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+
+ - THE IRAQI OIL FOR FOOD PROGRAM AND ITS IMPACT
+
+[House Hearing, 106 Congress]
+[From the U.S. Government Publishing Office]
+
+
+
+
+ THE IRAQI OIL FOR FOOD PROGRAM AND ITS IMPACT
+
+=======================================================================
+
+ HEARING
+
+ before the
+
+ SUBCOMMITTEE ON ENERGY AND POWER
+
+ of the
+
+ COMMITTEE ON COMMERCE
+ HOUSE OF REPRESENTATIVES
+
+ ONE HUNDRED SIXTH CONGRESS
+
+ FIRST SESSION
+
+ __________
+
+ MARCH 26, 1999
+
+ __________
+
+ Serial No. 106-27
+
+ __________
+
+ Printed for the use of the Committee on Commerce
+
+
+
+
+
+ U.S. GOVERNMENT PRINTING OFFICE
+ 55-644CC WASHINGTON : 1999
+------------------------------------------------------------------------------
+ For sale by the U.S. Government Printing Office
+ Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
+
+
+
+ COMMITTEE ON COMMERCE
+
+ TOM BLILEY, Virginia, Chairman
+
+W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
+MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
+MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
+JOE BARTON, Texas RALPH M. HALL, Texas
+FRED UPTON, Michigan RICK BOUCHER, Virginia
+CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
+PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
+ Vice Chairman SHERROD BROWN, Ohio
+JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
+CHRISTOPHER COX, California PETER DEUTSCH, Florida
+NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
+STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
+RICHARD BURR, North Carolina RON KLINK, Pennsylvania
+BRIAN P. BILBRAY, California BART STUPAK, Michigan
+ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
+GREG GANSKE, Iowa THOMAS C. SAWYER, Ohio
+CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
+TOM A. COBURN, Oklahoma GENE GREEN, Texas
+RICK LAZIO, New York KAREN McCARTHY, Missouri
+BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
+JAMES E. ROGAN, California DIANA DeGETTE, Colorado
+JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
+ BILL LUTHER, Minnesota
+ LOIS CAPPS, California
+
+ James E. Derderian, Chief of Staff
+ James D. Barnette, General Counsel
+ Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
+
+ ______
+
+ Subcommittee on Energy and Power
+
+ JOE BARTON, Texas, Chairman
+
+MICHAEL BILIRAKIS, Florida RALPH M. HALL, Texas
+CLIFF STEARNS, Florida KAREN McCARTHY, Missouri
+ Vice Chairman THOMAS C. SAWYER, Ohio
+STEVE LARGENT, Oklahoma EDWARD J. MARKEY, Massachusetts
+RICHARD BURR, North Carolina RICK BOUCHER, Virginia
+ED WHITFIELD, Kentucky FRANK PALLONE, Jr., New Jersey
+CHARLIE NORWOOD, Georgia SHERROD BROWN, Ohio
+TOM A. COBURN, Oklahoma BART GORDON, Tennessee
+JAMES E. ROGAN, California BOBBY L. RUSH, Illinois
+JOHN SHIMKUS, Illinois ALBERT R. WYNN, Maryland
+HEATHER WILSON, New Mexico TED STRICKLAND, Ohio
+JOHN B. SHADEGG, Arizona PETER DEUTSCH, Florida
+CHARLES W. ``CHIP'' PICKERING, RON KLINK, Pennsylvania
+Mississippi JOHN D. DINGELL, Michigan,
+VITO FOSSELLA, New York (Ex Officio)
+ED BRYANT, Tennessee
+ROBERT L. EHRLICH, Jr., Maryland
+TOM BLILEY, Virginia,
+ (Ex Officio)
+
+ (ii)
+
+
+
+ C O N T E N T S
+
+ __________
+ Page
+
+Testimony of:
+ Bole, David L., Corporate Research and Development, Randall
+ and Dewey, Inc............................................. 85
+ Brown, F.W.``Pete'', Co-owner, Cimarron Production Company... 80
+ Hakes, Hon. Jay, Administrator, Energy Information
+ Administration, Department of Energy....................... 21
+ Sieminski, Adam E., Principal and Senior Oil Analyst, BT Alex
+ Brown...................................................... 66
+ Smith, Hon. Carl Michael, Secretary of Energy, State of
+ Oklahoma................................................... 26
+ Taylor, Tom, Regional Vice President, Texas Independent
+ Producers and Royalty Owners Association................... 73
+ Watkins, Hon. Wes, a Representative in Congress from the
+ State of Oklahoma.......................................... 7
+ Williams, Hon. Michael L., Commissioner, Texas Railroad
+ Commission................................................. 39
+ Wood, Hon. William B., Principal Deputy Assistant Secretary,
+ Office of International Organizations, Department of State. 34
+Material submitted for the record by:
+ Larkin, Barbara, Assistant Secretary, Legislative Affairs,
+ letter dated April 16, 1999, on behalf of Wood, Hon.
+ William B., Principal Deputy Assistant Secretary, Office of
+ International Organizations, Department of State, enclosing
+ material for the record.................................... 97
+
+ (iii)
+
+
+
+ THE IRAQI OIL FOR FOOD PROGRAM AND ITS IMPACT
+
+ ----------
+
+
+ FRIDAY, MARCH 26, 1999
+
+ House of Representatives,
+ Committee on Commerce,
+ Subcommittee on Energy and Power,
+ Washington, DC.
+ The subcommittee met, pursuant to notice, at 10 a.m., in
+room 2322, Rayburn House Office Building, Hon. Joe Barton
+(chairman) presiding.
+ Members present: Representatives Barton, Largent, Burr,
+Shimkus, Bryant, and Hall.
+ Staff present: Catherine Van Way, majority counsel; and
+Rick Kessler, minority professional staff member.
+ Mr. Barton. The Subcommittee on Energy and Power of the
+Commerce Committee hearing on the Iraqi Oil-For-Food Program
+will come to order.
+ I would like to welcome everyone. I believe that this is an
+issue which impacts our national energy security and which
+everyone, not just individuals from the oil-producing States,
+should pay attention to.
+ After Iraq's invasion of Kuwait in 1990, the United Nations
+imposed sanctions which prohibited all trade with Iraq.
+However, in April 1995, in recognition of the humanitarian
+needs of the people of Iraq, Security Council Resolution 986
+was passed, which authorized the sale of oil from Iraq to be
+used to purchase goods authorized by the United Nations
+Security Council.
+ Under this program, Iraq is currently allowed to sell up to
+$5.2 billion worth of oil every 6 months. The money generated
+from the sale is deposited in the bank of the choosing of the
+government of Iraq and is supposed to be used to provide
+humanitarian goods to the Iraqi people under United Nations
+supervision.
+ Under this program, Iraqi oil sales have risen over the
+past year from 1.47 million barrels per day to 2.1 million
+barrels per day. The revenue received for those sales has been
+approximately $3 billion every 6 months.
+ The United States recently proposed that the Security
+Council consider lifting the ceiling on oil sales permitted
+under the Oil-For-Food Program. It is worth noting that the
+Oil-For-Food Program is not the only way Iraq currently sells
+its oil. Some oil is exported to Jordan under a long-standing
+program; some oil we are told is smuggled into Turkey and sold
+on the black market. In addition, other oil is exported through
+Iran and from seaports in the south, again for what we believe
+to be black market sales.
+ Since the Oil-For-Food Program was begun, $2.75 billion
+worth of food, over $500 million worth of medicine, and $400
+million worth of supplies for things such as water, sanitation,
+electricity and education projects have been delivered to the
+people of Iraq. The program has been criticized for its
+slowness. In February of this year, the U.N. Secretary General
+reported that there are $275 million worth of medicine sitting
+in Iraqi warehouses that have been undistributed.
+ All that being said, the question arises, is this a
+worthwhile program? Two-thirds of the world's proven reserves
+of oil reside in the Middle East. In fact, Saudi Arabia and
+Iraq are first and second in proven reserves of oil and Iraq,
+which is largely unexplored, might ultimately have more oil
+than Saudi Arabia. For the past several months, oil prices have
+languished at historic lows. The precipitous and sustained drop
+in oil prices have been attributed in part to the Asian
+economic crisis, which caused a drop in anticipated demand,
+while oil production has continued to grow. Many also attribute
+growing Iraqi oil exports as a factor for today's low oil
+prices. Some argue that Iraqi oil is not impacting prices, but
+I find it interesting that oil prices rose slightly this week
+because of an announcement by OPEC that its member countries
+would be cutting production by 2.1 million barrels a day. It
+may be a coincidence, but Iraq is exporting 2.1 million barrels
+a day.
+ Low oil prices pose the greatest threat to domestic
+producers of oil and gas, because in the United States, our
+small independent oil and gas producers have the highest cost
+of production. We are beginning to see the impact as U.S. oil
+production has begun to decline in the wake of these sustained
+and abnormally low prices. The U.S. is now dependent on imports
+to meet more than 50 percent of our daily petroleum needs. That
+number is likely to grow dramatically as more marginal wells
+are shut in and domestic exploration activities are slowed in
+the wake of these continued low oil prices.
+ I believe that we should not ignore the humanitarian needs
+of the people of Iraq, but I also believe that we should not
+ignore the needs of our own people here in the United States,
+and these low oil prices, which I believe are caused in part by
+the Iraqi oil production, are having an impact on our energy
+security.
+ I will be most interested to hear from our administration
+witnesses today to see if they can explain this apparent policy
+disconnect.
+ Finally, I want to note that I hope today's hearing will be
+the first of a number of hearings that this subcommittee will
+be having on the domestic oil and gas industry. I am deeply
+concerned that the current situation in the Oil Patch in the
+United States in the long term does cause a national security
+risk to our country. If we cannot maintain existing production
+and to some extent encourage new exploration for domestic
+resources, we will be in a situation where we are more and more
+dependent on foreign oil.
+ I want to welcome everyone, especially our witnesses, to
+this hearing. I am sure they are going to find it very
+informative.
+ With that, I would like to recognize the ranking member
+from Rockwall, Texas, Mr. Ralph Hall, for an opening statement.
+ Mr. Hall. Mr. Chairman, I thank you, and members of the
+committee, I thank you for having this hearing, but not much to
+have it on Friday. I would have rather had it on Tuesday or
+Wednesday or Thursday.
+ Mr. Barton. I understand.
+ Mr. Hall. I see folks on the committee that would be
+strapped to an airplane right now.
+ Mr. Barton. You and me, that's right.
+ Mr. Hall. My folks over here, Democrats are poorer than
+Republicans, they all caught the bus out last night.
+ Seriously, Joe, thank you for the good hard work you do and
+the very successful work you do as chairman of this committee.
+You do a great job and I am very proud to work with you as our
+chairman. Few live in the Oil Patch, as I do. It is, I guess,
+stunningly apparent to you that when you talk to anyone in or
+even near the oil business, that these days are about the
+toughest and the most frightening in the history of the people
+that are in the oil business. Regrettably, this is not an idle
+boast, considering the market calamities of the 1980's and the
+1950's, because we have some pretty bad times to compare it
+with.
+ We are here today to examine one of the most often cited
+reasons for today's low oil prices, and the Iraqi Oil-For-Food
+Program, as the chairman has pointed out, is considered one of
+the big problems of it. I am a big believer in the unfettered
+operation of markets, and I also believe in being compassionate
+to people, particularly those who are unfortunate enough in
+life to have to live under a regressive regime of a Saddam
+Hussein. At the same time, it is important for us to think
+about this country and for us to examine how the world oil
+market is doing and whether or not it is working, and then to
+get our own assessment of how well it is working. If it is not
+working properly we need to make some changes in it, and we can
+only change that over which we have some control. So we have
+very good panelists today and I am sure we will know a lot more
+about it after we hear them.
+ I, for one, am suspicious of this program. It seems to be
+borne out of an appropriate humane consideration, but it may be
+disruptive of the worldwide crude oil market and could spawn a
+lot of abuse.
+ We have good witnesses here today who can help us better
+understand the impact of the Oil-For-Food Program. I want to
+extend a special welcome to my old friend, Congressman Wes
+Watkins, whose district lies just across the Red River from
+mine. I don't know of anybody that works harder, day and night,
+than Wes Watkins. You know, Wes was a Democrat at one time and
+we worked together then. He, when he switched over to the
+Republican Party, they asked me about it. We have a mutual
+television station that comes into Oklahoma and Texas and they
+asked me about Wes. And they said well, what do you think about
+him switching over to the Republican Party? I said, well, I
+would be for him, and he could win even with the laundry
+ticket. And they tell me that he used that for a commercial.
+But I got a few ugly letters from Democrats. But I got my
+friend back up here, and I am glad to work with Wes.
+ I also want to welcome a fine group of Texans. The newest
+member of the Texas Railroad Commission, Mike Williams, whom I
+had the pleasure of having lunch with yesterday. He is on the
+Railroad Commission, and I think that is one of the most
+dignified and prestigious offices that we have in the State of
+Texas, and the most important. Tom Taylor, who represents
+TIPRO, and Dave Bole of Randall and Dewey. We have good,
+outstanding--Joe, you invited some good Texans up here, and I
+am proud of you.
+ Mr. Barton. There is no such thing as a bad Texan, though.
+ Mr. Hall. Well, I don't know.
+ I thank the chairman. I thank you for having them here, and
+I hope this hearing is only one of however many it takes to
+determine what remedies exist to deal with the current price
+situation. It is a situation that is helping to destroy the
+domestic onshore petroleum industry, even as we sit here today.
+And while we have seen some upward pressure on prices lately,
+we need not to be lulled by any underlying factors which remain
+unchanged that we can change.
+ I guess that is the testimony we are going to hear today.
+Seriously, thank you for having this hearing. It is a very
+important hearing, and it can yield an awful lot to folks that
+are hurting. Thank you.
+ Mr. Barton. Thank you, Congressman Hall. I might point out
+we wanted to do this hearing yesterday, but we had a full
+committee markup of the satellite bill, and Chairman Bliley
+thought that we ought to do the markup.
+ Mr. Hall. Well, I haven't had anything to fuss at you about
+this year yet, and this gave me a first shot.
+ Mr. Barton. Okay. But you and myself and Mr. Largent are
+normally on the first plane out of town after the first vote,
+so we are all in the same boat on that.
+ The chairman recognizes the distinguished gentleman from
+Illinois, Mr. Shimkus, for an opening statement.
+ Mr. Shimkus. I would like to ask permission to submit my
+statement for the record and just say that it seems like we are
+in a Catch-22 where consumers all love the low oil prices, but
+what it does is shut down marginal wells. I have the two
+largest fields in Illinois in my district. Most of the
+operating wells are in my colleague David Phelps' district, and
+we all know what this does is it closes down those wells, the
+low prices, thus making us more dependent on foreign oil. And
+national security and energy security is one of my main focuses
+on this subcommittee.
+ So I appreciate this, and I am also looking forward to
+talking with the folks from the administration, with the, Iraqi
+intransitives on the inspections and stuff. I think it is time
+that we reopen this debate on this program, and I look forward
+to this hearing.
+ I yield back my time.
+ Mr. Barton. Good. We thank you, Mr. Shimkus. Without
+objection, his statement will be inserted in the record in its
+entirety.
+ We welcome Mr. Largent from Oklahoma to give an opening
+statement. Congressman Largent has put a lot of emphasis in the
+last year or so on this issue and is one of our congressional
+experts on it.
+ Mr. Largent for an opening statement.
+ Mr. Largent. Thank you, Mr. Chairman. I, too, will submit
+my entire statement and just make some brief opening remarks.
+First, I want to thank you for having this hearing. I wish we
+could draw even more attention to this issue, because as you
+know, it is very serious. I also want to recognize two
+Oklahomans that are also on our panels today. Mike Smith, who
+is our Oklahoma State Department of Energy Secretary, and Pete
+Brown, an independent producer from Oklahoma City. Thanks for
+coming.
+ There is a number of questions that I hope that we can get
+some answers to, and I would like to verbalize those right now.
+One is, why is the Iraqi oil export quota measured on a revenue
+basis, currently $5.2 billion worth of oil over 6 months,
+rather than measured on a quantity basis? The second question I
+would like to ask is what assurances do we have that the money
+is being spent in the manner intended; in other words, for
+food, and are we relying on Iraqi government entities to verify
+this. I am glad to see that there is somebody from the State
+Department that hopefully will answer that question for us
+today.
+ Why are the funds allowed to be spent by the Iraqis for oil
+production equipment? Has this policy been revisited since we
+began responding to the Iraqi military aggression by bombing
+their missile defenses on almost a daily basis? And what about
+the 5 percent of the Oil-For-Food funds that are going to fund
+the U.N. investigations and costs. Currently, as we know, there
+are no inspectors there. Also, I think it would pose an
+interesting question to try to figure out why one of the
+military targets, when we are exchanging oil for food, why one
+of the military targets in the latest round of bombing was an
+oil refinery in Iraq. That seems a small irony to me. Can the
+U.S. truly determine what the oil production export capacity of
+Iraq is, given their ability to sell oil on various black
+markets? And how can the U.S. propose that the U.N. Security
+Council could consider lifting the ceiling on oil sales
+permitted under the Oil-For-Food Program while conceding that
+increased U.S. dependence on foreign oil imports is a threat to
+our national security?
+ Mr. Chairman, one thing that I think that is imperative for
+this Congress and this administration to come to terms with, we
+had a vote last week on the import of steel, and I think many
+of the arguments that were made during that debate were about
+the importance of the steel industry for national security
+reasons. If we don't have the ability, the capacity to make
+steel in this country anymore, we can't build tanks and
+airplanes and ships to protect this country, and the same is
+equally true of our ability to produce energy domestically.
+ I know that back in the 1980's there was a push to develop
+a national energy policy, and included in that was to say that
+we should cap imports at 50 percent, this was back in the
+1980's, because anything beyond that would pose a very critical
+national security risk. And now, as you know, we have well
+exceeded 50 percent, it has even gone up as high as 58 percent
+in recent years, and I think this is a very important question
+that Congress, the American people, the President, and the
+Pentagon need to address, is that at what point, what is the
+threshold that we are going to say enough is enough. How much
+oil can we import without severely and critically undermining
+our national security interest?
+ Mr. Chairman, I appreciate you having this hearing, and
+hopefully, this is the first in many steps toward resolving a
+number of these questions. I yield back.
+ [The prepared statement of Hon. Steve Largent follows:]
+Prepared Statement of Hon. Steve Largent, a Representative in Congress
+ from the State of Oklahoma
+ I want to thank the Chairman for holding this hearing on the impact
+of foreign oil imports on our domestic oil industry, specifically the
+Iraqi Oil for Food Program.
+ At the outset, I want to acknowledge the Chairman's efforts to
+include two Oklahomans on the panels of experts testifying today. I
+doubt that there is anybody more qualified to speak on the current
+state of our domestic oil industry and the impact of increased U.S.
+dependence on foreign oil than Secretary Mike Smith of the Oklahoma
+Department of Energy and Pete Brown, an independent oil and gas
+producer from Oklahoma City. I would encourage the committee to pay
+close attention to their testimony because I believe it will shed some
+light on the seriousness of the state of our domestic oil industry.
+ It is my hope that the hearing today on the Iraqi Oil for Food
+Program will address some concerns I have about the goals and merits of
+the program. These concerns include:
+
+1) Why is the Iraqi oil export quota measured on a revenue basis
+ (currently $5.2 billion worth of oil over 6 months) rather than
+ measured on a quantity basis?
+2) What assurances do we have that the money is being spent in the
+ manner intended? Are we relying on Iraqi government entities to
+ verify this?
+3) Why are funds allowed to be spent by the Iraqis for oil production
+ equipment?
+4) Has this policy been revisited since we began responding to Iraqi
+ military aggression by bombing their missile defenses on almost
+ a daily basis? What about the 5% of the Oil for Food funds that
+ are going to fund the U.N. investigations and costs?
+5) Can the U.S. truly determine what the oil production and export
+ capacity of Iraq is given their ability to sell oil on various
+ black markets and transport it by other than pipeline means?
+6) How can the U.S. propose that the U.N. Security Council consider
+ lifting the ceiling on oil sales permitted under the oil for
+ food program, while conceding that increased U.S. dependence on
+ foreign oil imports is a threat to our national security?
+ Our domestic petroleum industry is currently facing a severe
+crisis: one that if not addressed expeditiously could prove disastrous
+economically, yet more importantly, threatens our national security.
+Since October of 1997, it is estimated that our domestic oil and gas
+industry has lost 57,000 jobs--5 times the number of jobs lost in the
+American steel industry! And each barrel of domestic oil lost will be
+replaced by imported oil.
+ In December of 1994, the Secretary of Commerce issued the results
+of an investigation conducted under the Trade Expansion Act which
+studied the impact of crude oil imports on the national security of the
+United States. The investigation determined that oil imports threaten
+to impair our national security.
+ In February of 1995, President Clinton concurred with the Commerce
+Department's finding that ``the nation's growing reliance on imports of
+crude oil and refined petroleum products threaten the nation's security
+because they increase U.S. vulnerability to oil supply interruptions.''
+At that time (1995), imports comprised about 50 percent of the United
+States consumption. In 1998, gross imports had risen to 53 percent!
+ Unfortunately, little has been done over the past four years to
+heed this ominous warning. Now, the domestic petroleum industry faces a
+more complicated and potentially devastating set of problems than it
+did four years ago. According to recent figures released by the
+Independent Petroleum Association of America (IPAA), preliminary
+employment data for the exploration and production sector of the oil
+and natural gas industry, as of December 1998, stood at 309,300,
+compared to 339,800 in the same month last year. Since the early
+1980's, roughly half a million jobs relating to the oil and natural gas
+industry have been lost. And rather than attempting to decrease our
+reliance on foreign imports--the U.S. has become more dependent on
+imported oil.
+ The hardest hit by this latest crisis has been the independent
+producer. The Energy Information Agency recently released a report that
+indicated that about 60 percent of oil production in the lower 48
+states comes from independents, a percentage that increased by ten
+percent over the past ten years. This reflects an irreversible trend.
+Major oil companies are leaving the onshore lower 48 states. They have
+concluded that these wells do not produce the volumes they need to meet
+the return on capital that they seek. Majors now operate in the United
+States primarily offshore and Alaska, but more and more they are
+seeking their new production overseas. At current prices, most--if not
+all--of the onshore lower 48 production is at risk of loss.
+ If we lose our independent producers, our reliance on foreign oil
+will likely increase from about 55 percent to over 70 percent. If we
+continue on this course, we will systematically degrade our ability to
+produce a sufficient amount of oil to maintain a secure energy source
+vital to our national security policy.
