for the oil and gas industry, they would be getting two tax breaks for the same thing. That would be double dipping at taxpayer expense.

In reality, as the major oil companies know, building access roads to bring in drilling rigs--which is the kind of thing that is covered by the intangible drilling provision--is nothing like the research and development tax incentive. It is a cost of doing business in their major business, drilling for oil.

What is more, the tax breaks for these kinds of expenses are usually spread out over a number of years, but with expensing of drilling costs the oil companies get to write off these costs in the first year. They not only get extra tax breaks that other companies do not get, they also get to claim these breaks sooner than would other types of businesses. It simply defies old-fashioned common sense to claim that the tax incentives oil companies get for exploration and drilling costs, which they did not need when oil was $55 a barrel, somehow today become essential when oil is at $100 a barrel. Even if we adjust for inflation, today's oil price is $30 to $40 a barrel more than it was in 2005--not a couple of dollars more but substantially more, no matter which of the inflation indices you use.

Just so there was no confusion about what was said in 2005, I thought it was important to actually look at that video and, as I indicated, each of the CEOs of the major oil companies reversed their position from 2005 and said those billions of dollars in tax breaks

were essential if they were to continue to drill for oil.

In 2005 the price of gasoline at the pump had soared to what was then a record high. Today the price of gasoline is just below the all-time high price set in 2008. Then, as now, the oil companies were reporting record-high profits. So both in 2005 and today the oil companies have high prices and certainly record profits to incentivise them to drill for oil.

Then the question is, What has changed from 2005 until now to continue justifying providing these major companies

with taxpayer subsidies? I want to spend a couple of minutes unpacking a couple of the arguments we heard at the Senate Finance Committee.

Last week we heard from the CEOs that oil was getting harder and harder to find, and they faced increased global competition. If anything, U.S. oil supplies and prices are less tied to the global market now, and new oil supplies are easier to find than they were in 2005. After declining steadily since the mid-1980s, U.S. oil and natural gas production has begun to climb since 2008 due to new onshore discoveries in shale formations and development in the Gulf of Mexico.

As the distinguished Presiding Officer knows, we have great interest in this subject of natural gas and discussed it this morning in the Senate Energy Committee. The location and technology for getting oil and gas, especially from these onshore shale formations, have not only dramatically increased U.S. oil and gas reserves, but the technology is now sufficiently well established that U.S. oil and gas production is rising, and rising rapidly as a result.

According to a recent analysis by the U.S. Energy Information Administration, oil production from the Barnett Shale formation in Texas--literally in the backyards of the headquarters of some of the companies we heard from last week in the committee--oil production from that Barnett Shale formation in Texas has tripled since 2005. In North Dakota, oil production from shale has gone from next to zero in 2005 to 240,000 barrels a day and is expected to continue to grow. In 2010, production in the Woodford Shale in Oklahoma increased 40 percent between 2009 and 2010.

In one area after another, there was significant increase in production. In fact, total oil production has increased over 10 percent since hitting its low point in 2008, and the Energy Information Administration predicts that because of the increased production in oil shale and other sources in the Gulf of Mexico, it is going to continue to grow. U.S. prices are also less tied to global markets and competition now than they were in 2005 because of the increased U.S. production and increased Canadian tar sands production that is pouring into the U.S. market. This ought to be of no surprise to the five major oil companies that testified last week because each of them has also made significant investments in the Canadian tar sands project.

According to the Wall Street Journal, in 2009, Exxon announced it had acquired more reserves than it had produced for the 15th straight year, and half of those new reserves, 1.1 billion barrels of crude, were from a single Canadian tar sands project it was developing--a topic for another day.

I see my friend from Oklahoma on the Senate floor. Canadian tar sands developers are so concerned about the oversupply of tar sands oil to the North American market that they are pushing to build a new pipeline, the Keystone Pipeline, to the Gulf of Mexico that would allow them to export crude and refined products to the other markets.

The argument that it is just too hard to find new sources of oil simply does not hold water. Further evidence of just how much the U.S. and North American markets are being disconnected from global competition by these developments is the fact that the benchmark U.S. oil price, West Texas Intermediate, has been selling for $10 and $20 a barrel less than the benchmark for European oil. If supply was as tight in the United States as some of the majors told us last week, there would not be such a discrepancy in prices.

Last point. The Senate will certainly be hearing arguments that the loss of these tax breaks is going to drive up the price at the pump. This is, obviously, very much on the mind of every Senator when our people are struggling to pay the already steep cost of filling their tanks.

At the 2005 hearing I also asked the CEOs about ending these tax breaks on their companies, and several of them said it would not affect them, or it would only affect them minimally.

The CEO of Exxon said: ``As for my company, it doesn't make any difference.''

The Chevron CEO said ending these tax breaks would have ``minimal impact on our company.''

The CEO of BP said the same thing: ``It's a minimal impact on us.''

Again, common sense would tell us major oil companies earning combined profits of close to $32 billion in a single fiscal quarter would not suffer a big economic impact from the loss of those industry-specific tax breaks I have been talking about. They are certainly not going to stop doing business with prices at $100 a barrel.

In an important moment last Thursday, our colleague, Senator Cantwell, asked the head of Exxon what the price of oil actually should be with all other things being equal. Mr. Tillerson, the head of Exxon, said the price of producing the next marginal barrel of oil was probably between $60 and $70 a barrel. That is $30 to $40 a barrel profit at current prices. It is simply not credible to think these companies would significantly change their investment decisions if they lost these tax breaks, and the Congressional Research Service in a report last week concluded exactly the same thing.

I began my remarks this afternoon by quoting George W. Bush at the Newspaper Publishers Convention in 2005. He said the major companies did not need incentives to drill for oil at that price. I continue to ask how in the world, given George W. Bush's comments in 2005 and the other considerations I have outlined--that, again, prices are way in excess of inflation; again, profits are at record highs--how in the world can you justify getting industry-specific subsidies when George W. Bush said no incentives--no incentives--and he said it without a qualifier or a caveat--were warranted if you wanted to drill for oil.

As we move to this vote, I hope my colleagues will keep in mind the words of George W. Bush then. In my view, they are even more accurate today.

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