The following testimony is submitted in advance of the November 16, 2005 hearing before the U.S. Senate Environment and Public Works Committee, which will focus on the future of transportation fuels.
My name is Jeffrey McDougall, and I am the owner of JMA Energy Company located in Oklahoma City. I will offer my remarks from the perspective of an independent oil and natural gas explorer and on behalf of the Oklahoma Independent Petroleum Association, which is an association of more than 1,600 independent oil and natural gas producers. Although our membership includes some publicly traded companies, the majority of our members are small, family owned businesses. Our members explore for and produce oil and natural gas. We do not refine oil into gasoline or heating fuels and we do not market gasoline.
I have built my business from the ground up by drilling for oil and natural gas. After being laid off in 1986 when energy prices plummeted, I started my own business by drilling shallow wells. I currently have 30 employees and most would characterize our company as a small business. In the last four years, on a cumulative basis, we have invested more than 113% of our cash flow into the drilling of over 350 new wells. Putting this in perspective, we have found enough energy equivalents to supply this nation’s natural gas needs for one day.
Profile of Oklahoma Production
Oklahoma has a rich history in energy production. During World War I, we were the largest oil producing region in the world, and were responsible for supplying critical energy resources needed for our war effort. Although oil production is still important, it has declined through the years. Oklahoma’s exploration focus has turned to natural gas, making it the number two state in the nation in natural gas production. Independent producers are responsible for more than 85% of the oil and natural gas production in the state. Nearly half of this production is from marginal wells, which account for about 42 million barrels of oil per year, or an average of 2.35 barrels per day from each of the 48,000 marginal wells. The overwhelming majority of this production is owned by small family businesses.
Independent Producers Re-invest Their Earnings
I want to emphasize that independent oil and natural gas producers re-invest their profits back into the ground here in the United States to find badly needed domestic reserves of oil and natural gas. In fact, a recent study shows that independent oil and natural gas producers re-invest more than 100% of their cash flow back into domestic oil and natural gas development. The result is that independent oil and natural gas producers drill 90 percent of the domestic oil and gas wells, produce nearly 70 percent of domestic oil and 82% of domestic natural gas.
Independent producers are now, more than ever, aggressively searching for more oil and natural gas reserves. New technology is helping independents find and recover more domestic oil and natural gas. Small oil operators are using new technology to enhance mature oil fields, unconventional plays are receiving new attention and companies like mine are drilling to depths in excess of 20,000 feet at costs approaching $8 million per well. We are doing what we can to make our country more energy secure and less reliant on foreign sources of energy.
Independent Producer Environmental/Philanthropic Activities
While our greatest contribution is finding more oil and natural gas, we should emphasize that independent producers have a history of giving back in other ways as well.
Almost every foundation, endowment, museum and numerous community projects in our state’s history have been created primarily through the generosity of the state’s independent oil and natural gas industry.
Also, we are environmental stewards. We comply with a myriad of local, state and federal environmental requirements, and in Oklahoma, oil and gas producers instigated the creation of the “Oklahoma Energy Resources Board” 16 years ago. Producers have voluntarily contributed approximately $30 million to clean up more than 6,300 abandoned well sites and an additional $30 million for science-based education programs in schools.
Currently the Oklahoma Energy Resources Board and the Oklahoma Independent Petroleum Association are addressing the impact of high energy prices on our state’s low income citizens, encouraging the state to fully fund the LIHEAP program with additional dollars collected from the state’s 7% gross production tax. We are producing conservation messages to inform the public of higher heating costs this winter and advising them of ways to save up to 35% on their heating bills.
Independent producers are re-investing profits to help America become less dependent on foreign supplies. However, we must face the fact that we may never achieve energy independence. We must learn to do a better job of conserving energy. We must also look to alternative fuels to supply a larger part of our nation’s energy needs. At the same time, we need policies that encourage, not discourage, the expansion of energy supplies to further harvest the resources we have within our own borders.