+ Simply put, we can't fight a war, even a defensive war, if we are
+counting on Saddam Hussein to ship us oil to fuel our tanks, aircraft
+and ships. And notwithstanding the fact that domestic oil producers are
+suffering now because of low oil prices, once they are gone we cannot
+revive their wells or industrial expertise or hope the market will
+rebound. It will not. The national security impact of losing our
+ability to produce oil domestically is no different than losing our
+industrial base to build nuclear submarines. If more than half of our
+nuclear submarines were imported from foreign countries, I think we
+could agree that the United States would be in grave danger.
+ I look forward to the testimony of our expert panelists today. Our
+domestic oil industry, and the current impact of Iraqi imports, must
+begin to appear on the nation's radar screen so all Americans can
+understand the threat that exists. I am committed to making this case
+so that we can move quickly to look for viable solutions to a very real
+problem.
+
+ Mr. Barton. I thank the Congressman from Oklahoma for that
+statement.
+ We would now like to hear from our first panelist, the
+Honorable Wes Watkins from the great State of Oklahoma,
+representing very well with a distinguished career the Third
+Congressional District.
+ So, Mr. Watkins, if you will come forward. We will put your
+statement in the record in its entirety, and being from
+Oklahoma, which we think is a great State, we will recognize
+you for such time as you may consume.
+
+ STATEMENT OF HON. WES WATKINS, A REPRESENTATIVE IN CONGRESS
+ FROM THE STATE OF OKLAHOMA
+
+ Mr. Watkins. Thank you, Mr. Chairman. I appreciate the
+distinguished members being here. Even though short in number,
+I know we are high in quality, and I can also tell the States
+that are hurting out there and the districts that are hurting
+concerning not only this policy that we are talking about
+today, but the entire failed policy of this administration and
+the U.N. Security Council dealing with the Oil-For-Food Program
+and all. I want to acknowledge that I know each of you well and
+I know some of the things that you are working on, and I
+appreciate the commitments you have made.
+ My colleague from Oklahoma, Congressman Largent, Steve, you
+asked some very logical questions. It reminds me of a guy who
+says, you know, common sense is not common anymore, you know,
+and there is not much of it around, and this is something that
+I think the Oil-For-Food Program is not a--Ralph, my good
+friend across the river, it is not one of those things that our
+people in our area find that has much common sense, and I would
+like to talk about that a little bit.
+ I call it a failed policy because the sanctions, you might
+as well not have them. My members of the committee, I will say
+to friends that I work closely with, Saddam Hussein has won.
+Saddam Hussein has won. We are bombing Iraq. At the same time,
+we have opened up for him, for his people, a lot that we are
+not willing to do for ourselves. Today it is at $5.2, it is
+actually at about $10.5 billion/year worth of oil that can be
+sold, and it is a question why net barrels. That is more oil
+than Iraq exported before the Gulf War in 1991. It is not just
+being utilized on food or hospitals and medicine, it is being
+used to help rebuild their infrastructure. Our CRS reports have
+pointed that out. So when you look at the system we have there
+and the policies that we have, and I wonder why we are not
+willing to do it as a State Department, as a country, as the
+U.N. Security Council, why don't we insist that they abide by
+what is legal in what they sell.
+ You know, I have never understood that. We close our eyes
+just to illegal things that go on. And there is around 300,000
+barrels a day that is being sold illegally over the black
+market to Jordan and to Iran, Syria, and Turkey. And you know,
+also part of the fallacy of this lack of common sense that I
+look at and wonder about, on the emergency programs that just
+passed yesterday, it had $100 million in there for Jordan, but
+Jordan is also buying about $100 million of illegal oil from
+Iraq. It is hard for me to explain why the policy of this
+administration is to allow that to happen that way, destroying
+our oil patches, destroying our means of making a living. I
+hear in their voices the pain of people I have never heard
+before, the fact that they are losing everything. I know in my
+area the oil patches are a war zone. They are yanking up pipe,
+they are closing down oil wells, and there is going to be a lot
+more of that, and I cannot stand idly by, and I know you cannot
+either. I know every one of you right here are the same way I
+am. We have to try to do something. I don't understand the
+administration and our country willing to go along with that.
+ In the last 14 months, we have allowed Iraq to go from
+700,000 barrels a day up to 2.3 million barrels a day. Mr.
+Chairman, as you rightly said, the irony is that the OPEC is
+dropping production, and I was going to be at OPEC Tuesday.
+They have dropped, have a policy of 2.1 million drop per day in
+the oil, and Iraq has gone up about 2.1. Now, I may not be a
+rocket scientist, but let me tell you, it doesn't take much
+more than common sense to recognize the fact that literally,
+OPEC has staggered the market and it has gone up a little bit
+when they dropped to 2.1 or even the discussion that that is
+what is happening. We know that it hasn't gotten there yet, but
+it has cut production, and it has increased the price. Does it
+stand to reason that the 2.1 million that Iraq has increased
+affects the market the same way? Am I thinking, Ralph, wrong? I
+mean is that logic there? Is that is wrong, if 2.1 over here on
+OPEC affects it like we have seen it, is the 2.1 in there, or
+are we just seeing something a lot differently? I think we need
+to look at that. We have allowed it. It is common sense to me.
+ If our policy, if our policy in the United States in
+dealing with Iraq is to allow a dissatisfied group of people in
+Iraq, the Iraqis, to overthrow Saddam Hussein, we have gone
+about it the wrong way. Because our reports show that they are
+basically importing anything and everything they want to, and
+why worry about it? In fact, as I tell them, we have a mental
+institution in Oklahoma, and the old boy told me one time, he
+said I have proof that I am sane, that I have got good sense. I
+submit to you Iraq has got it better than OPEC, OPEC should be
+mad, we should be mad. They are having to come down; Iraq is
+out of the box. Even though they belong, they don't have to
+abide by that reduction.
+ In fact, I am going to follow up on the statement that as I
+prepared for this, under the new program they have a standard
+or a statement I saw there, I want to check it out, they have a
+higher price they are going to be able to get. I hope that is a
+wrong statement I am reading, because I think that also is
+something we need to be concerned about.
+ Let me share with you and close on two things, and I think
+we have to reevaluate this. It is again something that deeply
+disturbs me. Thomas Pickering, the Under Secretary, said this
+is in the newspaper of March 18, told the Senators, that is the
+Senators across on the other side, as we all know, ``The
+humanitarian needs of the Iraqi people must be addressed. The
+Oil-For-Food Program,'' he said, ``has had a tremendous
+positive impact on the conditions of the average Iraqi.'' I
+don't disagree with that.
+ With regard to the program's effectiveness on crude prices
+and domestic energy industry, Pickering agreed with Richardson,
+our Secretary of Energy, that Iraqi's exports are just one
+factor. Well, yeah, it is just one factor. It is 2.1 million
+barrels a day. They said the policy toward Iraq has never been
+linked to the world oil market. I don't care. ``Allowing oil
+price consideration to drive our sanctions decisions or seeking
+to use sanctions to target oil prices would undermine our
+ability to provide for the humanitarian needs of the Iraqi
+people.''
+ I don't think I am looking in the face of any person here
+that is not against trying to help with some humanitarian aid.
+But I want to know how much is for their military buildup, how
+much money are they using there? How much money are they
+getting from illegal sources?
+ The infrastructure, I have infrastructure needs, I think
+many of you know, in my district, and I have a need to try to
+rebuild that area.
+ Then I read over here, in closing my statement, a statement
+that--you know, it is kind of like our welfare program, a
+failed program. It is kind of like a giveaway program. What it
+states here, supporters of increased oil sales, on the other
+hand, say that the tactic would reduce suffering among Iraqis
+and make it more difficult for the Iraqi government to maintain
+anti-government, or anti-American and British sentiment because
+of being in favor because we give them stuff.
+ You know, members of the committee, there is one man who
+stands between us and the Iraqi people and his name is Saddam
+Hussein. Do you think we are going to have favor of being able
+to do all of these things, or Saddam Hussein? We are dealing
+with failed policy that is coming from our administration and
+the U.N. Security Council and we have to correct it. It is not
+taking any consideration in for the American people.
+ I thank you so much for letting me come by to just share
+with you a little bit, because we need the common sense of this
+committee at work in trying to shape, Mr. Chairman, some of the
+policy. I too plan to be strapped on that airplane heading
+toward Oklahoma, but I delayed it until about 1 o'clock because
+of wanting to come here and be with you. I just thank you so
+much.
+ [The prepared statement of Hon. Wes Watkins follows:]
+ Prepared Statement of Hon. Wes Watkins, a Representative in Congress
+ from the State of Oklahoma
+ Chairman Barton, Ranking Member Hall, I would like to thank you for
+calling this hearing and allowing me the opportunity to testify before
+the Subcommittee on Energy and Power. Those of us from oil producing
+states need to do a better job of educating the American public about
+the importance of our domestic oil industry. I believe this hearing is
+a step in the right direction, but we need to do more. I would like to
+encourage our colleagues in the Congress and the Administration to
+reduce Iraqi oil sales to pre-Persian Gulf War levels--not increase
+them.
+ As we all know, we are facing a crisis in our domestic oil and gas
+industry. World oil prices have dropped from above $20 a barrel in 1997
+to less than $9 a barrel this year. When adjusted for inflation, these
+are the lowest prices seen since the Great Depression. This crisis is
+having a devastating effect on our domestic industry. Since October of
+1997, our domestic oil and gas industry has lost 57,000 jobs. That is
+more than five times the number of jobs lost in the American steel
+industry.
+ This subcommittee knows that the backbone of our domestic oil and
+gas industry is the small, marginal well. Marginal wells are defined as
+those wells which produce less than 15 barrels a day. At these low
+prices, it is impossible to keep many of our small, marginal wells
+open. These marginal wells account for 1.3 million barrels of daily
+production--equivalent to the amount of oil the Unites States imports
+from Saudi Arabia. Marginal wells also contribute 80,000 jobs and
+generate close to $14 billion each year in economic activity. However
+at these low prices, it is becoming impossible to keep many of our
+marginal wells open. When we lose these marginal wells, the backbone of
+our domestic oil industry, we become more dependent on foreign oil. We
+must not lose sight of the fact that the economic health and national
+security of our country are tied to the strength and stability of the
+domestic petroleum industry.
+ There is a general consensus that the current crisis in the
+domestic oil patch has been caused by a combination of several factors.
+Certainly the Asian financial crisis, warmer than expected winters, and
+increased oil production by certain countries have played an important
+part in driving down prices. However we should not minimize, as some
+have done, the impact that the resumption of Iraqi oil sales under the
+oil-for-food program has played in driving down prices.
+ We are here today because the Clinton Administration is currently
+considering asking the United Nations to remove the U.N. imposed
+ceiling on Iraqi oil sales. I am strongly opposed to this proposal
+because, I believe it would severely damage our already devastated
+domestic oil and gas industry and would not accomplish the objective of
+alleviating the suffering of the Iraqi people. Iraq should not be
+allowed to sell greater quantities of oil then they were prior to the
+Persian Gulf War, as they are doing now. The extended period of below
+cost prices is causing more and more of our small, independent
+producers to plug their marginal wells. Allowing Iraq to sell
+additional quantities of oil on the world market will only drive down
+these already depressed prices and force our marginal producers to plug
+their wells. Once these wells are plugged, we have basically lost this
+valuable resource for secondary recovery.
+ It is important that Members understand the flaws inherent in the
+oil-for-food program's structure and how that effects the amount of oil
+Iraq can sell on the world market. Iraq's quota is based on a dollar
+amount rather than on quantitative limits. Currently, the oil-for-food
+program allows Iraq to sell $5.2 billion worth of oil every six months.
+As the price of oil fell through late 1997 and 1998, Iraq was allowed,
+under this flawed structure, to drastically increase its production.
+Under this expanded oil-for-food program, Iraq has increased its daily
+oil production from around 700,000 barrels to 2,300,000 barrels during
+the last 14 months. This excess Iraqi production has exacerbated the
+current glut on the market and caused the price of oil to slide even
+lower. In fact, the 2.3 million barrels a day more than offsets the
+recent decision by the Organization of Petroleum Exporting Countries
+(OPEC) to reduce oil production by 2.1 million barrels a day in an
+effort to prop up prices.
+ The Administration will likely argue today that Iraq is already
+producing at capacity and therefore increasing the amount of oil Iraq
+is allowed to sell will not have an effect on world prices. This
+argument is flawed in several aspects. First, if Iraq is already
+producing at capacity, then there is no need to raise the dollar
+ceiling on Iraqi oil sales because Iraq cannot sell any more oil than
+it is currently selling. Second, while Iraq is currently producing at
+capacity, the UN allows Iraq to use $600 million annually from the oil-
+for-food program (which is supposed to be for humanitarian supplies) to
+improve its oil production capability. This will allow Iraq to improve
+its production facilities and to further flood the world market with
+cheap oil.
+ I am also opposed to this proposal because I do not believe that
+expanding the oil-for-food program would help alleviate the suffering
+of the Iraqi people. Iraq has failed to meet the conditions of the 1991
+cease-fire agreement and the 1996 oil-for-food program. I am concerned
+that the oil-for-food program itself is flawed and that many Iraqis
+will never see the benefit of the oil sales. The State Department has
+acknowledged that Iraq has not distributed much of the humanitarian
+supplies they have already acquired through the oil-for-food program.
+According to U.S. officials cited in the press, ``Iraq has kept large
+supplies of food and medicine in storehouses, refusing to distribute
+them to the needy'' (Associated Press Wire, 1/4/99). State Department
+Spokesman Jamie Rubin was quoted in the January 14, 1999 State
+Department Briefing as saying:
+ ``The facts are that (the Iraqis) are failing to order and
+ distribute food and medicine as quickly as they could. The
+ facts are that they are failing to order and distribute food
+ and medicine that would alleviate the problem, and that Iraq
+ plans to order less food and medicine for the Iraqi people than
+ in previous times. So those are the facts.''
+ Why would the Administration even consider a policy which would
+further damage our domestic oil industry and, according to their own
+spokesman, do little to alleviate the suffering of the Iraqi people?
+ I also have concerns about the manner in which humanitarian
+supplies are distributed. If the Iraqi people are starving, as Saddam
+Hussein claims, why is the oil-for-food money being spent on oil field
+and telecommunications equipment. Are these not the same
+telecommunications facilities we have bombed because they are an
+important part of Saddam Hussein's command and control complex? I am
+also concerned that Iraq is allowed to use $600 million annually in its
+oil-for-food receipts for oil production equipment. If Iraq can allow
+food and medicine to sit in warehouses, than why should we allow the
+Iraqis to expand their oil production and further flood the world
+market with cheap oil? The oil-for-food program also allows Iraq to
+spend $250 million to rehabilitate the agricultural sector. While I
+have nothing against the Iraqi people growing their own agricultural
+commodities, does anyone honestly believe that Saddam Hussein will use
+those crops to feed the Iraqi people at the expense of his treasured
+military?
+ The Administration will likely say that Iraq's increased production
+is necessary to lessen anti-American and anti-British sentiments among
+the Iraqi people. However, does anyone believe that Saddam Hussein and
+his regime will allow the United States to claim credit for these
+humanitarian supplies? I believe it is more realistic to expect that he
+will continue to let food and medicine sit in warehouses while the
+Iraqi people starve. Instead, we are rewarding Saddam Hussein for his
+lawlessness. We are rewarding him for shooting at our planes. We are
+rewarding him for illegally smuggling oil through Turkey, Jordan, and
+Iran and we are punishing hard working American families in the
+domestic oil patch.
+ Mr. Chairman, a tremendous disconnect between a policy where we
+bomb Iraq on almost a daily basis yet remain the largest consumer of
+Iraqi oil. That is why I, along with our colleague from Texas Mr.
+Thornberry, have introduced H. Con. Res. 39. This resolution urges the
+Administration to oppose the unmerited expansion of the oil-for-food
+program.
+
+ Mr. Barton. Does that conclude your oral statement?
+ Mr. Watkins. I have a lot more to say, but I better
+conclude.
+ Mr. Barton. I thought you were a little bit moderate today,
+Congressman. I have heard you be in the Republican Conference
+what we would call excited. We appreciate your moderate tone.
+ We are a real high-tech committee, so this is our timer. It
+is a little egg timer. The Chair is going to recognize himself
+for 5 minutes. I don't think I will take the 5 minutes.
+ I want to make sure I understand you, though, Congressman
+Watkins. You are not opposed to food supplies and medicines
+going to the people of Iraq, isn't that correct?
+ Mr. Watkins. I do not. I do not like the attitude about
+saying they are not going to buy American food with it. It is a
+slap in our face again. We are hurting the farmers, as well as
+the oil patches. It is a double whammy.
+ Mr. Barton. Your problem is the producers in your district
+and in the State of Oklahoma, some of the small, marginal
+producers that are going out of business, and it doesn't appear
+that anybody in the U.S. Government cares about that?
+ Mr. Watkins. That is correct. I feel strongly about it. I
+have a tax credit bill coming through my committee, and I hope
+the leadership and the administration will back that in order
+to help us have some kind--as we all say, greater national
+security.
+ Mr. Barton. So if we could come up with a program that
+maintains the current level of humanitarian supplies to Iraq,
+but cutoff the oil exports, or if not totally cut it off,
+substantially reduced it, you would support such a program?
+ Mr. Watkins. Yes, I would. I think we need to definitely do
+that. The food, I don't think it should be more than the
+essential food and medicine. If our policy is for a
+dissatisfied society over there that would overthrow Saddam
+Hussein, we have the wrong policy. He is laughing, he is
+laughing at us.
+ Mr. Barton. I would assume that there are corn growers and
+wheat growers and cattle producers in Oklahoma that would be
+willing to provide that food for a reasonable price to the
+people of Iraq.
+ Mr. Watkins. I am quite sure we would be happy to do that.
+ Mr. Barton. I am going to yield back the balance of my time
+and recognize the gentleman from Texas, Mr. Hall, for 5
+minutes.
+ Mr. Hall. Thank you, Mr. Chairman. I will try to be brief,
+too, because I know we have other witnesses that we are very
+anxious to hear from, and perhaps soon the gentleman from the
+Department of State will be able to give us a little more input
+as to some of the whys of what has taken place.
+ As I said in my opening statement, I am troubled and
+suspicious of this program. I am not unlike anyone else in that
+I care about little children and old people, but you know,
+MacArthur made a great statement one time. He said ``The object
+of war is victory,'' and I think the President right now today
+while we are here dispatching men and women of our armed forces
+to inflict pain and hopefully disgrace on the Yugoslav
+leadership over there, Milosevic, in an effort to cause the
+people to drive him out, the easier you make it on people, the
+more you help the people that need the leadership of even a
+dictator, the longer he is going to be there. The program
+doesn't make that much sense to me. But, who cannot feed little
+hungry kids? And of course, you know, Hiroshima and Nagasaki
+would have been a lot better off if they had given them a
+couple of weeks notice to move all the young people and old
+people offshore and just put the folks that were fighting the
+war there under the bomb, but that is not the way it works, not
+the way it can work, not the way it works over there today.
+ I asked George Bush one time why they didn't destroy Iraq's
+ability to produce war, and he said well, it wasn't totally his
+decision, it was a U.N. decision. Besides, they were afraid of
+Iran. Didn't want to weaken Iraq and then have Iran. And I said
+well, while we are over there, why can't we take care of them
+too while we are there. Of course, that is not the way we do
+it. I think we missed out when Iran and Iraq were fighting each
+other, why we didn't just arm the hell out of both of them.
+ How can we impress on people that are voters and are
+interested citizens the importance of people outside the
+producing areas that they ought to care about domestic oil
+producers? If everyone could hear you speak today, that would
+get through to them. But how do we get that message over to
+them?
+ Mr. Watkins. Are you really asking me that question?
+ Mr. Hall. Yes, yes.
+ Mr. Watkins. If I knew the answer to that, we would solve
+all of our problems. Because right here, the members who are
+not here are the ones that need to be listening and hearing
+your feelings and the chairman's and other members from the Oil
+Patch. We do bring in national security.
+ But I went to Venezuela. I went down and met with the new
+President the week before, a couple of weeks before, who is
+probably one of the most dynamic men I ever met in my life. I
+mean he can look you right in the eye. And I talked to him
+about the oversupply of production, and he is sincere in
+wanting to lower it in helping the price, and I think he has
+followed up on that. There is a lot of hope there. There is 80
+percent poverty in Venezuela.
+ I want to get to this point, right to what you are talking
+about. There is a lot of hope in Venezuela, but they don't know
+anything about the new President. All they know is that 6 years
+ago he tried to overthrow their government and he ended up in
+jail for 2 years. Less than 2 years ago, we would not even give
+him a visa to come to this country.
+ Now, he has his hand on the spigot of the greatest supply
+of crude oil to the United States. He chased out the president
+for PdVSA, but yet we have now relied more on Venezuela and
+Mexico and Canada and of course Saudi Arabia. The Saudi
+Arabians will produce as much oil as we consume or we produce
+out of our marginal wells, 1.3 million barrels a day.
+ So if people understand, we have become more dependent than
+ever before in the history of our country. And I thought about
+that when we celebrate Independence Day. I said, we are not
+independent anymore.
+ Mr. Hall. You were here when we tried to get an import fee
+put on, and we have not been able to muster the votes, and the
+reason given by those that voted against it was the hardship of
+the people in the Northeast for their heating oil and things
+like that, and you know, they had a good, sensible argument
+there. The effort was made at one time by Charlie Cooke back
+here that worked for me and worked with the committee back at
+that time to try to produce a paper that would be a good
+position for one of the Presidential aspirants to use on
+supporting an oil import fee, and I think Charlie had to write
+about 300 pages, and that is not good for a one-line quip for a
+Presidential runner. Finally, we decided that there ought to be
+an import fee on all oil-related goods. You can imagine how
+long that takes to put together and explain, and finally the
+Presidential aspirant was told just to forget it. He didn't put
+part of that in his program. Yes, it was Al Gore. He wasn't
+running too fast then. I don't know how he is going to do now,
+but he hasn't asked us to put that together for him again, and
+I doubt that he will.
+ I thank you. You know, once again I will leave you with
+this. This is not a question that you can answer. People
+outside the Oil Patch want cheap gasoline. People in the Oil
+Patch want to make some money producing the basic ingredient.
+ Mr. Watkins. Just trying to make a living this time.
+ Mr. Hall. I thank you, Wes. Appreciate it.
+ Mr. Barton. I recognize the gentleman from Illinois for 5
+minutes.
+ Mr. Shimkus. Thank you, Mr. Chairman, and Wes, welcome. As
+you know, I am a cosponsor of your bill and I appreciate all
+the good work you do.
+ One question that hasn't been asked, and we have been
+talking about it in Illinois, the problem with the base
+closings and the people who say there is a savings, we never
+take in the environmental cost of cleanup. When we have
+marginal wells that are going bankrupt, the State has to assume
+the cost of cleanup, not only in closing down the well, but
+also the cleanup of the surrounding area, and that is also a
+taxpayer issue in Illinois that with these historically low
+prices, because of the oversupply, that we will have to address
+as citizens of the State of Illinois. Is that a similar effect
+on the taxpayers in your district and the State of Oklahoma?
