January 2009

The outcome of the recent elections has left us again faced with Executive and Legislative Branches of the Federal Government controlled by the enemies of our industry. Despite our tremendous dependence on energy supplies from foreign countries, many of whom are not our friends, the new administration is sure to make strong efforts to re enact the ban on exploration in the offshore prospects that exist on both coasts and the Gulf side of Florida. Many on shore areas will also be under attack and Anwar is dead. With this in mind and the anticipation of the many battles we will face to protect our remaining incentives – depletion allowance, write off of intangible drilling and exploration costs and other critical tax breaks, I am reproducing below a letter written in 1992 to the Chairman of the Committee on Energy of the Texas House of Representatives by our esteemed geologist, Joe McCullough, that addresses the value of domestic oil and gas versus foreign sources. This is a very sobering analysis even though $500,000.00 wells may never be seen again in my lifetime. You may also find this useful if and when you are called upon to defend our way of doing business or to explain the importance of our Domestic Oil and Gas Industry.
March 20, 1992

The Texas House of Representatives

Committee on Energy
The Honorable Mr. Robert Earley, Chairman
P.O. Box 2910
Austin, Texas 787-2910

Dear Mr. Chairman:

A single mediocre 200,000 barrel TEXAS oil well drilled, completed, produced and depleted within a ten year period is estimated to generate and place at least $3,374,600.00 into circulation within the State of Texas or a total of $5,180,000.00 within the U.S.A. (Exhibit #2). A single TEXAS gas well producing energy at an oil equivalent basis causes $1,982,000.00 to enter circulation within the State of Texas or a total of $2,979,000.00 within the U.S.A. (Exhibit #3). Using a Ripple Effect Factor of ten, it becomes apparent that a single oil or gas well of modest reserves creates an amazing source of funds from which a County, State or Country can exact operating expenses – TAXES.

By contrast, a unit of energy – a barrel of oil, an MCF of gas – that is simply purchased from a foreign source serves only to deplete a State or Country of its wealth. Simply stated, 200,000 barrels of oil explored for, drilled and produced within this Country is worth from $5,000,000.00 to $50,000,000.00 in real and circulatory value, while imported energy represents a $4,000,000.00 drain in to a Country’s wealth.

The sales point used for comparison between domestic and foreign is the refinery gate for oil and posted wellhead prices for gas. The back up data and definitions used, Exhibits #1 through 3, are attached. Obviously I would be available to discuss these revelations.

As Chairman of our Texas Committee on Energy, this dissertation my be “old hat” or like carrying “Coal to New Castle”, but in any case it is being offered as an aid to you in your continuing effort to raise the level of awareness among our State Legislators as to the true value of our State’s producible Fossil Fuel resources. Once that awareness of value has been appreciated and an understanding of the extraordinarily negative effect imported energy has on our State, I will feel confident their abilities to manage the energy wealth of Texas shall become one of their top priorities.

I enjoyed your visit to our P.I.C. noon meeting, March 11, 1992 here in Corpus Christi and feel that perhaps we can make a difference.









We can probably live with $50.00 oil and $5.00 gas once the costs of exploring, drilling, completing and operating get back in line, but without the incentives listed above our efforts as independents may be doomed and the ability of the Majors to provide our energy needs will be severely curtailed.

Naturally the Chairman of the Energy Committee completely ignored Joe’s letter as will most of those in the new Administration, but we can’t throw in the towel. We fought hard to retain these valuable concessions and we are ready to do it again.

Daniel A. Pedrotti
CCGS President