+ Mr. Watkins. I am delighted with the vision and commitment
+and dedication of our independent oil producers in Oklahoma. We
+established the first checkoff program per barrel, which helps
+a great deal with environmental and also educational matters.
+Even in Oklahoma we try to educate the people about the value
+and the importance, et cetera, of the oil industry. But also,
+it helps a great deal in matching some money, but also helping
+in the environmental cleanups. And it has been very good,
+because the industry itself is helping clean up old wells that
+they have no connection with.
+ So I know exactly what you are saying. It is costly to plug
+a well. It is very expensive, the environmental requirements to
+do that today. As well as if you ever tried to open one of them
+back up, it becomes--a marginal well, it is not conducive.
+ I would just say, I do have--I am cosponsoring with Charlie
+Stenholm, or we offered it together and are working on it right
+now, is the Environmental Equalization Act, trying to do
+exactly what Ralph was talking about. It is a fee. I don't know
+how we want to work it, but we may want to try to say all the
+money coming in from this goes to offset the heating oil cost
+or we do something like that, but it helps us get maybe the
+offset of $3 to $4 where we are paying for the environmental
+requirements put upon us in this country, but the other
+countries do not have to do that. They just shift oil to us.
+And there should be some equalization to that. We should look
+back also, I might say, at some research in the 1950's and
+1960's, where we had a tariff against Venezuela, we had one
+against Mexico and also Canada. We don't talk about tariffs
+nowadays basically, but I think as late as the 1960's, in the
+research, Mr. Chairman, I think we had some tariffs on.
+ Mr. Shimkus. My last question is I am really concerned with
+our foreign policy with respect to Iraq and Saddam Hussein. The
+fact that we bombed them and now we have no inspectors in the
+area, so they can continue to develop their weapons of mass
+destruction, nuclear, biological and chemical, and I fully
+believe that they are doing that.
+ Mr. Watkins. It is crazy.
+ Mr. Shimkus. How do we know that the revenue generated from
+the Oil-For-Food Program is not going into those developmental
+programs?
+ Mr. Watkins. I think, I believe and feel, the research I
+have done indicates some of it is. Let me say the money has
+been agreed to by the U.N. Security Council to go into an Iraqi
+bank of their choice. I just think about that just a little
+bit. Also, if we look at it and see the breakdown, they can
+have chemicals and everything like this they can buy for
+agriculture, fertilizers. The biggest bombing ever in this
+country in domestic is Oklahoma City and it is from fertilizer,
+and moneys from this program is going to do exactly that. You
+have every right to be concerned, and I hope you will just get
+as mad as I am about this thing, because it is the wrong
+policy. It is a failed policy for our people and for our
+country.
+ Mr. Shimkus. Thank you. Mr. Chairman, I yield back my time.
+ Mr. Barton. The gentleman from Oklahoma, Mr. Largent, is
+recognized for 5 minutes.
+ Mr. Largent. Wes, I want you to give us a little domestic
+production 101 course here this morning for our friends that
+may not be aware of some of these facts.
+ Tell us what a stripper well is. That is not a Demi Moore
+movie, but what is a stripper well?
+ Mr. Watkins. In Oklahoma we call it 10 barrels or less. A
+marginal well is considered 15 barrels or less.
+ Mr. Largent. And what percent of our domestic oil
+production comes from stripper wells, approximately?
+ Mr. Watkins. About 25 percent of the overall production.
+Eighty-five percent of the wells in Oklahoma are stripper
+wells.
+ Mr. Largent. Okay. And what percent of our domestic
+production actually comes from our small oil independent
+producers?
+ Mr. Watkins. Small oil independent--oh, from independent
+wells? About 20 percent. Wouldn't that be about right? Sixty
+percent of our--did I get the question correctly?
+ Mr. Largent. I think it is closer to 60, 60 to 70 percent
+of the oil that is produced in this country is done so by our
+small independents.
+ Mr. Watkins. Yes, well over 50 percent.
+ Mr. Largent. Let me ask you a couple of questions here. A
+lot of times when we hear oil prices, we hear that Nynex
+Mercantile figure, but how does that differ from what the
+producers are making at the wellhead? In other words, if we
+hear $16 a barrel or $17 barrel, what are they actually making,
+the producers, what are they actually getting at the wellhead.
+ Mr. Watkins. Well, the various ones, like Oklahoma or Texas
+Intermediate and all, most of the time is a couple dollars less
+than what we are hearing out of New York. And also the futures
+have a play on some of that today now, some of the prices.
+ Mr. Largent. And what would you say approximately is the
+cost of production for a small independent with stripper wells
+or marginal wells?
+ Mr. Watkins. Of course that would vary, but I would say
+$13, $14 would be an amount that just, if you call it break
+even. Some would not break even at that amount.
+ Mr. Largent. What are they getting----
+ Mr. Watkins. We are up to close to 15, give or take? Twelve
+at the wellhead.
+ Mr. Largent. So a dollar or 2 less than it costs them to
+produce the oil?
+ Mr. Watkins. That's right. So it is kind of like an artery
+that has been cut. It is flowing and you can't stop it unless
+you plug it.
+ Mr. Largent. Well, this is 101. So what we have established
+here is that it costs them more to produce it than they are
+making. And what is the result now that you are seeing in your
+district in terms of personnel and equipment? What is taking
+place in the oil and gas industry, especially the small
+producers today?
+ Mr. Watkins. They are yanking up pipe, they are plugging up
+wells, they are stopping the production, and some on the verge
+I think of suicide.
+ Mr. Largent. And once you close a stripper well or marginal
+well, what happens to it?
+ Mr. Watkins. 90 percent of them are not worthy of opening
+back up.
+ Mr. Largent. You have lost them.
+ Mr. Barton. Will the gentleman yield on that?
+ Mr. Largent. Yes.
+ Mr. Barton. It may be different in Oklahoma than in Texas,
+but you can suspend production with permission of--in our State
+it is the Railroad Commission. I am not sure what it is called,
+it may be the corporation----
+ Mr. Watkins. Corporation commission.
+ Mr. Barton. For what, up to 90 days without having to plug
+it, but after a certain amount of time, if you are not going to
+resume production, you do have to go ahead and plug the well.
+ Mr. Watkins. I would ask Mike or Pete, they would probably
+know exactly that on the corporation commission. Do they give
+you forgiveness time and not plug it?
+ Mr. Smith. Two years, Mr. Chairman. Two-year moratorium
+now, unless it is a health or environmental situation.
+ Mr. Watkins. By the way, the way your colleague Ralph Hall
+described the railroad commissioner, I think I want to leave
+this job, because that sounds like a very honorable job and a
+very nice job. Excuse me, Steve.
+ Mr. Barton. Well, you have already tried to quit Congress
+once and we didn't let you.
+ I yield back to Mr. Largent.
+ Mr. Largent. Wes, just a couple of other questions. There
+has been--we are seeing the same thing obviously in the First
+Congressional District where people are leaving the industry. I
+think the number is close to 50,000 since November have left
+the industry. I think the number is about a half a million in
+the last 10 years have left the industry. Those people don't
+come back. The equipment is rusting, the drilling equipment
+lays dormant. It is irretrievable at that point. You shut up
+the stripper wells at some point in time and they are
+irretrievable.
+ I guess I would just like to throw out one other question,
+if I could have an additional minute.
+ There has been a lot of remedies suggested, some of them
+that you have proposed. Some people are suggesting an oil
+import fee. There has been suggestions of regulatory relief.
+There is a loan program I just learned of yesterday that the
+Senate is talking about putting into effect; capping imports
+and tax relief. You have a tax relief bill. What do we need to
+do, Wes?
+ Mr. Watkins. My feeling is this. Maybe it is just the way
+I--I have always taken a full court press. You understand that
+term. I mean take everything we can and move it as quickly as
+we can and move forward. Do I expect everything I am trying to
+do to get done? No. I hope a few of those things are sending a
+message to the Arabs and others, and what we are doing today I
+hope sends a message, and what you do after this can send a
+message one way or the other. But yes, we need some immediate
+relief, and I think the income-averaging that Bill Thomas and I
+are on, trying to go back and pick up some good years they have
+had where they have paid in some taxes, they could carry that
+forward. The tax credit bill that I have is one of the quickest
+things we can do. All of those things, if we can do it, would
+help secure the industry here in America so we can have a--in
+agriculture we say we need to have a domestic food basket. I
+agree that we have to have. I think we have to have a domestic
+energy basket for national security. We are walking into a trap
+if we don't. I think common sense tells us that.
+ So Steve, all of the above is what I would say. Let us try
+everything we can, knowing full well we have to try to come out
+with one or two of those things if we possibly can.
+ The other thing, and this committee could address that. You
+remember we got a trade adjustment, the displaced workers, I
+would encourage you to revisit that and make sure that we can
+get our oil field workers in that, so they can get that kind of
+training. Because Steve, as you indicated, we are displacing
+those workers too and they are not going to come back. They are
+going to go into some computer work, technology, other things
+out there, and we are losing that infrastructure, and you
+cannot gear it back up overnight. Even if we had to, we
+couldn't get it to.
+ Mr. Largent. Thank you, Mr. Chairman. I yield back.
+ Mr. Barton. Thank you, Congressman.
+ I recognize the gentleman from North Carolina, Mr. Burr,
+for 5 minutes.
+ Mr. Burr. Wes, I wasn't going to ask a question and I may
+not ask one, but I may make a statement. You are right, we
+probably ought to include them in that displaced worker list.
+What alarms me is how long that list could be if we actually
+looked at displaced workers that we have had policy that has
+displaced them, whether it is inadequacies in trade
+negotiations or decisions as it related to foreign policy, and
+I guess what you are here saying is our foreign policy
+decisions do affect the livelihood of the American people.
+ Mr. Watkins. Exactly right.
+ Mr. Burr. It doesn't seem to play a part necessarily in the
+formation of that policy or those negotiations, and I think
+maybe we ought to raise that question a little louder. I thank
+you for your willingness.
+ Mr. Watkins. If I can respond to that, I have a sinking
+feeling, because I think a lot of our State Department people
+and some of our international people literally are more
+concerned about getting and having a favorable feeling from
+where they may be stationed, Ambassadors and others, than our
+concern about the people on the farms and in the oil patches of
+this country or other industries. I have detected that. Maybe I
+am a little harder nosed than what I should be, but I mostly
+think I have a warm heart.
+ Mr. Burr. I hope the workers in the oil fields don't find
+the same end results as the textile workers in the mills across
+the South.
+ I thank the chairman, and I yield back.
+ Mr. Watkins. By the way, I married a Presbyterian
+minister's daughter.
+ Mr. Barton. We are not going to ask you a second round of
+questions, but I think Congressman Hall has one final question
+and then we will excuse you.
+ Mr. Hall. Wes, just for the record, are you in favor of
+continuing the Iraqi Oil-For-Food Program?
+ Mr. Watkins. Limited to the necessities of food and
+medicine.
+ Mr. Hall. And being able to check on them.
+ Mr. Watkins. And being able to check on them. You bet. You
+bet.
+ Mr. Hall. Somebody said trust, but verify?
+ Mr. Watkins. If we go what was above the 700,000 barrel
+area, then we are just handing them over everything they need
+and more.
+ Mr. Hall. I thank you.
+ Mr. Barton. Well, Congressman Watkins, we really
+appreciate, on behalf of this subcommittee, the leadership that
+you have shown in this area. Almost single-handedly you have
+raised the visibility of this, and as I said in my opening
+statement, this is not the only hearing we are going to do on
+the domestic oil and gas industry. It is unfortunate that this
+is on a Friday and that we don't have any television coverage
+for it, at least we don't have now, but I can assure you, and
+you can assure the people of the Third Congressional District
+of Oklahoma that if there is something that can be done to
+change this program and this subcommittee can do it, we will do
+it, and we will continue to work with you. I just hope that the
+people of your district appreciate the efforts that you are
+making on their behalf.
+ Mr. Watkins. I thank you, Mr. Chairman, members of the
+committee, my neighbors in Oklahoma and Texas. I appreciate it.
+ Mr. Hall. See you out at National.
+ Mr. Barton. Save a seat on the plane for Congressman Hall.
+ We want to recognize our second panel now. We have Mr. Bill
+Wood, who is the Principal Deputy Assistant Secretary of the
+Office of International Organizations, the United States
+Department of State; we have the Honorable Jay Hakes, who is
+the Administrator of the Energy Information Agency within the
+United States Department of Energy; we have the Honorable Carl
+Michael Smith, the Secretary of Energy from the great State of
+Oklahoma; and we have, not to be outdone, the Honorable Michael
+Williams, who is the Commissioner of the Texas Railroad
+Commission.
+ Gentlemen, we want to welcome you. Your statements are in
+the record in their entirety. I am going to recognize you to
+speak in a second, but before I do that, I want to direct some
+comments to our representative from the State Department.
+ We don't call State Department witnesses too frequently to
+this subcommittee. We have fairly frequent testifiers from our
+friends at the Department of Energy. It is not normal that we
+would ask a representative of the State Department. But we have
+a rule that we like testimony 2 days in advance so our members
+can actually study it. I won't swear to you that every member
+uses that time to study, but some do. We got the State
+Department's testimony I believe this morning, and you were the
+first people we asked.
+ Now, if you were me, what kind of--what would your attitude
+be if you were me and you are the, in some ways, the most
+important government, Federal Government witness we are going
+to hear from because you all are in charge of this program and
+we get your testimony some time this morning.
+ Mr. Wood. Mr. Barton, I can only apologize for the lateness
+of the arrival of the testimony. We don't testify before the
+subcommittee very often. We are very, very pleased at this
+opportunity to do so and we thank you very much for inviting us
+here. If the opportunity arises again in the future, we assure
+you we will do better.
+ Mr. Barton. Well, we had the ability to look at some
+testimony. I don't know if you are the individual that gave it,
+but a representative gave similar testimony on a similar issue
+over in the Senate several weeks ago. I guess it is possible
+that whoever prepares it is on vacation. I guess it is possible
+you all don't think very much of the House of Representatives.
+I guess it is possible that you all don't think it is a very
+important issue. But I am going to send a letter to the
+Secretary of State and I may send a letter to the
+Appropriations Subcommittee chairman asking that we dock your
+part of the State Department $100,000, maybe take it out of the
+Iraqi Oil-For-Food Program, just to send a signal.
+ We have problems with our friends at DOE, not EIA. EIA has
+been pretty good, but there are others in the Department of
+Energy that are almost as bad, but I don't think we have ever
+had an administration witness, and I was chairman of the
+Oversight and Investigation Subcommittee for 4 years, that had
+the effrontery to send in the testimony the day they were
+testifying. I just don't appreciate it. I really don't.
+ Mr. Burr. Mr. Chairman, I ask that the witness be excused
+and not have the ability to testify.
+ Mr. Barton. Well, unfortunately, we have to have their
+testimony. They have us between a rock and a hard place.
+ Mr. Burr. We have his testimony, Mr. Chairman, but we don't
+need to hear from him verbally.
+ Mr. Barton. I think if I send a letter to the Secretary of
+State and we dock them $100,000, I think that will get their
+attention.
+ I mean we are going to be doing a series of hearings on the
+oil and gas industry and some of it is domestic, but a lot is
+international, so we are going to be calling other State
+Department witnesses, and I really want you to go back, I don't
+know if this was in your chain of control or not, Mr. Wood, but
+I want you to let folks know, we don't expect the State
+Department to turn cartwheels when they are asked to testify,
+but we do expect reasonable courtesy and we would like to get
+it in what the notice requires, which is 2 days ahead of time.
+But we at least want to get it a day ahead of time so that we
+can copy it and send it around to the staffs and let everybody
+review it.
+ Mr. Burr. Mr. Chairman, could I at least ask the witness to
+tell the committee why we received the testimony so late, why
+he couldn't fulfill the rules of the committee.
+ Mr. Barton. Well, sure. I mean I tried to ask him that. Why
+did it take the day of the hearing to get it?
+ Mr. Wood. Mr. Chairman, I don't want to try to offer an
+excuse. All I can say is we were wrong not to get it to you on
+time. It won't happen again. We apologize. We do consider it
+both a lack of courtesy and a lack of professionalism. We are
+very grateful for your suggestion that in the future it has to
+be, at a minimum, 1 day in advance. We will get it here 2 days
+in advance.
+ Mr. Barton. Again, I am new on this subcommittee, but I
+have been chairman of the oversight, and Mr. Burr has been one
+of my distinguished members on the oversight, and we have had
+this problem with the FDA and we have had it with the EPA. We
+finally got their attention. We didn't let them testify one
+time. You know, we just said go home and sit in the corner for
+the day. We don't want to start out that way. But we do want to
+let you know that we need to get the testimony on time.
+ Mr. Wood. You got our attention, sir.
+ Mr. Barton. All right.
+ We are going to start with Mr. Hakes. Your testimony is in
+the record in its entirety. We are just going to go right down
+the line, Mr. Hakes, Mr. Smith, Mr. Wood and Mr. Williams and
+then we will let our committee members ask questions.
+ Mr. Hall. Can I ask Mr. Hakes a question before we start?
+ Mr. Barton. Yes, sir.
+ Mr. Hall. Aren't you glad you submitted yours this morning?
+ Mr. Hakes. I am going to try to get it in 3 days early next
+time.
+ Mr. Barton. Well, my good friend from Texas, it does help
+the minority staff, too, to help prepare the questions and to
+read it. I actually read it. I may be the only member, but I
+read the testimony ahead of time as the chairman so I can know
+a little bit about where you all are coming from. So I was very
+upset.
+ Mr. Hall. I withdraw my question.
+ Mr. Barton. Okay. We will give each of you 7 minutes, and
+if you need a little more time, so be it. So, Mr. Hakes, you
+are recognized for 7 minutes.
+
+STATEMENTS OF HON. JAY HAKES, ADMINISTRATOR, ENERGY INFORMATION
+ADMINISTRATION, DEPARTMENT OF ENERGY; HON. CARL MICHAEL SMITH,
+ SECRETARY OF ENERGY, STATE OF OKLAHOMA; HON. WILLIAM B. WOOD,
+ PRINCIPAL DEPUTY ASSISTANT SECRETARY, OFFICE OF INTERNATIONAL
+ ORGANIZATIONS, DEPARTMENT OF STATE; AND HON. MICHAEL L.
+ WILLIAMS, COMMISSIONER, TEXAS RAILROAD COMMISSION
+
+ Mr. Hakes. Thank you, Mr. Chairman and members of the
+committee. As you know, the Energy Information Administration
+is an independent analytical and statistical agency within the
+Department of Energy. I would like to talk a little bit today
+about the role that Iraq plays in world oil markets.
+ We have identified four factors that influenced world oil
+markets since the end of 1996 and the interaction between these
+factors make it difficult to assess the impact of each
+individually, but I would like to discuss them and sort of put
+them in some context.
+ One factor that has clearly influenced the world oil market
+has been the increase in Iraqi oil production and the
+consequent exports that have occurred since the beginning of
+the United Nations Oil-For-Food Program. Iraq's oil production
+is currently 2.5 million barrels per day, which is about 2
+million barrels per day higher than it was prior to the Oil-
+For-Food Program, although it is still lower than it was prior
+to their invasion of Kuwait in 1990. You can basically follow
+the movement of price there with that blue line, and you can
+see where the program started, it sort of zigzagged up to the
+2.5 million level.
+ Even with the current oil exports of about 2 million
+barrels per day, Iraq is still below the ceiling of $5.3
+billion per 6 months imposed under the current phase of the
+Oil-For-Food Program. In order for Iraq to approach the ceiling
+during the next year or 2, the price of West Texas Intermediate
+crude would have to average about $18 to $19 per barrel day.
+ Mr. Barton. $18 per barrel?
+ Mr. Hakes. Yes, excuse me. $18 to $19 per barrel, which are
+prices that we are not currently forecasting, incidentally.
+ Another factor that is important in terms of its impact on
+the world oil market is the dramatic slowdown in oil demand
+growth in Asia as a result of the economic crisis. I think
+after the Persian Gulf War most oil producers around the world
+realized that eventually at some point Iraq would come back,
+and that this would pose a problem for the market. And a number
+of them, including Saudi Arabia and others, made the comment
+that they thought that the increased demand in Asia would
+probably help soak up the Iraq increased production when that
+happened. But you can see that almost at the same time that
+Iraq is coming back onto the world market, there is an economic
+collapse in Asia, and the demand sort of stops.
+ Demand in Asia was growing roughly 850 thousand barrels a
+day each year, and that is adding a lot of demand into the
+world market. Then you can see for 1998, demand growth was
+virtually negligible. So at the very time when there was a hope
+that Asian demand would soak up the Iraqi extra production,
+that demand was not there.
+ EIA is estimating that Asian oil demand will grow by only
+1.5 million barrels per day during the entire period from 1997
+to 2000, instead of the 3.4 million barrels per day that would
+have been expected before this economic crisis occurred.
+ Added on top of this have been three warm winters in a row,
+which has reduced the demand for heating oil, and this has
+further thrown the world market out of balance and created
+excess supply.
+ Another factor that contributed to it is as Iraq was coming
+back on the market in 1997, other areas of the world instead of
+cutting back on their production actually were increasing
+production. There was quite a bullish market internationally in
+oil, and OPEC, which some thought might cut back because they
+had increased after the Persian Gulf War to cover the absence
+of Iraq, they actually had an increase in 1997, and it was not
+until 1998 that they began to cut.
+ Let me just speak briefly, Mr. Chairman, about the outlook
+for Iraqi oil production in the world oil market. We feel that
+Iraq is currently producing at pretty much its full capacity
+since its oil revenues are significantly less than allowed and
+they would be producing more today if they could. Our current
+forecast assumes that Iraqi crude oil production capacity
+increases only by 100,000 to 200,000 barrels per day between
+now and the year 2000. Currently, the United Nations is
+allowing Iraq to import about $300 million worth of parts that
+are used to improve their oil infrastructure. How fast Iraq
+receives these parts and how well these parts are used will
+determine how quickly Iraqi oil production might increase. Some
+analysts believe that the capacity would be somewhat higher in
+the year 2000 than the EIA is estimating, but most of them
+expect the increases to be fairly modest.
+ Now, the newest issue on the block of course is the recent
+announcement by OPEC that they are setting targets for reducing
+production. OPEC itself has pledged 1.7 million barrels per day
+of cuts and some nations outside of OPEC have joined into the
+agreement and pledged another 0.4 million barrels per day cuts.
+The cartel in the past has had a difficult time fully enforcing
+these cuts. However, Saudi Arabia has already put them into
+effect for April orders, so at least a part of this seems to be
+quite real. We have been predicting up until the OPEC action
+that the price of oil would probably, for West Texas
+Intermediate, get to slightly below $15 a barrel at the end of
+this year. I am sure we will raise that estimate when we come
+out with our next update, which is scheduled for April 8. At
+that time we will do a fairly detailed analysis of the
+estimated impact of the OPEC actions. But that is where it
+stands for now, and I of course will be glad to answer any
+questions the members of the committee may have.
+ [The prepared statement of Hon. Jay Hakes follows:]
+Prepared Statement of Hon. Jay Hakes, Administrator, Energy Information
+ Administration, Department of Energy
+Short-Term World Oil Market Outlook
+ Mr. Chairman and members of the Committee, I wish to thank you for
+the opportunity to testify today on our short-term world oil outlook,
+paying particular attention to Iraq's role in the international oil
+market. As Administrator for the Energy Information Administration
+(EIA), which is an independent analytical and statistical agency within
+the Department of Energy, I have been asked to provide an overview of
+the world oil market--how we got here and where we think we are headed.
+As part of this discussion, I will highlight Iraq's oil production
+history thus far in the 1990s and provide our assessment of the short-
+term outlook for Iraqi crude oil production.
+ EIA has identified four factors that have influenced the world oil
+market since the end of 1996. The interaction between these factors
+makes it difficult to assess the impact of each individually.
+Nevertheless, I will discuss each factor separately and try to put the
+oil market impact of each in context.
+ One factor influencing the world oil market has been the increase
+in Iraqi oil production (and exports) that have occurred since the
+beginning of the United Nations' ``oil-for-food'' program. Iraq's oil
+production is currently 2.5 million barrels per day, which is about 2
+million barrels per day higher than it was prior to the ``oil-for-
+food'' program, although it is still lower than it was just prior to
+their invasion of Kuwait in 1990 (figure 1). But even with current oil
+exports of about 2 million barrels per day, Iraq is still well below
+the ceiling of $5.256 billion imposed under the current phase of the
+``oil-for-food'' program. In order for Iraq to approach the ceiling
+during the next year or two, the price of West Texas Intermediate crude
+oil would have to average about $19 per barrel during a 180-day phase
+of the United Nations' ``oil-for-food'' program. I would like to point
+out, however, that EIA is not forecasting prices at this level in the
+short-term.
+ Another factor that is equally important in terms of its impact on
+the world oil market is the dramatic slowdown in oil demand growth in
+Asia as a result of the economic crisis, which began in the summer of
+1997. Between 1991 and 1996, Asian oil demand was increasing on average
+by about 850,000 barrels per day each year (figure 2). If Asian oil
+demand had continued to grow at this pace, EIA would have expected oil
+demand to be about 2 million barrels per day more in 2000 than in our
+current forecast, which would have helped soak up the increased
+production from Iraq. Instead, EIA is estimating that Asian oil demand
+will grow by only 1.5 million barrels per day during the 1997-2000
+period, instead of the 3.4 million barrels per day that would have been
+expected before the Asia crisis occurred.
+ Weather has also been a major factor influencing the world oil
+market in recent years. Oil demand typically peaks in the winter, along
+with the demand for heating oil. Weather patterns in the northeast
+United States and Western Europe are particularly important to the
+world oil market since these are the regions where oil is used
+significantly as a fuel for heating. The winters of 1996-97 and 1997-98
+were particularly warm compared to ``normal'' temperatures, and now it
+is apparent that this winter will be the third significantly warmer
+than normal winter in a row. As a result, global oil inventories are
+much higher than they would have been had temperatures been more
+``normal'' during the past three heating seasons.
+ The last major factor that EIA has identified as a major influence
+in the world oil market was oil production increases from many
+countries outside of Iraq, particularly in 1997. Global oil supply
+increased by about 2.3 million barrels per day in 1997, much more than
+the 1.7 million barrels per day of global oil demand growth that year.
+This followed a period of 32 months in which the price of West Texas
+Intermediate crude oil averaged above $17 per barrel each month. While
+oil production from Iraq increased more than any other single country
+in 1997 (about 600,000 barrels per day) as a result of the ``oil-for-
+food'' program which began in December 1996, other OPEC and non-OPEC
+countries also increased oil production significantly in 1997 (world
+production increased by 2.3 million barrels per day, making Iraq's
+increase about 25 percent of the total). Within OPEC, Saudi Arabia oil
+production increased by 370,000 barrels per day, Venezuela increased by
+227,000 barrels per day, Qatar increased by 139,000 barrels per day,
+and Nigeria increased by 129,000 barrels per day. Outside of OPEC, most
+of the growth was in the Americas (North, Central, and South America,
+but excluding Venezuela, an OPEC member), which increased by over
+500,000 barrels per day. Since demand growth did not keep pace with the
+supply growth in 1997, much of this oil found its way into inventories.
+ Turning to the future, let's look at where EIA thinks the oil
+market is headed in the short-term (through 2000). In 1998, OPEC and
+some non-OPEC countries agreed to cut oil production in order to help
+increase oil prices. In part because of these agreements and the
+beginning of an expected gradual recovery in Asia, EIA's most recent
+forecast had prices increasing by about $3.50 per barrel by December
+1999 from the historical low point in December 1998, and by an
+additional $1-$1.50 by the end of 2000. Now that OPEC and some non-OPEC
+countries have agreed to cut production by about 2 million barrels a
+day (figure 3), we would expect prices to increase even more. EIA's
+next Short-Term Energy Outlook, which is updated monthly, is scheduled
+for release on April 8, 1999. At that time, EIA will incorporate a
+detailed analysis of the new OPEC cuts into our price forecast. I can
+say now, however, that our forecast for oil prices will be higher. This
+forecast will be based on the assumption that demand growth will
+outstrip supply growth in both 1999 and 2000, even if producers only
+partially implement the planned cuts.
+ Let me spend a little time discussing our outlook for Iraqi oil
+production. As I stated before, Iraq's crude oil production has
+increased by about 2 million barrels per day since late 1996. However,
+we feel that they are currently producing at full capacity since their
+oil revenues are significantly less than allowed and would produce more
+if they could, and that their oil production capacity is not expected
+to increase substantially through 2000. Our current forecast assumes
+that Iraqi crude oil production capacity increases by only 100,000-
+200,000 barrels per day between now and 2000 (figure 1). Currently, the
+United Nations is allowing Iraq to import $300 million worth of parts
+that are to be used to improve their oil infrastructure. How fast Iraq
+receives these parts and how well these parts are used will help
+determine how quickly Iraqi oil production capacity might increase.
+There are some analysts that expect Iraqi oil production capacity to be
+somewhat higher by the end of 2000 than EIA is estimating. However,
+most analysts expect Iraq's oil production increases this year and next
+to be far less than what they were in 1997 and 1998.
+ This concludes my testimony before the Committee. I would be glad
+to answer questions at the appropriate time.
+
+[GRAPHIC] [TIFF OMITTED] T5644.001
+
+[GRAPHIC] [TIFF OMITTED] T5644.002
+
+ Mr. Barton. Just before we recognize Mr. Smith, Iraq is
+part of OPEC, is it not?
+ Mr. Hakes. Yes.
+ Mr. Barton. Mr. Smith, we will recognize you for 7 minutes.
+Mr. Largent, do you want to formally introduce Mr. Smith.
+ Mr. Largent. Yes, I did in my opening statement. This is
+our Secretary of Energy from the great State of Oklahoma. We
+are glad to have him here.
+ Mr. Barton. You are recognized for 7 minutes.
+
+ STATEMENT OF CARL MICHAEL SMITH
+
+ Mr. Smith. Thank you, Mr. Chairman, and members of the
+subcommittee. As Congressman Largent mentioned, I serve as
+Secretary of Energy for the State of Oklahoma, and this year I
+am vice chairman of the Interstate Oil and Gas Compact
+Commission. I have been a member of Oklahoma's oil and gas
+community my entire adult life, either as a producer, as an
+attorney for operators, and currently in my public service. I
+have experienced firsthand the Arab embargo of 1973, the
+oilfield pipe and equipment shortage of the mid-1970's, the
+ill-conceived Natural Gas Policy Act of 1978, the misguided
+Fuel Use Act of 1978, the plunderous windfall profits tax of
+1980, the Middle East turmoil of the late 1970's and early
+1980's, the collapse of our domestic oil and gas industry in
+the mid-1980's, precipitating, as Congressman Largent mentioned
+earlier, a loss of about a half a million jobs, the advent of
+computer technology into the industry, the Gulf War, and now,
+Operation Desert Fox. In short, I have seen a lot of success, a
+lot of failure, and an abundance of public policy, most of
+which has, unfortunately, been poorly conceived and missed the
+mark.
+ Since entering public life in 1990, I have been assisting
+in the conception and implementation of energy policy. Most of
+this work has involved assisting the IOGCC Governors in
+drafting and implementing A Dependent Nation: How Federal Oil
+and Gas Policy is Eroding America's Economic Independents.
+Recently, I have assisted my Governor, Frank Keating, as he has
+led the other oil and gas producing State Governors in
+addressing an unprecedented oil price trough which is
+approaching its 18th month.
+ Today's hearing focuses on the Iraqi Oil-For-Food Program
+and its impacts. Mr. Chairman, the American people, and the
+people of my State, are very confused. Occasionally a
+constituent asks for my explanation of our Iraqi policy, and a
+rational answer is impossible. I overhear comments in elevators
+and discussions in coffee shops throughout my home state. No
+one can understand why, according to press reports, 3 days of
+Operation Desert Fox cost the American taxpayers almost $1
+billion, yet the rogue of the world, Saddam Hussein, is
+seemingly stronger than ever. Our proposed response is not to
+isolate him or cutoff his funding for weapons of mass
+destruction, rather to allow his continuing military threat to
+be enhanced through unlimited oil production, or so it seems.
+No one can argue that the Iraqi people have suffered a mighty
+hardship under his reign of terror, or that they deserve
+humanitarian aid. What is hard to explain to my constituents,
+who are losing their jobs due to less than break-even oil
+prices, is why our government would put our military at risk,
+spend balances of tax dollars, and then allow Saddam to flood
+the world oil market. Even more puzzling was America's
+acquiescence in the United Nations formula allowing Iraqi oil
+sales to be limited by a dollar amount rather than by volumes
+of oil. The Oklahoma Geological Survey, which is in my cabinet
+policy area, has reported that the almost singular contributor
+to the 1997 and 1998 world oil glut has been Iraq. As the
+attached data attached to my testimony which, by the way, Mr.
+Hakes, was from your agency, demonstrates that most of the
+world oil production, both OPEC and non-OPEC, has been
+relatively stable. The exception to that has been Iraq. Even
+more shocking is Iraq's rise to No. 4 source of U.S. imports
+last year, and in 1 month, Mr. Chairman, they were actually No.
+3, almost nosing out Kuwait. They have sort of been neck and
+neck for the three and four spot.
+ Certain facts are not in dispute. America is importing
+nearly 60 percent of its daily crude oil needs. Current
+wellhead prices are far below the break-even point for most
+domestic producers. The world is awash in over-produced oil.
+Allowing Iraq to produce unlimited oil impairs America's
+economic and military security, and the lifting of limitations
+helps finance Saddam's almost certain future mischief.
+ Long before the current crisis, President Clinton approved
+1994 findings by the U.S. Department of Commerce that oil
+imports, which were then at a much lower level, threatened U.S.
+security. Can you imagine our response if this morning we
+awakened to 60 percent of our air, water or food controlled by
+foreign sources? Oil is the lifeblood of our Nation and we
+cannot permit Iraq to further the disintegration of our
+domestic oil industry.
+ Mr. Chairman and subcommittee members, I cannot count the
+number of times I have wanted to shout from the rooftops,
+America, wake up. We need America's oil to protect our shores
+and our way of life. I am proud to say, my constituents have
+always been first in line on both counts, and on their behalf I
+thank you for this opportunity to testify.
+ [The prepared statement of Carl Michael Smith follows:]
+Prepared Statement of Carl Michael Smith, Secretary of Energy, State of
+ Oklahoma
+ Mr. Chairman and members of the subcommittee, I serve as Secretary
+of Energy for the State of Oklahoma and as Vice-Chairman of the
+Interstate Oil and Gas Compact Commission (IOGCC).
+ I have been a member of Oklahoma's oil and gas community my entire
+adult life. I experienced first hand the Arab embargo of 1973, the
+oilfield pipe and equipment shortage of the mid-1970s, the ill-
+conceived Natural Gas Policy Act of 1978, the misguided Fuel Use Act of
+1978, the plunderous windfall profits tax of 1980, the Middle East
+turmoil of the late 70s and early 80s, the collapse of our domestic oil
+and gas industry in the middle 1980s (precipitating a loss of
+approximately 500,000 jobs), the advent of computer technology into the
+industry, the Gulf War, and now, Operation Desert Fox. In short, I've
+seen a lot of success, failure, and lots of public policy,
+unfortunately, most of which has been ill conceived. Since entering
+public life in 1995, I have been assisting in the conception and
+implementation of energy policy. Most of this work has involved
+assisting the IOGCC governors in drafting and implementing A Dependant
+Nation: How Federal Oil and Gas Policy is Eroding America's
+Independence. Recently, I have assisted my Governor, Frank Keating, as
+he has led the other oil and gas producing state governors in
+addressing an unprecedented oil price trough which is approaching its
+18th month.
+ Today's hearing focuses on the Iraqi Oil for Food Program and its
+impacts. Mr. Chairman, the American people are confused. Occasionally,
+a constituent asks for my explanation, and a rational answer is
+impossible. I overhear comments in elevators and discussions in coffee
+shops throughout my home state. No one can understand why, according to
+NBC News on December 23, 1998, three days of Operation Desert Fox cost
+the American taxpayer almost $1 billion, yet the rogue of the world,
+Saddam Hussein, is seemingly stronger than ever. Our response is not to
+isolate him or cut off his funding for weapons of mass destruction,
+rather allow his continuing military threat to be enhanced through
+unlimited oil production. No one can argue that the Iraqi people have
+suffered a mighty hardship under his reign of terror or that they
+deserve humanitarian aid. What is hard to explain to my constituents,
+who are losing their jobs due to an oil market producing a dollar price
+per barrel less than break-even cost, why our government would put our
+military at risk, spend billions in tax dollars, and then willingly
+allow Saddam to flood the world oil market. Even more puzzling was
+America's acquiescence in the United Nations formula allowing Iraqi oil
+sales, under current sanctions, to be limited by a dollar amount rather
+than volumes of oil. The Oklahoma Geological Survey, which is in my
+cabinet policy area, has reported that the almost singular contributor
+to the 1997 and 1998 world oil glut has been Iraq. As the attached data
+demonstrates, most world oil producers (both OPEC and non-OPEC) have
+been relatively stable--the exception being Iraq. Even more shocking
+is, during 1998, Iraq rose to the number 4 source of U.S. imports,
+almost nosing out Kuwait for the number 3 spot.
+ Certain facts are not in dispute:
+
+ America is importing nearly 60% of its daily crude oil needs
+ Current wellhead prices are far below the break-even point for
+ most domestic producers
+ The world is awash in overproduced oil
+ Allowing Iraq to produce unlimited oil impairs America's
+ economic and military security, and a lifting of monetary
+ limitations helps finance Saddam's almost certain future
+ mischief
+Long before the current crisis, President Clinton approved 1994
+findings by the U.S. Department of Commerce that oil imports (then at a
+much lower level) threatened U.S. security.
+ Mr. Chairman and subcommittee members, I cannot count the number of
+times I have wanted to shout from the rooftops, ``America, wake up--we
+need America's oil to protect our shores and our way of life.'' I am
+proud to say, my constituents have always been first in line on both
+counts, and on their behalf, I thank you for this opportunity to
+testify.
+
+[GRAPHIC] [TIFF OMITTED] T5644.003
+
+[GRAPHIC] [TIFF OMITTED] T5644.004
+
+[GRAPHIC] [TIFF OMITTED] T5644.005
+
+[GRAPHIC] [TIFF OMITTED] T5644.006
+
+[GRAPHIC] [TIFF OMITTED] T5644.007
+
+ Mr. Barton. Thank you, Mr. Smith. We would now like to hear
+from Mr. Wood. We do have your testimony, so you are recognized
+for 7 minutes to elaborate on it.
+ Mr. Wood. Thank you very much, Mr. Chairman. Let me again
+repeat how pleased I am to be here to discuss----
+ Mr. Barton. You need to speak into the microphone so that
+we can hear you.
+
+ STATEMENT OF WILLIAM B. WOOD
+
+ Mr. Wood. Okay. I am pleased to be here today and I want to
+reiterate that fact. Thank you for inviting me.
+ The U.S. policy is to contain Saddam Hussein until he can
+be removed from power.
+ In the meantime, U.S. sanctions on Iraq and the Oil-For-
+Food Program are critical to the containment of Iraq. We must
+maintain broad international support for these programs in
+order to keep Saddam Hussein contained. Sanctions on Iraq were
+put in place by the international community following the
+brutal invasion by Iraq of its peaceful neighbor, Kuwait. The
+sanctions deprived Saddam of the revenue he would otherwise use
+to reconstitute his weapons of mass destruction.
+ It is essential that we address the humanitarian needs of
+the Iraqi people. Doing so is right in itself, but also crucial
+to maintaining Security Council, regional and other support for
+the international sanctions regime while we continue our
+efforts to change the Iraqi regime. It is also consistent with
+our message to the Iraqi people that the United States is not
+against the people of Iraq, only the regime that is responsible
+for their plight. By meeting Iraq's general humanitarian needs,
+Oil-For-Food allows us to maintain a tough sanctions regime
+against Iraq.
+ In 1991, the Bush Administration first proposed an Oil-For-
+Food Program to meet the humanitarian needs of the Iraqi
+people. Iraq rejected the program. In 1995, the Security
+Council, with full U.S. leadership and support, adopted a
+revised Oil-For-Food Program, which Iraq finally accepted at
+the end of 1996. The first food shipments under this program
+arrived in Iraq in March 1997. In February 1998, based on the
+Secretary General's recommendations that additional funds were
+needed to meet the needs of the Iraqi people, the legitimate
+humanitarian needs of the Iraqi people, the Security Council
+expanded the Oil-For-Food Program. That program has most
+recently renewed last November.
+ I might add that that is the reason why the Oil-For-Food
+Program is accounted for in dollars, because it is based on
+estimates of what it would cost to take care of the
+humanitarian needs of Iraq. It is not an effort to promote
+Iraqi exports, it is an effort to raise money for the specific
+humanitarian needs of Iraq.
+ The current Oil-For-Food Program permits Iraq to sell up to
+$5.2 billion worth of oil every 6 months, two-thirds of which
+goes toward the purchase of food, medicine and other
+humanitarian goods such as water and sanitation infrastructure
+supplies. The remaining one-third goes to pay claims arising
+from Iraq's occupation of Kuwait, and to pay U.N.
+administrative and UNSCOM disarmament costs. All revenues of
+Iraq's oil sales are deposited in a U.N. escrow account to
+which Baghdad has no access. Although it is true that Iraq's
+agreement as to which bank was selected was necessary, Iraq did
+not get to choose the bank and, indeed, its first choices were
+refused under the memorandum of understanding between Iraq and
+the United Nations. We are assured that the bank in which the
+escrow account exists is functioning in a transparent and
+effective manner and funds cannot be released from that account
+without U.N. agreement.
+ All contracts are reviewed by the U.N. sanctions committee,
+of which the U.S. is a member. Because the committee operates
+by consensus, we can hold or block any contract that is
+inappropriate or ill-advised. U.N. monitors on Iraq's borders
+and inside Iraq oversee importation and distribution within
+Iraq, and in northern Iraq, the three northern governments,
+distribution is actually carried out by the U.N. itself.
+ Oil-For-Food, the largest humanitarian program in the
+U.N.'s history, requires that Saddam spend his own money on the
+thing he cares least about: his own people.
+ Oil-For-Food is not a step toward lifting sanctions, nor
+does it reward Saddam Hussein. In fact, it makes sanctions, his
+worst enemy, sustainable. Without an Oil-For-Food Program,
+history has shown that Saddam Hussein would starve his own
+people to buy weapons and build palaces and to force the
+international community to lift sanctions. Although we could
+use our veto at the U.N. to prevent the lifting of sanctions,
+the pressure of a sympathetic international community, absent
+Oil-For-Food, could well lead to a de facto breakdown of the
+implementation of the sanctions regime. So it is not simply a
+distribution problem, it is also an implementation problem.
+ Sanctions have slowed considerably Iraq's ability to expand
+oil exports. We estimate that sanctions have prevented Iraq
+from exporting more than $120 billion of oil from 1991 to 1996.
+In the last two phases of the Oil-For-Food Program, the
+Security Council earmarked limited funds for the importation of
+spare parts and equipment to improve Iraq's crumbling oil
+infrastructure so that funds can be made available for
+legitimate, necessary humanitarian needs. Those spare parts
+have just begun to arrive in Iraq, and it will be many more
+months before there will be an appreciable growth in the Iraqi
+ability to export oil as a result of them.
+ We are also discussing in Security Council capitals and in
+the Security Council itself how to keep Oil-For-Food viable and
+effective. We have proposed that the Security Council consider
+raising the ceiling on oil sales consistent with Iraq's
+legitimate humanitarian needs. In the short run, Iraq would be
+unable to expand oil exports. Over time, allowing increased
+Iraqi oil exports would address concerns regarding the
+shortfall in revenues needed for humanitarian purchases. Saddam
+would not benefit from these increased oil export revenues. The
+revenues would be put into the escrow account and released only
+for the purchase of humanitarian goods.
+ Raising the ceiling on revenue available for the purchase
+of humanitarian goods would also serve to counter growing calls
+from Arab states and Security Council members to lift sanctions
+outright. By removing the root cause of calls for lifting
+sanctions, we free our allies in the Arab world and elsewhere
+to support our broader Iraqi policy goals. We also draw
+Security Council support away from more radical French and
+Russian proposals to lift sanctions altogether.
+ We also understand your concerns about the current oil
+market. However, Iraq is only one among several factors which
+has adversely impacted oil prices. Our sanction--our Iraq
+sanctions policy, frankly, has never been linked to the price
+of oil on world markets. This was true in the early 1990's,
+when Iraqi oil was completely cutoff the world market, putting
+upward pressure on oil prices, and it remains the case today.
+Allowing oil price considerations to drive our sanctions
+decisions or seeking to use sanctions to target oil prices
+would undermine our ability to maintain an international
+consensus aimed at containing Saddam Hussein, as well as
+provide for the humanitarian needs of the Iraqi people.
+ Were international support for an effective U.N. sanctions
+regime to erode, Saddam Hussein would be a much greater threat
+to the world community. He would quickly regain the free use of
+$10 billion to $15 billion per year to put into his weapons of
+mass destruction programs. But we have promoted raising the
+ceiling under monitoring. Moreover, the prospect of Iraq
+without U.N. sanctions would also have a negative effect on oil
+prices.
+ Over the long term, the only way to ensure that Saddam no
+longer threatens either his people or his neighbors is to work
+for a new government of Iraq, one that will maintain the
+territorial integrity and unity of Iraq, respect the rights of
+Iraq's people and neighbors and fulfill Iraq's international
+obligations. We are committed to helping the Iraqis achieve
+this regime change or transition.
+ Mr. Chairman, I realize I am over my time, but let me only
+make one sort of summary comment. The Oil-For-Food Program has
+been characterized repeatedly as a humanitarian program. It is
+certainly a humanitarian program. We are a humane Nation. We
+are not making war on the population of Iraq. That is Saddam's
+strategy. But it is not the policy of the administration to
+benefit the populations of other countries at cost to our own
+population. That is not our goal, and that is not what we
+believe we are achieving here.
+ Mr. Barton. That may not be the goal, but that is certainly
+the result. And I am not going to get in a debate right now. We
+still need to hear from Mr. Williams, but I guarantee you when
+we get to the question and answer period, we are going to have
+a dialog.
+ Mr. Wood. We do believe, however, that this is a national
+security requirement. That is my last comment.
+ [The prepared statement of William B. Wood follows:]
+Prepared Statement of Hon. William B. Wood, Deputy Assistant Secretary
+ of State
+ Mr. Chairman: I am pleased to be here today to discuss US policy
+toward Iraq and the role the Oil-for-Food program plays within it.
+ The Administration's policy is to contain Saddam Hussein until he
+can be removed from power. We will contain Iraq by maintaining
+sanctions on Iraq, enforcing the no-fly zones in the North and South,
+and by maintaining a robust military presence in the region and a
+readiness to use force if Iraq reconstitutes its prohibited weapons
+programs, threatens its neighbors, or moves against the Kurds in the
+north.
+ In addition to these elements of containment, we are also working
+at the United Nations to build consensus in the Security Council in
+support of an effective disarmament and monitoring presence in Iraq.
+ Over the long-term, however, the only way to ensure that Saddam no
+longer threatens either his people or his neighbors is to work for a
+new government in Iraq--one that will maintain the territorial
+integrity and unity of Iraq, respect the rights of Iraq's people and
+Iraq's neighbors, and fulfill Iraq's international obligations. We are
+committed to helping Iraqis achieve this regime change or transition.
+There are many tools we can use to help them, including both the $8
+million in Economic Support Funds Congress has appropriated for this
+purpose, and the Iraq Liberation Act. In the final analysis, change has
+to come from the Iraqi people themselves. We cannot impose ideas or
+initiatives on them.
+ In the meantime, UN sanctions on Iraq and the Oil-for-Food program
+are critical to the containment of the Iraqi regime. We must maintain
+broad international support for these programs in order to keep Saddam
+contained.
+ Sanctions on Iraq were put in place by the international community
+following the brutal invasion by Iraq of its peaceful neighbor Kuwait.
+The sanctions deprive Saddam of the revenue he would otherwise use to
+reconstitute weapons of mass destruction.
+ It is also essential that we address the humanitarian needs of the
+Iraqi people. Doing so is right in itself, and crucial to maintaining
+Security Council and regional support for sanctions while we continue
+our efforts for regime change. It is also consistent with our message
+to the Iraqi people that the United States is not against the people of
+Iraq--only the regime that is responsible for their plight. By meeting
+Iraq's genuine humanitarian needs, oil-for-food allows us to maintain a
+tough sanctions regime against Iraq.
+ The current oil-for-food program permits Iraq to sell up to $5.2
+billion worth of oil every six months, two-thirds of which goes towards
+the purchase of food, medicine and other humanitarian goods such as
+water and sanitation infrastructure supplies. The remaining one-third
+goes to pay claims arising from Iraq's occupation of Kuwait, and to pay
+UN administrative and UNSCOM disarmament costs. All revenues from
+Iraq's oil sales are deposited in a UN escrow account to which Baghdad
+has no access. All contracts are reviewed by the UN Sanctions
+Committee, of which the U.S. is a member. Because the Committee
+operates by consensus, we can hold or block any contract that is
+inappropriate or ill-advised. UN monitors on Iraq's borders and inside
+Iraq oversee their import and distribution. In northern Iraq, the
+distribution is carried out directly by UN personnel.
+ Sanctions have never prohibited the import of food or medicine to
+Iraq. However, the regime in Baghdad has been unwilling to take full
+advantage of this exemption, and, therefore, in 1991, the Bush
+Administration first proposed an oil-for-food program to meet the
+humanitarian needs of the Iraqi people. Iraq rejected the program. In
+1995, the Security Council, with full US leadership and support,
+adopted a revised oil-for-food program, which Iraq finally accepted at
+the end of 1996. The first food shipments under this program arrived in
+Iraq in March 1997. In February 1998, based on the Secretary General's
+recommendations that additional funds were needed to meet the needs of
+the Iraqi people, the Security Council adopted an expanded oil-for-food
+program. That program was renewed again in November.
+ Oil-for-food is not a step towards lifting sanctions, nor does it
+reward Saddam. In fact, it makes sanctions--his worst enemy--
+sustainable. Without an oil-for-food program, history has shown that
+Saddam Hussein would starve his own people to force the international
+community to lift sanctions. Although we could use our veto at the UN
+to prevent the lifting of sanctions, the pressure of a sympathetic
+international community--absent oil-for-food--could well lead to the de
+facto breakdown of the sanctions regime.
+ The oil-for-food program has had a tremendous positive impact on
+conditions for the average Iraqi. Since the beginning of the program,
+$2.75 billion worth of food, over $500 million of medicine and $400
+million worth of supplies for such things as water, sanitation,
+electricity and education projects, has been delivered to Iraq. The
+average daily food ration has increased from 1275 calories per day in
+1996 to 2100 calories per day now. However, problems remain. Although
+malnutrition rates have declined, they are still too high. Significant
+work on the sanitation and water, electrical, education, agriculture
+and other sectors is still required.
+ Sanctions have slowed considerably Iraq's ability to expand oil
+exports. We estimate that sanctions have prevented Iraq from exporting
+more than $120 billion worth of oil from 1991 to 1996. We have in the
+last two phases of the program permitted funds to be earmarked for the
+importation of carefully screened spare parts and equipment to improve
+Iraq's crumbling oil infrastructure to fund needed humanitarian
+purchases. Those spire parts have just begun to arrive and it will be
+many months before there will be significant growth in Iraqi ability to
+export oil.
+ We are also discussing in Security Council capitals how to keep
+Oil-for-Food viable and effective. We have proposed that the Security
+Council consider raising the ceiling on oil sales consistent with
+Iraq's legitimate humanitarian needs. In the short run, Iraq would be
+unable to expand oil exports. Over time, allowing increased Iraqi oil
+exports would address concerns regarding the shortfall in revenues
+needed for humanitarian purchases. Saddam would not benefit from these
+increased oil export revenues. The revenues would be put in an escrow
+account and released only for the purchase of humanitarian goods.
+ Raising the ceiling on revenue available for the purchase of
+humanitarian goods also would serve to counter growing calls from Arab
+states and Security Council members to lift sanctions outright. By
+removing the root cause of calls for lifting sanctions, we free our
+allies in the Arab world and elsewhere to support our broader Iraq
+policy objectives. We also draw Security Council support away from more
+radical French and Russian proposals to lift sanctions altogether.
+ We also understand your concerns about the current oil market
+situation. However, Iraq is only one among several factors which has
+adversely impacted oil prices over the last year. Our Iraq sanctions
+policy, moreover, has never been linked to the price of oil on world
+markets. This was true in the early 1990s when Iraqi oil was completely
+off the world market, putting upward pressure on oil prices, and it
+remains the case today. Allowing oil price considerations to drive our
+sanctions decisions, or seeking to use sanctions to target oil prices,
+would undermine our ability to maintain an international consensus
+aimed at containing Saddam Hussein as well as to provide for the
+humanitarian needs of the Iraqi people.
+ The US will continue to work to improve the oil-for-food program,
+and to ensure that it serves its intended purpose. In February, the UN
+Secretary General reported that there are $275 million worth of
+medicine sitting in Iraqi warehouses undistributed. This is
+unacceptable, and we will work to change it. We will continue to
+scrutinize every contract for goods under the oil-for-food program and
+can veto any contract that we judge to be inappropriate or ill-advised.
+Given the absence of UNSCOM and IAEA, which have a role in monitoring
+dual-use goods, we have tightened our standards for contract approval.
+In January, the Security Council formed three panels to examine
+disarmament, humanitarian and Kuwait-related issues. We expect that the
+humanitarian panel's report, due in mid-April, will suggest additional
+changes that may enhance the program's effectiveness.
+ Were international support for effective UN sanctions regimes to
+erode, Saddam Hussein would be a much greater threat to the world
+community. He would quickly regain the free use of ten to fifteen
+billion dollars per year to put into his WMD programs. Moreover, the
+prospect of Iraq without UN sanctions would also have a much greater
+negative impact on oil prices.
+ We remain concerned about the illegal traffic of oil and petroleum
+products out of Iraq--to Turkey, Jordan, Syria and the Persian Gulf.
+Each of these avenues presents unique problems, and we are addressing
+each of them differently. We continue to work with Turkey to find a way
+to bring illicit trade over the Turkish border within the framework of
+the oil-for-food program. We believe a similar approach should also be
+taken regarding Syria. With respect to the smuggling of Iraqi gasoil
+through Iranian territorial waters, we have had considerable success
+over the past year in combining efforts to bring third-country pressure
+to bear on Tehran to end the trade with more direct military actions.
+This has included bombing of the section of the Basra refinery devoted
+to this trade during Desert Fox, and the conduct of ``surge
+operations'' by the multi-national Maritime Interception Force or
+``MIF,'' in areas of the northern Gulf known to be used by the Iraqis
+and others as routes for smuggled cargoes. As for Jordan, although the
+UN has taken note of Jordan's trade of bartered humanitarian goods in
+exchange for Iraqi oil at concessionary prices, we continue to work to
+reduce Jordan's dependence on Iraqi oil.
+ Although the oil-for-food program is not perfect, it is essential
+to our policy of containing Saddam until there is a new government in
+Baghdad. Without it, sanctions would be much more difficult to sustain.
+Saddam Hussein would once again have control over tens of billions of
+dollars a year to spend on weapons of mass destruction.
+ Over the long-term, however, the only way to ensure that Saddam no
+longer threatens either his people or his neighbors is to work for a
+new government in Iraq--one that will maintain the territorial
+integrity and unity of Iraq, respect the rights of Iraq's people and
+Iraq's neighbors, and fulfill Iraq's international obligations. We are
+committed to helping Iraqis achieve this regime change or transition.
+ Thank you, and I welcome any questions you may have.
+
+ Mr. Barton. Thank you. Mr. Williams, your statement is in
+the record in its entirety and we will recognize you for up to
+7 minutes to elaborate on it. We welcome you as one of the
+members of the Railroad Commission from Texas. I believe you
+are the newest member. You have a distinguished background. I
+won't put that all in the record, but you are a former
+administration official in the Bush Administration, you have a
+distinguished record in the private sector and public sector in
+Texas. We are very glad that you could testify today.
+
+ STATEMENT OF MICHAEL L. WILLIAMS
+
+ Mr. Williams. Chairman Barton, thank you, and members of
+the committee, thank you for the opportunity to be with you.
+Before I go any further, Congressman Hall, thank you for the
+kind words earlier this morning.
+ I appreciate this opportunity to testify on behalf of the
+Texas Railroad Commission on the impact of the United Nations
+sponsored Oil-For-Food Program and the impact that it has on
+the vital interests of Texans, as well as the Nation.
+ Admittedly, the goal of the Iraqi Oil-For-Food Program is
+quite laudable. However, I must admit that as presently
+structured, that program is adverse to the interests of Texans
+and Americans. No Texan would take issue, and quite frankly no
+American would take issue with a responsible attempt to provide
+food and medicine and other necessities for the Iraqi people.
+Arguably, however, we do have some serious doubts that the
+program is actually meeting the humanitarian needs of the Iraqi
+people, and nonetheless quite frankly it is more troublesome
+that Iraq is being permitted to sell oil and make money out of
+the pockets of Texas producers and, I might add, Oklahoma
+producers and other domestic producers, their workers and their
+families at the same time that Iraqi ground troops are firing
+at American fighter pilots who are protecting the no-fly zone.
+Moreover, by allowing Iraq to sell $10.4 billion of oil during
+a 12-month period, irrespective of linking it to the impact
+that Iraqi production is having on worldwide crude oil supplies
+and price, provides no incentive for the Iraqis to be proper
+stewards of their crude oil reserves, nor is there any
+incentive whatsoever for the Iraqis to concern themselves with
+the harmful impact that their behavior might be having on
+producers worldwide, particularly those producers here in the
+U.S.
+ Quite the contrary, the Oil-For-Food Program places a
+premium on how much money Iraq is allowed to generate, rather
+than how many barrels of crude oil it is being allowed to sell.
+So the program encourages them to provide and dump as much
+crude oil as possible on the market during the 6-month period
+to reach that $5 plus billion mark with no regard to the price
+per barrel.
+ The Oil-For-Food Program doesn't just permit Iraq to act in
+a way that is adverse to American interests, but to some extent
+it encourages them to do so and that puts domestic production
+at great risk. We have already heard today about the cost and
+what happens to domestic production when prices are running at
+somewhere below $15 a barrel. What is happening in Texas is
+that we are now at an all-time low for oil rig count. We have
+191 oil rigs presently in service compared to 377 at this time
+last year. Between February 1998 and 1999, some 9,500 wells in
+Texas were plugged.
+ In the same time period, some 2,200 wells were shut in. So
+wells in Texas and across the country have been placed at great
+risk because of the impact of Iraqi production on the world
+market depressing prices.
+ And what is the impact in terms of what is happening to
+real people? In Texas we have had since December 1997 the loss
+of some 11,000 jobs. Unemployment claims in Texas has risen
+some 304 percent compared to this time last year. And I might
+add that I grew up in the oil patch in Midland--and most people
+typically think of folks in the oil business as being, as we
+frequently say, a bunch of J.R. Ewings with cowboy boots and
+exotic gold cuff links. The oil patch is comprised of a wide
+variety of folks; and of those 11,000 folks who have lost jobs,
+many of the people who have lost jobs in the oil fields are
+Hispanic, and many of the people in the accounting departments
+and the personnel departments and the H.R. departments and
+otherwise are African-American. This is an industry that
+represents the bulk and the diversity of Texas, and it is being
+hurt.
+ What is happening to our schoolchildren? In Texas, about
+two-thirds of the 1,000 school districts in the State of Texas
+receive some funding from oil and gas revenues, particularly
+from ad valorem and tax revenues. Ninety-five of those school
+districts receive half of their funding from that source, and
+we are estimating in Texas that we lose anywhere from $150
+million to $160 million because of the depressed prices.
+ This is also affecting those royalty interests owners in
+Texas, many of those who are living on fixed incomes who look
+for that royalty check each and every month in order to make
+payments. But obviously with depressed prices, they are not in
+a position to do so.
+ And so what might be done? While I am the newest member of
+the Texas Railroad Commission and have not been around a long
+time, I will take the liberty to make some suggestions. And the
+first might be that Congress and the administration might press
+the United Nations to conduct a thorough investigation to
+determine whether the Iraqis, indeed, are using the designated
+amount of oil-for-food funds to provide food and medicines and
+other necessities for the Iraqi people.
+ The second thing, frankly, you might look to restructure
+the oil-for-food production formula. Currently the cap allows
+for $5.26 billion of Iraqi oil production every 6 months
+without regard to the number of barrels it would take to reach
+that target. And I have heard that this program has never
+linked the production to the barrels; and, quite frankly, I
+think that would be helpful to do so, so that we would not
+encourage overproduction and a depression on prices.
+ And the third would be that we look at and revisit the
+notion of allowing the Iraqis to use the oil-for-food funds in
+a way to rebuild Iraq's oil infrastructure. I just want you to
+think about the irony of producers in Texas and Oklahoma and
+elsewhere who have to look for refinancing and have to find
+money and capital in order to go out and work rigs; and we are
+providing an opportunity for the Iraqis who are now assisting
+in providing the oversupply to the industry. We are providing
+dollars for them to buildup and retrofit their infrastructure.
+ Mr. Chairman and members of the committee, I thank you
+again for the opportunity of being with you this morning; and I
+stand to answer any questions that you might have.
+ [The prepared statement of Michael L. Williams follows:]
+Prepared Statement of Michael L. Williams, Commissioner, Texas Railroad
+ Commission
+ Mr. Chairman, and members of the committee, I appreciate this
+opportunity to testify on the impact of the United Nations sponsored
+oil-for-food program on our vital national energy interests. For time
+purposes, I have summarized my testimony and have submitted additional
+written testimony for the record.
+ Founded in 1891, the Texas Railroad Commission's chief
+responsibility is to protect and conserve one of Texas and America's
+most precious natural resources: oil. As America's number one producer
+of oil, Texas' proper resource management of oil has yielded profound
+contributions for both our state and the nation:
+
+ The discovery of crude oil at Spindletop in Beaumont, Texas in
+ 1901 changed the face of the American transportation industry
+ and gave way to thousands of oil and related service companies
+ that have employed untold millions of Americans.
+ Plentiful supplies of Texas crude oil made possible our modern
+ automobile industry. World War II may well have taken a
+ different course.
+ Allied Forces would not have sailed to victory on a sea of oil
+ if it were not for Texas' extra production capacity and
+ Hitler's lack of oil during World War II.
+ And today, petrochemicals derived from oil and natural gas
+ have enabled us to create everything from Teflon to
+ televisions.
+ Crude oil exploration and production have been central to the
+modern industrial age. As we approach the 21st Century, we must
+continue to protect and conserve this precious natural resource that
+has proven a powerful economic, military, political, and strategic
+tool. And with the proper stewardship of the 120 billion barrels of
+crude oil still locked underground in Texas, our nation's energy future
+could be just as bright.
+ the iraqi oil-for-food program as presently structured threatens
+ american interests
+ The Iraqi oil-for-food program is another matter. The goal of the
+program is quite laudable. No Texan would take issue with a responsible
+attempt to provide food and medicine for the Iraqi people. Arguably,
+there are some serious doubts that the program is actually meeting the
+humanitarian needs of the Iraqi people.
+ U.N. Secretary General Kofi Annan, someone who knows the ins-and-
+outs of the program, admitted in February, ``Only half of the $540
+million worth of drugs and medical supplies delivered to Iraq since the
+program was launched in 1995 have reached hospitals and clinics.''
+ The Iraqi oil-for-food program, as presently structured, is adverse
+to American interests. It is more than troublesome that Iraq is being
+permitted to sell oil and take money out of the pockets of Texas
+producers, workers and families at the same time that Iraqi ground
+troops are firing at American fighter pilots who are protecting the
+``no-fly zone.''
+ Moreover, by allowing Iraq to sell $5.26 billion of oil during a
+six month period (irrespective of the impact that Iraqi production has
+on worldwide crude oil supplies or price), there is no incentive for
+Iraq to properly steward its crude oil reserves. Nor is there an
+incentive for Iraqis to concern themselves with the harmful impact
+their behavior might have on producers worldwide.
+ Quite the contrary, the oil-for-food program places a premium on
+how much money Iraq is allowed to generate rather than how many barrels
+of crude oil it is allowed to sell. In so doing, the program encourages
+Iraq to sell as much crude oil as possible during the six-month
+interval to reach the more than $5 billion mark, with no regard to
+price per barrel. Oil for food doesn't just permit Iraq to act in a way
+that is adverse to American interests, it encourages it to do so.
+ While there is no certain number, there appears to be developing a
+consensus in the industry, that the amount of excess oil on the world
+market is roughly between one and two million barrels a day. That said,
+on average, Iraqi oil production accounts for more than 2.3 million
+barrels a day. Furthermore, evidence indicates that Saddam may be
+illegally exporting an additional 100,000 barrels a day. Even the U.S.
+Department of Energy admitted in late 1998, ``[The] increase in Iraqi
+oil exports has been playing a significant role in the world oil glut
+which is responsible for the sharp decline in world oil prices.''
+ We may be dropping bombs on Iraq without visible retaliation;
+however, Saddam Hussein is engaged in a clandestine campaign of full-
+scale economic terrorism. His conduct is keeping world oil prices low
+by pouring even more oil onto an already saturated market under the
+guise of the oil-for-food program.
+ the oversupply of crude oil hurts domestic production
+ In his letter to Congress earlier this month, President Clinton
+stated that ``The United States has expressed its support for [once
+again] lifting the cap on Iraqi oil exports under the oil-for-food
+program.'' In fact, the Clinton Administration advocates eliminating
+the cap. In light of Secretary Annan's recent report, however, that dog
+simply won't hunt.
+ More oil on the already flooded world market would adversely affect
+oil prices across the globe. It's Supply and Demand 101: the more
+product on the market, the cheaper it is. In the United States where
+production costs are relatively high and production is relatively low,
+drastic price declines have sent the rig count and production
+spiraling. Since last year, U.S. production has fallen by 4.7%. In
+Texas, production has fallen by 7.4%. The rig count, the historical
+barometer of industry vitality, is down 78% since a year ago. Texas'
+rig count has plunged 97% during the same period.
+ less domestic production means less for texans
+ The Iraqi people are not the only ones who stand to lose something
+under Oil for Food. Texans like the Ryder family from our state's
+Permian Basin have seen their lives fall apart during the past year. In
+their early fifties, Ronnie Ryder and his wife, Inatte, used to think
+retirement might not be so far off. After working in the oil business
+for 30 years, Ronnie is now looking for ``any job he can get.'' Inatte
+is back in school and working nights at an elderly care facility.
+Unfortunately, the Ryder's story doesn't stop there.
+ Until the price crisis hit, Ronnie's son was working in a
+roustabout gang for Phillips Petroleum. Today, with their first child
+on the way, Rusty and Priscilla Ryder don't get to spend much time
+together as Rusty has been forced to take a job driving trucks cross-
+country. I wish the Ryder's story was the exception, but I'm afraid
+that in the oil patch, it's become the rule.
+ The overwhelming majority of producing wells in Texas are marginal
+wells--or wells that produce 10 barrels or less per day. Those wells
+are placed in jeopardy by low and unstable prices. With profits falling
+and the amount of oil on the market increasing, thousands of Texans who
+operate marginal wells have been forced to shut in wells--an
+irreversible process. When those wells get shut in workers get shut
+out.
+ Economic studies have shown that for each dollar invested in the
+oil and gas industry at the wellhead, there is a positive economic
+effect of $2.91 on the Texas economy. Without marginal well production,
+millions of dollars and thousands of Texas jobs will be severely
+impacted. State unemployment will increase, sales tax revenues will
+drop, and property tax revenues used to fund schools will plummet.
+ As the number of producing marginal wells decline because they are
+no longer economically viable to produce, royalty and interest owners
+are directly impacted by a loss in revenue. Royalty income has
+sustained countless families, small farms and ranches and rural towns
+for decades. In turn, royalty dollars circulate many times through a
+local economy by way of the grocer, the doctor, the pharmacist, small
+shops, retail stores, and service providers. In many rural communities
+people are dependent on royalty payments for their daily existence.
+Shutting in or reducing marginal well production could mean financial
+devastation to some.
+ The importance of marginal well production and its rippling effect
+on the state economy is reinforced in a recent article published by the
+Texas Workforce Commission. According to their December 1998
+publication of the Texas Labor Market Review, mining (oil & gas
+extraction) continued its trend of declining employment and loss of
+jobs. The article states that persistently low crude oil prices are
+placing tremendous pressure on mining employment counts and are
+affecting other industries that support drilling and explorations
+activities in Texas. Employment in all three of the major industries
+within the goods producing sector (mining, construction, and
+manufacturing) declined in December, for a total loss of 2,400 jobs. As
+of January 1999 release, mining was suffering the seventh straight
+month of declining employment. Employment estimates in the mining
+sector alone decreased from 169,300 in January 1998 to 160,600 for
+January 1999--a 75% decrease of some 8,700 jobs. Additional workforce
+impact information can be found on the Texas Workforce Commission web
+site at www.twc.state.tx.us.
+ Low oil prices are also taking a toll on Texas' greatest resource:
+our children. It is estimated that Texas' statewide Fiscal Year 2000
+school district losses will be between $150-$160 million. The impact is
+already been being felt by many cities and counties across our state as
+jobs are lost, related services are cut, and state and local revenues
+plunge. I think David Goodman, superintendent of Andrews Independent
+School District in West Texas summed it up best when he asked, ``Do you
+know of any businesses that could stand to lose one-third of its
+operating budget and still open its doors the next year?''
+ The Texas Comptroller's Office recently surveyed appraisal
+districts and contract firms that appraise oil and gas reserves for
+property tax purposes. Although the appraisals are not complete, the
+appraisers' consensus is that oil properties will decline in value from
+January 1, 1998 to January 1, 1999 by about 40% and gas properties will
+decline about 15%. In school districts where oil and gas reserves
+comprise more than $250 million, these value losses were translated
+into property tax levy losses and are available on the Comptroller's
+web site at www.window.state.tx.us/taxinfo/proptax/levyloss.html.
+ According to the American Petroleum Institute, at least 51,000
+Americans have lost their jobs since December of 1997 because of low
+oil prices--nearly 9,000 of them are in Texas. Compared to a year ago,
+oil-related unemployment claims are up 304%. Contrary to the impression
+left by popular culture, those are not men and women who wear exotic
+cowboy boots and wear gold watches. Rather, they are Americans like you
+and me, like the Ryders with real car payments, real mortgages, and
+real families to feed.
+ what to do
+ Like the families of America's steelworkers or farmers, oil
+families are suffering in ways that they have not felt before. And,
+like we have to the steel and farming industries, we should reach out
+and correct policies like Oil for Food that make bad times even worse.
+For the sake of American families and schoolchildren, the oil-for-food
+program should be revisited and restructured. To that end, I would urge
+you to consider the following.
+
+ First, Congress and the Administration might press the United
+ Nations to conduct a thorough investigation to determine
+ whether Iraq is using the designated amount of oil-for-food
+ funds to provide food and medicines for the Iraqi people.
+ According to U.S. National Security Adviser Sandy Burger,
+ ``Saddam is so indifferent to the suffering of his people that
+ he still refuses to make full use of this allowance.''
+ Secondly, while the humanitarian needs of the Iraqi people
+ might necessitate additional revenues, we should seek to insure
+ that any attempt to eliminate the crude oil production cap
+ takes into account and does not exacerbate the negative impact
+ that additional Iraqi production might have on domestic
+ producers.
+ Third, the United States should call on the United Nations to
+ revise the resolution so that oil-for-food funds are not used
+ to rebuild Iraq's oil infrastructure. Common sense says that it
+ is not in the United States' best interest to rebuild a
+ competitor's economic and industrial arsenal.
+ Fourth, we should urge the United Nations to restructure the
+ oil-for-food production formula. Currently, the cap allows for
+ $5.26 billion dollars of Iraqi oil production every six months
+ without regard to the number of barrels it would take to reach
+ that target. Nor does it take into account the impact Iraqi
+ production has on world oil prices. During every six-month
+ period the U.N. should designate the number of barrels of oil
+ Iraq would be allowed to produce to reach a designated revenue
+ target. We must urge that the target be placed at a level that
+ neither fosters price instability nor that is harmful to the
+ preservation of domestic production.
+ Fifth, members of Congress from producing and non-producing
+ states should band together--as they have recently for other
+ vital U.S. industries--to boycott the sale of Iraqi oil within
+ the United States, thereby mitigating the insult to our men and
+ women in uniform stationed in the Persian Gulf and working in
+ the oil patch.
+ It's a disgrace that hard-working Texans have been forced to bear
+the brunt of a skewed foreign policy that does more harm than good.
+Congress and the Clinton Administration should revisit and revise the
+United State's support of the oil-for-food program as it stands--if not
+for our oil producers, for the sake of the coming addition to the Ryder
+family.
+ ______
+
+ Railroad Commission of Texas
+ Austin, Texas
+ March 22, 1999
+The Honorable Joe Barton
+2264 Rayburn House Office Building
+Washington, D.C. 20515
+ Dear Mr. Barton, there's a clear and urgent need to evaluate our
+nation's domestic energy policy. Texas Railroad Commissioner Michael
+Williams will testify before the House Subcommittee on Energy and Power
+on Friday, March 26th. He'll offer his insight into our nation's
+domestic energy policy and the U.N.-sponsored ``Oil for Food'' program
+with Iraq. I want you to know that as Chairman of the Railroad
+Commission of Texas, I'm in complete support of Commissioner Williams'
+testimony.
+ When the energy industry in Texas suffers, we all feel its effects
+through decreased state revenues and fewer dollars for our state's
+public schools. The Texas Comptroller of Public Accounts estimates that
+with every dollar drop in the price of oil, approximately 10,000 Texas
+jobs are lost. Lower prices and an increasing dependence on foreign oil
+means many of those jobs are going abroad. These losses are
+particularly staggering when you consider that the U.S. already imports
+more than 50% of the oil we use, placing our nation more and more at
+the mercy of foreign--and often unfriendly--governments.
+ In Texas, Governor George W. Bush recently signed emergency
+legislation that gives certain oil and gas producers temporary
+exemptions from severance taxes when prices fall below set levels. It's
+not a silver bullet, but it's a step in the right direction and shows
+that Texas is committed to helping one of our state's most important
+industries. Now it's time for Washington to step up to the plate for
+domestic producers.
+ The Independent Petroleum Association of America will hold Crude
+Awakening rallies in Washington, D.C., Austin, Texas and across the
+nation this week where members will sign the ``Oil Price Crisis Relief
+Resolution.'' The IPAA and its members make it very clear: the federal
+government needs to respond to this downturn in prices. The resolution
+states that Washington should support the filling of the Strategic
+Petroleum Reserve (SPR), get behind a reduction of taxes on marginal
+wells, work to encourage domestic production, investigate improper
+trade practices in the U.S. market by foreign suppliers, and offer much
+needed regulatory reform for the industry.
+ Your actions in the coming weeks will show just how committed
+Washington is to a strong domestic energy policy. It's more than simple
+economics. It's an issue of critical importance for our national
+security. With best wishes, I am,
+ Sincerely,
+ Tony Garza
+ Chairman
+
+ Mr. Barton. We thank you, Mr. Williams. The Chair is going
+to recognize himself for 5 minutes. We are going to be very
+flexible. We have got four members here. We are going to use
+the 5-minute rule, but we are going to give additional time and
+probably do additional questions; and if people want to
+interrupt, that is fine.
+ If the staff would put the first chart there, the EIA, the
+Iraq crude oil production chart. Let's put that back up on the
+easel.
+ I want to start off--this is off of the CNN news line that
+we get on the Internet: March 4, the headline is ``British jets
+attack Iraqis in the southern no-fly zone.'' March 6, ``U.S.
+launches new attacks in Iraq no-fly zone.'' March 14, ``U.S.
+jets strike at Iraqi northern no-fly zone.'' March 15, ``U.S.
+war planes attack Iraq's northern no-fly zone.'' March 16,
+``Iraq breaks sanctions by flying pilgrims to Saudi Arabia.''
+March 17, ``Sanctions-busting Iraqi pilgrims snub no-fly zone
+rules again.''
+ This chart shows that right before the Kuwaiti invasion by
+Iraq, they were producing about 3.5 million barrels. Once the
+invasion occurred and President Bush declared that would not
+stand, their production fell to about 500,000 barrels per day.
+And then when the oil-for-food program began in January or late
+November 1996, it started ratcheting back up; and it is
+currently up to 2.6 million barrels a day.
+ Mr. Wood, does the State Department dispute any of those
+figures?
+ Mr. Wood. I don't believe we do.
+ Mr. Barton. Okay. If it is true that Mr. Hakes' statement
+that they--I mean, at least before the invasion they were
+producing for a short spike period up to 3.5 million. But I
+believe, Mr. Hakes, you said you don't believe they could get
+much higher than what they are doing right now?
+ Mr. Hakes. They would need a lot more spare parts and
+capital development to repair the equipment to get back up to
+that level.
+ Mr. Barton. So for all intents and purposes, is it fair to
+say that we are allowing Iraq to produce as much oil as they
+are capable of producing? Is that a fair statement?
+ Mr. Wood. It is certainly true at the moment, yes, sir.
+ Mr. Barton. I can only characterize the current policy,
+after listening very intently and scanning the testimony, that
+our Iraqi policy is designed to maximize Iraqi production at
+the expense of the marginal producer in the United States,
+which is a small independent oil and gas producer. And I don't,
+quite frankly, think that makes a lot of sense. Do you disagree
+that if it is not the intent, that is the effect of this
+policy, Mr. Wood?
+ Mr. Wood. The intent of the policy, sir, is to maximize
+international support for the continued isolation and
+containment of Iraq.
+ Mr. Barton. And it seems to be working really well.
+``Sanctions-busting Iraqi pilgrims snub no-fly zone rules
+again.'' Now, that is not some political headline. That is the
+CNN news line March 17, 1999. Could you explain to me how these
+sanctions are working when Iraq can produce as much oil as they
+are capable of, regardless of the price; they can fly pilgrims
+to wherever they want to in the world; they have thrown our
+inspectors out. So please explain to me and the American people
+how effective these sanctions are. I think the sanctions are
+driving constituents in the oil producing States with marginal
+producers out of business. I think that is what the sanctions
+are doing.
+ Mr. Wood. Mr. Chairman, there is no question that Iraq is,
+as it always has, resisting sanctions implementation. At the
+same time, first, the sanctions are being very effective in
+controlling Iraqi exports and the revenues that come from those
+exports.
+ Mr. Barton. But the only export they have, Mr. Wood, is
+oil. Maybe some olives, I don't know.
+ Mr. Wood. I understand and we are controlling with a high
+degree of confidence where the revenues from those exports go.
+ Mr. Barton. I see.
+ Mr. Wood. We are also--we are preventing, through this
+regime, the use of those revenues for the purposes that Saddam
+Hussein would most like to use them for.
+ Mr. Barton. Let me ask this question, because my first 5
+minutes is about out. Where did this determination that they
+needed $5.2 billion every 6 months come from? Who made that
+determination?
+ Mr. Wood. That was the result of an extensive United
+Nations study that was completed in February 1998, I think.
+ Mr. Barton. And did the Iraqi government have any input
+into that study?
+ Mr. Wood. The Iraqi government refused to cooperate with
+that study in large part. It was conducted, for the most part,
+by organizations like the World Food Program and others.
+ Mr. Barton. Okay. Now, do we have any confidence that the
+food that is being purchased is actually getting to the Iraqi
+people?
+ Mr. Wood. We do have, obviously, some problems. The papers
+reported very recently that the Iraqis were--that the
+government was not distributing medicines, for instance, that
+were supposed to be distributed. But at the same time, we know
+that Iraq has imported an average of 3.8 billion metric tons of
+food a year, which is more than 50 percent higher than the
+annual average for the 6 years prior to the program's
+implementation.
+ We know that the malnutrition rate in the government-
+controlled south has stabilized over the past year at about 15
+percent for infants and 25 percent for children between 1 and 4
+years of age; and that is an improvement over the previous
+years. We know that UNICEF reports that malnutrition in the
+north for the Kurds has dropped--for children under 5 has
+dropped to 25 percent last year from 30 percent in 1997 and 37
+percent in 1994.
+ So we have got some clear indications that the goal of the
+oil-for-food program, which is to take care of the Iraqi
+population in spite of Saddam Hussein's intentions, is being
+achieved.
+ Mr. Barton. Now, is it true--one of my briefing papers said
+that Saddam Hussein has refused to let any of this money be
+spent on food that is purchased or manufactured in the United
+States. Is that true?
+ Mr. Wood. That is only true very recently, sir.
+ Mr. Barton. But it is true right now?
+ Mr. Wood. Right, it is true. We have under the oil-for-food
+program roughly $240 million of U.S. products have been
+purchased, of which----
+ Mr. Barton. I want you all to listen to this. This program
+has been in effect since what, November 1996?
+ Mr. Wood. Right.
+ Mr. Barton. And we allow up to $5 billion every 6 months,
+so that is potentially $10 billion a year. So that is
+potentially maybe $12, $13 billion since we are just into 1999;
+but I am told that it has not been that much. We have spent how
+many billions of dollars? Do you know the exact number? I am
+going to guess it is $8 or $9 billion, but I don't know that.
+ Mr. Wood. Well, it is important to remember again that the
+proceeds for the oil-for-food, a large part of it, a third of
+it goes to the compensation commission to compensate Kuwaitis
+for their losses--Kuwaitis, Americans, and others for their
+losses during the Gulf War. So not all of that program goes for
+the purchase of food.
+ Mr. Barton. Give me your best number for how much of the
+billions of dollars that they have collected has been spent on
+food that actually went into Iraq.
+ Mr. Wood. Our best understanding is that $902 million have
+been approved for food.
+ Mr. Barton. Only $902 million?
+ Mr. Wood. Let me keep going. $172 million for health.
+ Mr. Barton. Let's just focus on food right now. A little
+less than a billion dollars on food? Is that your best number?
+ Mr. Wood. That is right.
+ Mr. Barton. Less than a billion, and of that billion, $240
+million was purchased from the United States sources?
+ Mr. Wood. That is right.
+ Mr. Barton. Okay. Well, I think I could equate that to how
+many jobs have been lost and how many millions of barrels of
+production have been lost in the United States. But that would
+be hitting a little bit below the belt. But I think you get my
+drift.
+ Mr. Hall is recognized for 5 minutes.
+ Mr. Hall. Thank you, Mr. Chairman. Mr. Williams, I will
+start with you. You have--one of your cures for the dilemma is
+that we get the U.N. to do some searching and see what is
+happening with the food when it gets there, who it goes to. I
+know you are highly educated, and I also know that you have got
+an awful lot of street sense, street smarts. Doesn't your
+street sense tell you that if they couldn't find the dang
+nuclear plants, that they are going to have a hard time
+catching those guys stealing that food?
+ Mr. Williams. It probably does and it should. The import of
+that suggestion goes to the fact that we need to have--someone
+needs to do the investigation and make the----
+ Mr. Hall. You pointed out by your answer now the dilemma
+that we are in. And my thrust probably is going to be to see
+what we can do to kill the policy. I don't think it is a good
+policy. I don't think it is a sensible policy. We used the
+Space Station for foreign policy and wound up putting money
+galore into Russia; and still apparently we are not saving the
+Space Station. Here we are using food-for-oil as another--
+really a kind of a--I don't know why we would try to have a
+good foreign policy with Iraq, but apparently somehow we are
+trying to keep our foot in the door.
+ It seems to me--I am not saying cut all the trees and kill
+all the whales and everything is bad and we ought to disconnect
+everybody in the world. But I don't see any sense in dealing
+with Iraq. I don't like to starve children, but war is war; and
+we are in a state of war with those people. We are bombing them
+probably today or tonight or tomorrow or whenever we are going
+to.
+ Mr. Wood, what do you mean by saying you are controlling
+where the revenue goes? That thought occurred to me--I heard
+you say that a moment ago. Where does the revenue go? I will
+come back to you, Mr. Williams.
+ Mr. Wood. As I indicated, the revenue goes into an escrow
+account that is only released for authorized purposes.
+ Mr. Hall. Now, this is food for oil.
+ Mr. Barton. But it is really not food for oil. That is what
+is so frustrating about this. They have collected somewhere
+between $5 and $6 billion and they have spent a little less
+than a billion on food. So it is called food for oil, but it is
+really not food for oil.
+ Mr. Wood. Let me correct what I said earlier because I was
+giving you the most recent statistics. Since the beginning of
+the program, a total of $2.75 billion has been used to purchase
+food. Over $500 million has been used to purchase medicine and
+$400 million for supplies in areas of water, sanitation,
+electricity, and education projects.
+ Mr. Barton. So that gets us up to about $3 billion, but a
+little over $2.5 billion for food?
+ Mr. Wood. And, again, don't forget the oil-for-food program
+has only been at the $5.2 billion level for a year or so.
+ Mr. Barton. Right. I am going to give Mr. Hall additional
+time; and I don't want to dominate this, but that infuriates
+me. This study that was done apparently was done with a great
+degree of effort to find out what the true needs were, but you
+have doubled the program; and the population of Iraq has not
+doubled in the last year. I mean, I can draw no conclusion to
+that, sir, but that that is just a pure political judgment on
+behalf of the bureaucrats in the United Nations to appease
+Saddam Hussein. I may be wrong, and the studies may show it
+different; but if the first study was an accurate study, the
+Iraqi population is not that fertile that they are expanding
+the population so greatly that they need to double the amount
+of flood and supplies that they need. But, Mr. Hall?
+ Mr. Hall. Go ahead and get your answer from him.
+ Mr. Wood. Mr. Chairman, I think that the easiest example I
+can give you is that OPEC has just cut back its sale of oil.
+ Mr. Barton. Yes, they did. And Iraq did not and Iraq is a
+member of OPEC.
+ Mr. Wood. This is following in December Baghdad's call for
+the overthrow of the regime of Saudi Arabia and the leadership
+in some of the other Persian Gulf OPEC members.
+ Mr. Barton. Which have the full faith and credit of the
+United States of America to guarantee that this will not happen
+by military means.
+ Mr. Wood. I understand. But the OPEC nations themselves
+believed it was better for them to cut back their oil sales
+than to seek a reduction in the oil-for-food program. And the
+reason for that, we believe, is a combination of humanitarian
+concern for people of Iraq and the recognition that taking care
+of the humanitarian needs of the people of Iraq is an absolute
+prerequisite to maintaining the integrity of sanctions
+implementation and to returning, as we hope will occur soon,
+the weapons-of-mass-destruction inspectors and the other
+elements of the policy for containing Iraq.
+ Mr. Barton. Well, hopes are one thing, sir, but reality is
+another. And I don't believe anybody on this subcommittee
+opposes providing in some way food and medicine for the people
+of Iraq. That is not the message we are sending. But it really
+does not appear, so far as this hearing is going along, that
+that is what is happening. And with all due respect, I don't
+think appeasement works; and I don't think it works with Saddam
+Hussein, and I would disagree with the collective wisdom of the
+OPEC nations to think it is okay to appease Saddam Hussein and
+let him produce as much oil as he wants.
+ Mr. Hall, I have used almost your entire 5 minutes, so I
+will give you another 5 minutes. We will give you an additional
+2 or 3 minutes.
+ Mr. Hall. You are the Chairman. It makes a difference.
+ Mr. Barton. I am just a little riled up about this.
+ Mr. Hall. To reclaim my 7 minutes--and you have covered
+some of the ground I wanted to cover, and of course we have
+talked about the economic advantages that the Iraqi government
+and Saddam Hussein has taken. I think, Mr. Hakes, you can tell
+us another advantage that he has taken. Our research and
+development expert from Randall and Dewey, Dave Bole, is going
+to be testifying in a little bit; but we have read his
+testimony and he has indicated that not only do the Iraqis have
+this advantage, the two advantages that the Chairman drew out
+there, they have also made Iraq the swing oil producer, have
+they not, in that whole part of the country?
+ Mr. Hakes. Not as I understand that term.
+ Mr. Hall. Well, let me tell you how I understand the term.
+It may be wrong. They sell the last barrel into the market. And
+doesn't that define the market price?
+ Mr. Hakes. Well, everybody that sells into the market is in
+a sense selling the last barrel.
+ Mr. Hall. The last seller getting the most price for it.
+ Mr. Hakes. The swing producer, as I have normally seen it
+used, is referred to Saudi Arabia who has the ability to raise
+and lower production because they have more excess capacity
+than they use.
+ Mr. Hall. They have a bigger hole in their well than
+anybody else.
+ Mr. Hakes. Right. For instance, a year ago before they made
+these cuts, they still had the capacity to almost immediately
+increase production by 2 billion barrels; and they also have
+been more willing to cut back. So they sort of have been the
+only swing producer that is able to raise and lower. The Iraqis
+don't have any ability right now to go above the 2.5.
+ Mr. Barton. But they do have the ability to go below 2.5.
+ Mr. Hakes. As does any producer.
+ Mr. Barton. I mean, there is no structural impediment to
+the Iraqis reducing their oil production if they wanted to.
+ Mr. Hakes. Right. Particularly the state-owned companies
+have that option if they are willing to.
+ Mr. Barton. And all the oil in Iraq is state owned.
+ Mr. Hakes. Right. I think the four or five largest
+companies in the world right now are state-owned companies
+including Iraq.
+ Mr. Hall. Mr. Hakes, to where we are on the same line, his
+testimony will be--it says, ``Let me explain what allows Iraq
+to become the swing producer.'' I guess that is why we ran
+across that. ``Currently many industry analysts estimate that
+worldwide oil productive capacity that is, production that
+could quickly be added to the world market exceeds demand by
+only about 4 percent.'' And says, ``This increase has allowed
+Iraq to become the world's swing producer, the producer that
+sells the last barrels into the market and thereby defines the
+market for the entire market.'' Is that not your understanding
+of what a swing producer is?
+ Mr. Hakes. No.
+ Mr. Hall. Okay. I am sorry that I hadn't set that out for
+you.
+ Mr. Hakes. I have heard that discussed, but I am not sure
+that is the way it works.
+ Mr. Hall. That is a good thing to allude to. Call it
+whatever type producer you want to; he in the position of
+selling the last and defining the market.
+ Mr. Hakes. The market is set by all producers and all
+buyers.
+ Mr. Hall. In diamonds or whatever.
+ Mr. Barton. Mr. Hall, could you ask one more question and
+then let us go to Mr. Shimkus. We will come back and give you
+additional time after the other three.
+ Mr. Hall. I would like to just ask a quick yes-or-no from
+Mr. Wood. Are we the only Nation supporting the oil-for-food
+program?
+ Mr. Wood. By no means, sir.
+ Mr. Hall. A number of other nations? With Iraq?
+ Mr. Wood. Absolutely, sir. Both in the Security Council and
+around the world.
+ Mr. Hall. You have answered. What would be the impact on
+our foreign policy and our relations with our allies if the
+U.S. were to successfully push for an end to the oil-for-food
+program?
+ Mr. Wood. We believe that the sanctions, all of the
+programs aimed at containment of Iraq, would be seriously
+eroded. While we retain the ability within the Security Council
+to veto any legal change in these programs, we believe that
+their observance by other nations would erode quickly. We would
+face growing international pressure to lift sanctions. We would
+have less support for a hard line on maintaining inspections of
+Iraq's weapons-of-mass-destruction programs. We believe that
+this would seriously weaken our ability to take a tough line
+with Iraq while we are pursuing the other track--the two other
+tracks, which are the enforcement of the no-fly zones and our
+efforts to replace the regime of Saddam Hussein.
+ Mr. Hall. Last question. Are you all talking to the oil
+producers about the impact it has on them?
+ Mr. Wood. Absolutely, sir. And I might add----
+ Mr. Hall. Are you listening to them?
+ Mr. Wood. We are, sir. Oman was one of the original
+sponsors in the United Nations of the first oil-for-food
+program proposal back in the early 1990's.
+ Mr. Barton. Could I just--Mr. Hakes and Mr. Wood, before we
+go to Mr. Shimkus, are either one of you aware of any other
+Nation in the world that is permanently shutting in production
+that will never come back as a result of this program? You say
+that the other nations support the program. I am not aware of
+any other nation in the world that has the marginal-well
+situation like we have in the United States that is being
+permanently lost because of this. Are there other nations?
+ Mr. Hakes. I am not as familiar with--Canada might possibly
+have some, but I would agree with the drift of your question
+that the United States is in a rather unique position on this
+issue.
+ Mr. Barton. I am told we have lost about 600,000 barrels a
+day just within the last year. It is never going to come back.
+ Mr. Hakes. The December-to-December figures going to
+December 1998, we had lost about 500,000 barrels a day; and it
+is higher than that now, I am sure; and there is also a leg
+effect because it discourages new investments, and sometimes
+that doesn't show up in production losses that you otherwise
+would have had.
+ Mr. Barton. So with the exception of Canada, when the
+deputy under special assistant secretary talks about the rest
+of the world supporting this program, it is really the domestic
+small oil and gas producer in the United States that is
+supporting it by losing their job and losing their resources.
+There is no other----
+ Mr. Hakes. The point, I think, is very valid that the small
+producers have a very limited ability to come back once they
+are shut down. In other words, when the price goes down like
+this and then the price goes back up, that won't necessarily
+bring those--a higher price won't necessarily bring all of
+those producers back.
+ Mr. Barton. I want to correct the record. It is the
+principal assistant deputy secretary. I am not trying to be
+facetious about that, sir.
+ Mr. Shimkus.
+ Mr. Shimkus. Mr. Chairman, I yield my time to my colleague
+from Oklahoma so he can catch his plane.
+ Mr. Largent. Thank you, Mr. Chairman. Mr. Wood, I am
+reading in your testimony that we got at 9:30 this morning. The
+second paragraph says that the administration's policy is to
+contain Saddam Hussein until he can be removed from power. It
+sounds to me that it is the administration's policy to sustain
+Saddam Hussein until he can be removed from power, and I want
+to make a statement and get you to respond to it.
+ As I have studied history throughout the world, the most
+motivating thing--if you want to foment change in a country,
+hunger is the most motivating factor to foment political change
+that we are trying to see in Iraq. And yet we are moving in the
+opposite direction. Would you like to comment on that? I mean,
+I am striking at the very fundamental policy decision that is
+being made.
+ And I want to say, too, just parenthetically here, that I
+understand that if we can see this change take place and we get
+a new regime in there and Iraq comes back on with their oil
+production and begins increasing their oil production, that we
+are in the same boat. So what I am really talking about is a
+foreign policy decision that currently is affecting independent
+producers; but if we are successful in our foreign policy, we
+still have the same problem that we have to deal with, and I
+understand that. So don't think that I am saying--or anybody up
+here is saying that the problem that we are having in Oklahoma
+is all because of our foreign policy. But this foreign policy
+is important, and I am just thinking that we are doing the
+exact opposite of what we need to be doing if our policy goal
+is to remove Saddam Hussein from power.
+ Mr. Wood. We certainly agree with you that this is a very
+important foreign policy, and, indeed, in fact there is no
+issue on which the Secretary of State and our people in New
+York and others spend more time.
+ It is not our assessment that withholding humanitarian
+assistance under the oil-for-food program would be a better way
+to drive out Saddam Hussein. And I might add that it is not his
+assessment either. He has not cooperated with this program. In
+spite of the program, he has tried to keep food from his
+population. He has tried to keep medicine from his population.
+That is why we received these press reports a month ago. He
+finds it more useful to blame the world for the poverty and the
+malnutrition and the unhappiness of his own people than to
+allow them to be adequately nourished.
+ He has consistently failed to cooperate with the oil-for-
+food program. He sees it as a threat. He does not see it as a
+bolster for his regime, and in this assessment, frankly, we
+agree with him.
+ Mr. Barton. If he really felt that, he wouldn't have to
+sell any oil. If that were literally a true statement, he would
+refuse to let his state-owned oil company sell any oil. So it
+can't be true.
+ Mr. Wood. During the life of the program, Saddam Hussein
+has interrupted the flow of oil on several occasions for
+periods of more than a month at a time. And, again, it is
+because his assessment is that--we believe that his assessment
+is that the world will take responsibility for his population
+even if he won't. And that may extend, as it has in some cases,
+to proposals to lift sanctions.
+ Mr. Largent. So in this world, we literally cannot force
+Saddam Hussein to do anything, including allow us to inspect
+weapons sites. We cannot force him to not fly in the no-fly
+zone. But what we can do, what we have been effective in doing
+is forcing food on him. Is that what you are telling us? That
+is the one thing that we have been effective in doing is
+forcing food on him when he didn't want it?
+ Mr. Wood. I would have to say that I don't think that he is
+happy with what is happening in the no-fly zones.
+ Mr. Largent. Who distributes the food under this program?
+ Mr. Wood. The Iraqi regime distributes it in the south
+under U.N. monitoring, and the U.N. itself distributes it in
+the north.
+ Mr. Largent. And where in the pecking order does the
+Republican Guard fall in? Who gets fed first?
+ Mr. Wood. Again, I think that they are--they tend to be
+less malnourished than anybody else to begin with.
+ Mr. Largent. I think so. We are making them fat.
+ Mr. Wood. I am not saying that it is the U.N. that is
+feeding them. I am not saying that it is this program that is
+feeding them. They have always been cared for better than the
+population at large.
+ Mr. Largent. Thank you, Mr. Chairman.
+ Mr. Barton. We have been everywhere liberal in the use of
+time. I have consumed probably three times my 5 minutes, so if
+you have some additional questions.
+ Mr. Largent. It just seems to me that the administration's
+policy or our foreign policy in this issue right now is that we
+want to overthrow this evil empire, but we don't want to make
+anybody mad doing it. I don't understand that. That just really
+baffles me. We are going to kill them with kindness.
+ Mr. Hall. Will the gentleman yield?
+ Mr. Largent. Yes, sir.
+ Mr. Hall. Does it ever occur to you that we won't ask
+ourselves the question of whatever happened to consorting with
+the enemy? You know, they used to shoot you for that. I think
+it is a sorry policy, and I think this is a sorry program. And
+I think you are bringing it out very well. So give him 7 more
+minutes.
+ Mr. Largent. I will yield back, Mr. Chairman.
+ Mr. Barton. Mr. Shimkus, do you want to reclaim original
+order or do you want me to go to Mr. Burr?
+ Mr. Shimkus. I would rather go original order, unless Mr.
+Burr has a pressing----
+ Mr. Barton. Mr. Burr's plane is not until 4:15.
+ Mr. Shimkus. I imagine mine is too, or close to it.
+ Mr. Wood, I am sorry that I missed the initial fireworks,
+so welcome. And we are learning a lot, and I appreciate you
+being here, along with the other panelists. But it seems like
+you are getting the brunt of the fire right now.
+ I am trying to follow up on a statement that you said that
+our allies want this program and they are willing to curtail
+their own production while allowing Saddam Hussein to produce
+more, both on the food-to-oil program and through the black
+market, thus undercutting their prices on the world market. Our
+allies support this policy?
+ Mr. Wood. What I am saying is that we have not received
+approaches from OPEC nations, and in particular the Gulf OPEC
+nations, seeking to curtail the oil-for-food program. Just the
+opposite. They have indicated strong support for the oil-for-
+food program.
+ Mr. Barton. Would the gentleman yield on that?
+ Mr. Shimkus. I will.
+ Mr. Barton. Surely you have got people in the State
+Department that understand if we drive the American marginal
+producer out of production, it helps every producer in the
+Middle East over time. And Iraq is part of OPEC. So they are
+crying with crocodile tears when they support this because
+every marginal well in Texas, Oklahoma, Louisiana, Illinois,
+West Virginia, California, Colorado, on and on and on that goes
+out of production is never coming back. And their wells in the
+Middle East are there just waiting to resume production. Surely
+you all understand that. Do you?
+ Mr. Wood. Yes, I mean--I am certainly not an expert in our
+domestic oil industry, but it is obvious from the testimony
+here today, and from your own comments, sir, that marginal
+wells once shut down stay shut down.
+ Mr. Shimkus. Maybe that message ought to get back to the
+State Department.
+ Mr. Wood. It will.
+ Mr. Shimkus. Following up on a question I asked to my
+colleague, Wes, from Oklahoma--and you have kind of
+elaborated--but you said an escrow--how do we know that the
+revenue from the oil-for-food program is going for food only?
+Mr. Watkins said that it is going to an Iraqi bank account. You
+mentioned an escrow. What bank or banks is this money flowing
+to, and who controls the account?
+ Mr. Wood. I am not sure what--I am told that, I think, it
+is Banque Nationale of Paris, one of the world's largest and
+most reputable. Let me just say, though, that within the oil-
+for-food program there are a series of checks and maybe it
+would be useful if I went through those.
+ A U.N. contractor monitors outflow of Iraqi oil through
+pipelines. This does not mean that there is not a smuggling
+problem. I will get to that in a second because we are trying
+to address that.
+ Then roughly 50 employees of another contractor, a Swiss
+company, are stationed at the four points of entry for products
+that are allowed. And they are responsible for verifying the
+arrival of humanitarian goods. Within Iraq itself, the U.N.
+Office of the Iraq Program has roughly 150 inspectors whose job
+it is to ensure that the goods sent into Iraq under our oil for
+food reach their proper destinations. There are 50 sector
+observers and 50 geographic observers and 20 of sort of a
+multidisciplinary unit.
+ That is how distribution within a particular southern part
+is tracked. Every contract is approved--every contract is
+approved by the sanctions committee, of which we are a member.
+We review every contract. We approve every contract.
+ In addition, UNSCOM, the weapons-inspection agency, when it
+is functioning--and I admit it is not functioning now--but when
+it is functioning, they also receive reports of all imports
+into Iraq and do their own analysis as to whether or not there
+is any diversion away from the intended----
+ Mr. Shimkus. But that is not being done now, so there could
+be diversions?
+ Mr. Wood. And as a result, we on the sanctions committee
+are being more scrupulous in the contracts that we are allowing
+to go through. So there is an offset there. Maybe--that is the
+general framework.
+ Mr. Shimkus. Okay. So you would take--so you would not
+accept Congressman Watkins' premise that there is no control of
+the money and that the money is going totally for the needs of
+the food and the medicine?
+ Mr. Wood. Sir, I would never say totally. I would say with
+a high degree of confidence, we are absolutely sure that the
+vast, vast majority of this revenue is going for what it is----
+ Mr. Shimkus. Does State Department believe that money is
+fungible?
+ Mr. Wood. Yes, sir.
+ Mr. Shimkus. In other words, that if this money is being
+used to feed the populous and the medicine needs, then that is
+saving revenue for the Iraqi government to fully feed the Guard
+and also the people in high places and authority?
+ Mr. Wood. That is true. However, Iraq is under the most
+sweeping sanctions regime in the history of the world. And it
+is not clear where they will develop new hard currency in order
+to buy imports, in order to do that.
+ Now, we have talked about the smuggling program; and this
+continues to be a problem. There has been smuggling of gas oil
+products through the Gulf; and we estimate that that has been
+reduced from roughly 55,000 barrels a day a year ago to
+approximately 5,000 barrels per day now. And we have done this
+through a combination of third-party pressure on Iran, which is
+where the smuggling was destined; the bombing of the Basrah oil
+refinery which was responsible for producing this oil; and
+through the activities of the maritime interception force and
+other activities there. So there is a dramatic decrease in that
+smuggling.
+ Trade through Turkey we also believe has decreased
+significantly by about 50 percent. We estimate that the current
+trade is roughly 20,000 barrels per day compared to 45,000
+barrels a day a year ago. We are continuing to work hard with
+Turkey on reducing this.
+ So much for the good news. The bad news is that there seems
+to be a growing illicit trade through Syria, and we are looking
+into that; but I assure you that we take the smuggling problem
+seriously. We take--it is of particular concern because it is
+the way of raising hard currency for use by the Iraqi regime,
+which is not under our control. It is the principal way that
+they can raise hard currency that is not under our control. And
+what they can buy with hard currency are things that we don't
+want them to buy.
+ Mr. Shimkus. I would love to follow this line of
+questioning more, but I want to go to my last one. And this is
+a little bit more touchy and generic.
+ How can we as a Nation continue to follow the line of the
+U.N. position that gives us the authority to patrol the no-fly
+zone, to do the oil-for-food program, when we are now engaged
+in activities in Kosovo without any negotiation of the United
+Nations, no U.N. Security Council. Do you not think that we are
+now in a position of not legitimizing our presence in that
+region under the U.N. when we have totally disregarded U.N.
+negotiations in our current activities?
+ Mr. Wood. I think I would make a couple of quick points.
+First, our policy is to pursue U.S. objectives. And to the
+degree that the U.N. assists us to do that, it is a valuable
+tool in the----
+ Mr. Shimkus. It is a U.N. no-fly zone. It is not a U.S. no-
+fly zone.
+ Mr. Wood. The no-fly zone is carried out within the
+framework of U.N. resolutions. They are not explicitly
+authorized by U.N. resolutions.
+ Mr. Shimkus. Is it a U.N. no-fly zone or a U.S. no-fly
+zone?
+ Mr. Wood. Again, the no-fly zones were put in place
+following the Gulf War after Saddam Hussein began to attack his
+own people----
+ Mr. Shimkus. Who authorized it?
+ Mr. Wood. It is not authorized explicitly in any U.N.
+resolution, but it is within the framework of U.N. resolutions
+that calls upon nations to assist--to help prevent Iraq from
+brutalizing its own population. But there is nothing--but the
+pilots of the no-fly zones don't wear blue helmets. They don't
+fly U.N. planes. There is no U.N. chain of commands whatsoever.
+That is a green-hatted operation.
+ Mr. Barton. What is a green hat?
+ Mr. Wood. It is under the national chain of command.
+ Mr. Shimkus. So go ahead and continue with the answer,
+then.
+ Mr. Wood. Again, we utilize the United Nations, as every
+nation does----
+ Mr. Shimkus. No, we don't. We haven't in our recent
+activities in Kosovo. We pick and choose when we need to use
+the U.N. and when we do not.
+ Mr. Wood. We certainly believe that our actions in Kosovo
+are entirely in keeping with international law. There is, in
+fact, a vote taking place just about now, I hope, in the
+Security Council on a resolution to be introduced by Russia
+criticizing the NATO action. And we believe that it will fail
+both for lack of votes and because it will have no fewer than
+three vetoes on it. So we will have to see.
+ Mr. Barton. We will have to reclaim somewhat regular order
+so that we can let Mr. Burr get a question in. Mr. Burr is
+recognized for 5 minutes.
+ Mr. Burr. Thank you, Mr. Chairman. Mr. Wood, just keep that
+mike next to you. I want to ask you about your testimony. Did
+you really mean it when you said you are pleased to be here
+today?
+ Mr. Wood. Absolutely, sir.
+ Mr. Burr. Did you write this testimony?
+ Mr. Wood. No, sir.
+ Mr. Burr. When were you told that you were testifying in
+front of this committee?
+ Mr. Wood. Wednesday, sir.
+ Mr. Burr. Who told you?
+ Mr. Wood. I was asked if I was available to do it.
+ Mr. Burr. Who asked you?
+ Mr. Wood. Our normal legislative----
+ Mr. Burr. Name?
+ Mr. Wood. I don't think I have a name.
+ Mr. Burr. You don't know who asked you?
+ Mr. Wood. I can't recall, sir.
+ Mr. Burr. Who would have approved it?
+ Mr. Wood. My boss approved it.
+ Mr. Burr. Your boss is who?
+ Mr. Wood. Assistant Secretary Welch.
+ Mr. Burr. Did he write your testimony?
+ Mr. Wood. No.
+ Mr. Burr. Who wrote your testimony?
+ Mr. Wood. It was written in our office.
+ Mr. Burr. Who did that?
+ Mr. Wood. Some of the people behind me, but----
+ Mr. Burr. When did you read it?
+ Mr. Wood [continuing]. I take full responsibility for it.
+ Mr. Burr. When did you read your testimony for the first
+time?
+ Mr. Wood. Wednesday evening.
+ Mr. Burr. Did you have the ability to change your
+testimony?
+ Mr. Wood. Yes, sir.
+ Mr. Burr. Did your boss sign off on your testimony?
+ Mr. Wood. He reviewed it. He didn't sign off on it.
+ Mr. Barton. Who is your direct supervisor?
+ Mr. Wood. Assistant Secretary Welch.
+ Mr. Burr. Is he the final sign-off on it, or did it have to
+go somewhere else?
+ Mr. Wood. It had to be cleared fairly widely.
+ Mr. Burr. To what degree, as far as the hierarchy at State?
+ Mr. Wood. Well, because it reflected--because the principal
+task in writing it was to update the testimony that I think has
+been mentioned here earlier that Under Secretary Pickering gave
+in the Senate, there was a wide, wide clearance.
+ Mr. Barton. Would the gentleman yield?
+ Mr. Burr. Let me make one statement, and I would be happy
+to yield. Would you disagree with the statement that your
+testimony was to support what the State Department's policy is?
+ Mr. Wood. Yes, sir, that is exactly what my testimony is
+for.
+ Mr. Barton. I just want to follow up on this same line. We
+had some concern, Mr. Wood--and we are not personally offended
+that you are here. I think you are doing a good job in a
+difficult situation, so I want to let you know that. But we had
+a concern that we were not getting the appropriate level of
+testifier that should have been here.
+ That was expressed to me early in the week, and did I want
+to call the Secretary of State and demand that there be a
+higher-level official than yourself; and I said no, that the
+main thing was to get the meat of the issue before the
+subcommittee. Of course, then when we didn't get testimony
+until this morning, that kind of inflamed opinion about that.
+ How many people in the State Department have direct impact
+on this policy that Mr. Burr and I and every other member of
+the subcommittee is concerned about? Could you elaborate the
+chain of command of the people who are directly involved in
+this policy?
+ Mr. Wood. By ``this policy,'' you mean our policy toward
+Iraq?
+ Mr. Barton. No, the great oil-for-food policy that you are
+trying with some difficulty to defend.
+ Mr. Wood. Starting with the Secretary of State. There are
+officials at the Under Secretary level--well, at the----
+ Mr. Barton. I am with Mr. Burr on this one. We want names
+of people. We want names and titles: Secretary Madeleine
+Albright, the Secretary of State----
+ Mr. Wood. Deputy Secretary of State Strobe Talbott, Under
+Secretary for Political Affairs Thomas Pickering, Under
+Secretary for Economic Affairs Stuart Eizenstat, Assistant
+Secretary for Near East/Middle East Affairs, Martin Indyk,
+Assistant Secretary for International Organization Affairs,
+David Welch.
+ Mr. Barton. That is six so far.
+ Mr. Wood. There are also people in our intelligence----
+ Mr. Barton. Give us the name of the person or at least the
+title. I know the State Department is a massive bureaucracy, so
+I may even get beyond your mental ability here.
+ Mr. Wood. Getting beyond my mental ability is not a high
+threshold.
+ Mr. Barton. No, I think so you are an intelligent man.
+ Mr. Wood. But perhaps I can cut this--can help by saying
+that it is routine State Department practice--and I can't speak
+for other departments of the government--that officials at the
+Deputy Assistant Secretary level, my level, are often the
+testifiers on a variety of subjects. It is not our policy,
+however, to fail to provide testimony on a timely basis.
+ Mr. Barton. Who is your direct report? I forgot.
+ Mr. Wood. David Welch, assistant secretary.
+ Mr. Barton. But you are the principal deputy assistant.
+ Mr. Wood. That is right.
+ Mr. Barton. Which would indicate that there is a deputy
+probably below you.
+ Mr. Wood. That is right.
+ Mr. Barton. Is it safe to say that you are the lowest level
+State Department official that they could comfortably get away
+with sending before this subcommittee?
+ Mr. Wood. No, sir.
+ Mr. Barton. No, sir? There is somebody lower than you?
+ Mr. Wood. I hope so, sir.
+ Mr. Barton. Okay. If we want to pursue this, though--and I
+think we will. I have heard nothing yet to indicate that this
+is a policy that the Congress should support with any
+enthusiasm. So if we want to continue this, we should ask up to
+probably the Under Secretary and just have a State Department
+panel so that we get every player in the State Department that
+has put this policy together before this subcommittee.
+ Mr. Wood. Well, I----
+ Mr. Barton. And probably the U.N. Ambassador.
+ Mr. Wood. We very much hope that everybody from the State
+Department would speak with one voice on the policy. And I
+believe that I can adequately represent that voice.
+ Mr. Barton. Oh, I think you are making the best of a bad
+deal before this subcommittee.
+ Mr. Wood. And at the same time, my initial statement that
+we were genuinely grateful for this opportunity to testify
+before the subcommittee, a subcommittee that you yourself
+pointed out we don't testify before very often----
+ Mr. Barton. But you will.
+ Mr. Wood. And we look forward to it, sir.
+ Mr. Barton. There is a new beginning. We will recognize Mr.
+Burr for another 5 minutes because I took 3 minutes and didn't
+even let you get started.
+ Mr. Burr. Mr. Wood, how long will it take for Saddam to be
+removed?
+ Mr. Wood. Difficult to say, sir. Sooner the better.
+ Mr. Burr. Who will remove him?
+ Mr. Wood. We are working--we, including our new Special
+Coordinator for Transition in Iraq, Mr. Frank Ricciardone, is
+working with regional groups, with dissident groups.
+ Mr. Burr. Outside Iraq? Inside Iraq? Who will actually
+bring him down?
+ Mr. Wood. Don't know.
+ Mr. Burr. We don't know?
+ Mr. Wood. Don't know yet.
+ Mr. Burr. Will we?
+ Mr. Wood. Yes, although not necessarily much before it
+actually happens. I just don't--this isn't the kind of thing
+that lends itself to speculation or to, really, public
+analysis. But it is certainly the case that there are dissident
+groups outside of Iraq. There are groups inside of Iraq that
+have been oppressed by Saddam Hussein. This includes the Kurds
+in the north, the Shiites in the south, it includes numbers of
+groups. And we believe that every day and every way Saddam
+Hussein is alienating his own population. This is one of the
+reasons that we do not wish to provide him the additional lever
+of claiming that he is protecting his population.
+ Mr. Burr. So the State Department has determined that
+hunger does not mobilize his people to be upset with him? Is
+that what you are saying?
+ Mr. Wood. Yes, and he has made that statement.
+ Mr. Burr. If he gives them the food, they will be angrier
+at him?
+ Mr. Wood. He has concluded that with his control of the
+media and other things, it is easier for him to blame the
+outside world if his----
+ Mr. Burr. I am trying to determine what mobilizes his
+people, because I think your whole policy is based on an
+overthrow from within. And I guess I would ask you where have
+we used this policy before and it worked?
+ Mr. Wood. I think that there are numbers of cases where we
+have supported dissident groups, both inside and outside of
+countries, and it has produced an overthrow. I wouldn't like to
+go into specifics in this forum.
+ Mr. Barton. I think that it is working really well in Cuba.
+I think Fidel Castro came into being in 1959.
+ Mr. Hall. Haiti.
+ Mr. Barton. Haiti. We have a number of sterling examples of
+this policy.
+ Mr. Burr. Clearly, if we adopt the same definition for the
+term ``removal'' being death by old age, then we have quite a
+few years that we would live with this policy.
+ Let me just make one comment and then I will quit, Mr.
+Chairman. Thomas Pickering testified in front of the Senate
+Foreign Relations Committee on March 17, a little over a week
+ago, I guess. I don't think there was anything real difficult
+in preparation for you to testify. I think, in fact, there was
+intent at the State Department to make sure that we were as ill
+prepared for your testimony as we possibly could be.
+ I will push next time a State Department official is here
+to refuse that they testify. When we find out that we can get
+the same information from other sources, maybe we will take
+that opportunity to grow a larger surplus by our reductions at
+the State Department in personnel.
+ I am confident that this is not the last time somebody from
+the State Department will be in front of this committee and
+many other committees to try to defend this program, the
+policies that we have got, and ultimately put all the policies
+of this State Department under scrutiny.
+ Mr. Chairman, I thank you and the ranking member for your
+willingness to hold it; and I feel confident that next time, if
+we don't do it on the last day before a break, that we will
+have a full subcommittee of members here to pursue this policy
+further. And I yield back.
+ Mr. Barton. The Chair is going to recognize himself for 5
+minutes.
+ Mr. Williams, can you give me right now a verbal
+approximation, and then within a week or so in writing, the
+number of wells in Texas that have been shut in since the oil-
+for-food program began in late 1996?
+ Mr. Williams. I will do that, Mr. Chairman. But since
+February 1998 through about February 1999, we have shut in
+about 2,200 wells in Texas; and I will provide that additional
+information.
+ Mr. Barton. 2,200?
+ Mr. Williams. Right. And we have plugged about 9,500.
+ Mr. Barton. Plugged about 9,500. Mr. Smith, can you again
+give me an approximation now and within a week or so the
+numbers for that same question in Oklahoma.
+ Mr. Smith. Happy, to Mr. Chairman. Thank you. We have about
+70,000 wells in Oklahoma that produce oil and some gas. As
+Congressman Watkins mentioned, most of those are marginal. We
+are plugging wells right and left. I don't know the number. I
+can get it for you. Maybe Mr. Brown, who is a producer here
+with me, will know. I am going to guess--and then I will
+substantiate my number later--that we have plugged since this
+oil-for-food program started probably about 10 to 15,000 wells.
+ Mr. Barton. 10 to 15,000 wells in Oklahoma?
+ Mr. Smith. Yes, sir.
+ Mr. Barton. So many more in Oklahoma than in Texas?
+ Mr. Smith. I think so. Again, that is off the top of my
+head. I will verify that.
+ Mr. Barton. There are different terms for stopping
+production. But the term ``plug'' means it is literally
+cemented in and you cannot resume production from that well.
+ Mr. Smith. That is correct.
+ Mr. Barton. So it is gone.
+ Mr. Smith. That is correct.
+ Mr. Barton. Mr. Hakes, I asked those two gentlemen because
+they represent States. You represent the United States. Could
+you give us your best approximation for domestically--the
+number of wells that have been plugged and again, as soon as we
+can get the exact number, get it to us for the record since
+this oil-for-food program began.
+ [The following was received for the record:]
+
+ The EIA estimates that as many as 33,000 oil and gas wells
+were plugged in 1998 in the United States. This estimate is
+based on two pieces of information and certain assumptions. The
+Interstate Off and Gas Compact Commission (IOGCC), in a recent
+report entitled ``A Battle for Survival?: The Real Story Behind
+Low Oil Prices'' (Updated Report--April 1999), reported the
+results of a survey of States that showed that (excluding
+Texas) at least 48,000 oil and gas wells were abandoned or
+idled in 1998. It is unlikely that as many as 50 percent of
+these wells were plugged. Plugging costs can be high and
+operators generally try to avoid incurring them as long as
+possible. On the other hand, it is noted that both Pennsylvania
+and Colorado did report higher plugging percentages. Assuming,
+for the purpose of determining a rough upper estimate, that 50
+percent of the abandoned or idled wells were plugged, the total
+wells plugged outside of Texas would be 24,000. For Texas, a
+precise number (8,951) of plugged wells was made available by
+the Texas Railroad Commission. Combining the two estimates
+yields the 33,000 wells for the total United States. While it
+was not possible to determine the exact distribution of total
+plugged wells between off wells and gas wells, it is clear that
+the large majority of these were oil wells.
+
+ Mr. Hakes. If you are using the term ``plug'' in the
+literal sense, that would be data we would get from the States,
+but we would be glad to assist in the preparation of that
+number for you.
+ Mr. Barton. Well, give me an estimate. And I am not going
+to hold you to a great degree of accuracy. I am just trying to
+get a feel for how many wells we have lost forever since this
+program began. And we have got 10 to 15,000 in Oklahoma and
+around 2,000 in Texas. So can you give us--fill in the blank
+for the rest of the country?
+ Mr. Hakes. Well, I think those are the two largest States
+for those kinds of wells, so you could extrapolate from that
+data and say all the other States maybe it is twice that or
+something.
+ Mr. Barton. So kind of a back-of-the-envelope, you would
+say 20 to 30,000 wells?
+ Mr. Hakes. I am extrapolating from their data. I would have
+to go back and check.
+ Mr. Barton. You can get us--to the extent such data is
+available, you can compile that and get it within the next 2
+weeks?
+ Mr. Hakes. Yes, we will certainly do that.
+ Mr. Barton. Mr. Smith?
+ Mr. Smith. Mr. Chairman, just a correction. I misread Mr.
+Hakes' chart. I read it as January 1996 for the oil-for-food
+program start date rather than 1997. I think I was probably
+high, but I will get those for you.
+ Mr. Barton. Okay. We are going to make a good faith effort
+to either terminate this program or substantially change it.
+And in order to do that, we need to have factual data that we
+can show our friends at the State Department these losses have
+occurred. And while there are other factors, we are not going
+to deny that the Asian situation and the Caspian Sea and all of
+that, there is a fairly substantial good correlation between
+this program starting and the problems in the other area.
+ Mr. Wood, do you know how many barrels a day the Iraq
+Nation needs just for internal consumption? And Mr. Hakes may
+know that number.
+ Mr. Hakes. The number we use is about 550,000 barrels a
+day.
+ Mr. Barton. 550?
+ Mr. Hakes. So the exports are roughly 2 million.
+ Mr. Barton. I want to be sure. If they are producing 2.5
+million barrels or 2.6 million barrels a day, that is for
+export; and then on top of that they are using half a million.
+ Mr. Hakes. I believe that is the production number.
+ Mr. Barton. That is the total production number and not the
+export number?
+ Mr. Hakes. Yes, the exports are about 2 million, I believe.
+ Mr. Barton. Okay. So is it the Department of Energy's
+energy information estimate that they are basically at maximum
+production right now?
+ Mr. Hakes. Yes, because of their difficulty getting spare
+parts and capital investment. You know, I think if they had
+full access to parts and capital investment, they could quickly
+get back to prewar levels; and I think just in terms of the
+physical potential there, if you had full investment there,
+they could probably get up to, maybe, 5, 6 million barrels. But
+right now they have limited access to capital and parts.
+ Mr. Barton. But given the infrastructure in place, we can
+assume that they are at maximum production and they are using
+half a million barrels a day for internal consumption and then
+they are exporting as much as they can?
+ Mr. Hakes. Right. Just to be a little bit more precise, we
+are estimating that they may go up 50,000 to 100,000 barrels a
+day over the next year or so, so that there would be some
+addition. And I would say that there are a couple of respected
+firms who think they might be able to increase a little bit
+more than that. But somewhere in that range.
+ Mr. Barton. Now, Mr. Wood, as this program was put together
+at the State Department, and I guess the White House and in the
+United Nations, my understanding is that Iraq has financial
+assets that have been frozen in western banks since the
+invasion; is that correct or not correct?
+ Mr. Wood. That is correct, sir.
+ Mr. Barton. Do you know the amount of those assets in terms
+of dollars?
+ Mr. Wood. I don't think I do.
+ Mr. Barton. Can you get that for us?
+ Mr. Wood. We can look for it for the number, sir.
+ Mr. Barton. Can you do more than look for it? Can you find
+it?
+ Mr. Wood. We will get you a number, sir. My best
+understanding is that there are--that there are substantial
+claims by Americans and by others against those frozen assets
+just for your----
+ [The following was received for the record:]
+
+ Question. Into which bank are the revenues from sales of
+Iraqi oil under the Oil-for-Food program are deposited?
+ Answer. Revenues from sales of Iraqi oil under the Oil-for-
+Food program are deposited into an account at the New York
+branch of the Banque Nationale de Paris. Iraq does not have
+access to the bank account, nor can Iraq change banks.
+ Question. What is the value of Iraqi frozen assets in the
+United States? Please provide background on this matter as it
+relates to the Oil-for-Food program.
+ Answer. Blocked Iraqi assets in the United States total
+between $1.2 and 1.3 billion. The asserted value of prewar
+claims against Iraq by U.S. citizens, corporations, and the
+U.S. government totals approximately $5 billion.
+ In 1992, the U.N. Security Council adopted resolution 778
+which required states to transfer to the U.N. limited blocked
+assets representing the proceeds from the sale of Iraqi oil
+paid after sanctions were imposed on Iraq on August 6, 1990 to
+fund UNSCOM and the UN Compensation Commission. The USG
+transferred to the U.N. a total of $211 million. Few other
+countries made such transfers.
+ The U.S. opposes making further transfers of blocked Iraqi
+assets to the U.N. because of the potential damage to the
+interests of U.S. claimants against Iraq.
+
+ Mr. Barton. I understand. But here is my point. Instead of
+letting the Iraqis export oil, if we have assets that are in
+western banks, why couldn't we use those assets to buy the food
+and to send it to the Iraqis and put a liability against future
+oil production when we have a new government in Iraq so that
+you still have a contingent claim by the current claimants, but
+you don't decimate our domestic oil and gas industry in the
+short-term?
+ Use the money in the bank, buy them the food and the
+medical equipment, send it over there, put a voucher in there,
+put a marker in place. Then when we get a new government, then
+future oil revenues can go back into those funds, into those
+accounts that we borrowed against or drawn against. I mean does
+that seem to be a possible rational policy?
+ Mr. Wood. I believe that such an idea has been considered.
+I think that the lawyers tell us----
+ Mr. Barton. Well, God help me if I have suggested something
+that the lawyers might have a problem with.
+ Mr. Wood. I think that the lawyers have some concerns about
+substituting current claims against current assets for current
+claims against future assets. But I will certainly ask the
+questions, sir.
+ Mr. Barton. Lawyers have concerns about the sun rising in
+the east every morning. It may not come up tomorrow, so.
+ The gentleman from Texas is recognized for 5 minutes.
+ Mr. Hall. I am entitled to the same amount of time to talk
+about the engineers. Joe is an engineer, the engineer of the
+year in Texas the year before last, I think.
+ You know, as I have been listening--and I thank you for
+your testimony--and questions that have been asked, and I don't
+want to ask any of you to comment on what I am about to say,
+but it seems like we are aiding the enemy. I don't think there
+is any question that we are aiding the enemy. It seems, while I
+don't subscribe to anybody lying to a grand jury or anybody
+else, the Senate committee, it seemed like this dwarfs Oliver
+North's being charged with aiding the Contras when they were
+our friends. And here we are aiding a country that is
+absolutely our enemy, and we are feeding its children and we
+are doctoring them.
+ And while that maybe makes a lot of us feel good, we are
+putting off the time that those same people are going to rise
+up and put him out. That is the goal. That is why we are
+bombing Yugoslavia today, to encourage the people to rise up
+and fight their own war. Just to get the scenario in Baghdad,
+it is a sunny afternoon; and Saddam looks up and sees a truck
+driving up and tells all of his buddies there, Let's tie our
+camels over in front of the Long Branch. We have this truck
+coming in. I hate this stuff but we are going to unload it. You
+have told us, Mr. Wood, that he doesn't like the program. That
+is the kind of scenario that could take place. And then get
+back to this country and the oil hits here. All of us--all the
+testimony I have heard is that this program is hurting our
+domestic Nation's oil industry. But it hits over here, and they
+say, Well, we don't like it. We don't like this program. I know
+this committee doesn't like the program. But let us unload it
+and put it in the pipeline.
+ Two of you got bad deals there. I always thought somebody
+had the best of a contract. You know, marriage isn't anything
+but a contract; and I didn't marry until I thought I had the
+best of the contract. Here it looks like they both got the
+worst of the contract.
+ Why are we putting up with this? Why are we continuing with
+this? In February 1998 the U.N. secretary general criticized
+this oil-for-food program basically for delays and
+inefficiency. And it seems if this is hurting our Nation's oil
+industry, at the same time being criticized by the General
+Secretary of the U.N.; and Saddam says he doesn't want it, what
+would it take to kill a program like this? Not to fund it? Let
+me ask a more pointed question: How much money is in our budget
+to support this program?
+ Mr. Wood. Mr. Hall, this program does not directly cost the
+United States a nickel because it is using Iraq's money
+exclusively.
+ Mr. Hall. The money that is in their banks over here?
+ Mr. Barton. Are we are paying the unemployment claims for
+all the displaced workers out of this program?
+ Mr. Hall. I will take all the help I can get. Thank you,
+Joe.
+ Mr. Wood. I understand the point, but the fact is this uses
+the proceeds from Iraqi oil sales to fund humanitarian supplies
+for Iraq to ensure that those revenues are not used for weapons
+of mass destruction or other nefarious means; to fund, in fact,
+inspections against weapons of mass destruction, which I admit
+are temporarily suspended and we are working hard to get them
+back into place. And roughly a third of it goes to the U.N.
+compensation commission to pay the just claims of poor
+Kuwaitis, poor Saudis, poor Americans, for losses that they
+suffered during the Gulf War.
+ Saddam Hussein doesn't like this because he is only getting
+a share of the total value of his oil revenues, because he is
+not controlling the share that he gets; and the share that he
+is not controlling is going to fund inspections of his weapons-
+of-mass-destruction program; and it is going to feed his
+population so that he cannot blame their unhappiness on the
+outside world.
+ This in our view is--this program is absolutely fundamental
+to maintaining the solidarity of the international community
+behind a continued tough line on Iraq. And as you know, we have
+been facing some problems in that regard. We think that oil for
+food is absolutely fundamental to maintaining that tough line.
+ When he was interviewed by David Frost, George Bush said
+that his most important accomplishment was not winning the Gulf
+War; it was forming the coalition that won the Gulf War. We are
+trying to maintain that kind of coalition. We are trying to
+maintain that kind of international consensus, in spite of the
+fact that a potentially very rich, potentially very powerful
+country is doing everything it can to get out of the box. And
+we are trying to keep them in the box.
+ Mr. Hall. Well, I must admit we don't have all the
+information that you have at your disposal, and that is the
+purpose of these hearings. And I want to reread the record
+myself.
+ At best, it seems to me that we are helping to keep Saddam
+in charge over there by feeding his children and doctoring his
+people. And if you have another part of your body that hasn't
+been beat on, if you will turn toward me, I will ask you some
+more questions. But without that, I have had all the time I
+need, Mr. Chairman.
+ Mr. Barton. I just have a few wrap-up questions for this
+panel.
+ And I don't know if this would be Mr. Wood or Mr. Hakes,
+but we understand that there are currently $380 million in
+spare-parts contracts that have been signed with the Iraqi
+government for additional infrastructure improvement, but only
+$11 million worth of that equipment has arrived in the country.
+If and when that equipment arrives, how much additional export
+or production capacity does that give the Iraqi oil industry?
+ Mr. Wood. I could begin to answer that question. I am not
+sure what the incremental effect on Iraqi exports will be. But
+the delay--I mean, we are now in the second 6 months in which
+up to $300 million in each phase has been made available for
+the Iraqi infrastructure improvements. The delay is the result
+of close scrutiny by the sanctions committee of the proposed
+contracts, making sure that they go to the right things and
+they don't go to the wrong things.
+ For instance, we continue to keep on hold contracts that
+the Iraqis want to use to improve the Basrah refinery, which is
+the one that we bombed which was heavily implicated in illegal
+smuggling. And I am not sure what, frankly, this rash of
+improvements in the Iraqi infrastructure, what the marginal
+impact----
+ Mr. Barton. Do you know, Mr. Hakes?
+ Mr. Hakes. Well, I think our analysts in arriving at their
+projection have assumed a sort of moderate speed in the arrival
+of these parts. And, I believe, in my written testimony we say
+that there is some uncertainty that the parts will arrive very
+quickly and fully. We might raise our estimates a little bit if
+they increase more--are delivered more slowly we might lower a
+little bit. But we have sort of assumed that they would arrive
+at a moderate pace.
+ Mr. Barton. Okay. Well, you are going to get a letter next
+week--the Secretary of State is going to get a letter. We are
+going to ask that no contracts be signed. You are also going to
+be asked to give all information that is not classified as to
+the contents of those contracts. And I am going to sign that
+letter as subcommittee chairman, and I am going to ask Mr. Hall
+and every other member of the subcommittee to sign it. Whether
+I can get them all to sign it, I don't know. I see absolutely
+no sense in continuing to give the Iraqis the ability to
+increase their production, even if it is marginal, while our
+industry is being decimated in the United States.
+ The other thing we are going to ask you, Mr. Wood, is we
+want a complete itemization of all revenues that have been
+collected under this program. We want a complete record of all
+disbursements that have been made under this program. We want
+an estimate of the expected revenues for the fiscal year that
+we are currently in and the fiscal year that will begin in
+October and an expected disbursement from those same funds. And
+we are going to want that in the next 2 weeks. And we have got
+to get you the official request in writing for what I just
+itemized. I understand you can't act on anything until we make
+it official. But we are going to take a very, very serious look
+at this program. And I am going to do everything I can--and I
+mean everything--to either stop it or at least change it so
+that we provide for the legitimate humanitarian needs of the
+Iraqi people, but we do it in a way that is different than is
+currently being done. And there are some things that can be
+done differently through our food-for-peace program, using the
+existing Iraqi assets that are in western banks. There are all
+kinds of ways to help the humanitarian needs of the Iraqi
+people that don't involve, basically, letting Iraq produce as
+much oil as it can and export as much as it can. I mean, that,
+to me is a flawed policy; and it is a failed policy, and it is
+not in the national security interest of the United States of
+America.
+ Does this panel wish any final comments before we go to the
+third panel? Anybody? Well, gentlemen, we want to thank you for
+your attendance. There will be additional questions for the
+record in addition to the ones that I have itemized; but we do
+appreciate it, and this is an important hearing of this
+subcommittee; and your input has been very valuable, so you are
+excused.
+ Mr. Hall. And you might tell them that their long tenure at
+the table will shorten the tenure of the next panel. You have
+done some good for somebody.
+ Mr. Barton. We would like to call forward our third and
+final panel, but not the least important. Mr. Adam Sieminski, a
+principal and senior oil analyst from Baltimore, Maryland; we
+have Mr. Tom Taylor, who is the regional Vice President for the
+Texas Independent Producers and Royalty Owners Association; we
+have Mr. F.W. Pete Brown, co-owner of the Cimarron Production
+Company in Oklahoma; and Mr. David Bole, who is in corporate
+research and development, Randall and Dewey, Incorporated, in
+Houston, Texas; and I believe we have Mr. Scott Anderson, who
+is the executive director of TIPRO who wishes to appear at the
+table with the TIPRO witness.
+ Mr. Anderson. I will just sit right behind him.
+ Mr. Barton. Gentlemen, your statements are in the record.
+We want to thank you for getting your testimony in on time. It
+is good to know the private sector pays more attention than
+some of our public officials. We are going to start with Mr.
+Sieminski. How close am I?
+ Mr. Sieminski. That was very good, Mr. Barton. Thank you
+very much.
+ Mr. Barton. We will give each of you 5 minutes and then we
+will have questions. Starting with you, sir.
+
+ STATEMENTS OF ADAM E. SIEMINSKI, PRINCIPAL AND SENIOR OIL
+ ANALYST, BT ALEX BROWN; TOM TAYLOR, REGIONAL VICE PRESIDENT,
+ TEXAS INDEPENDENT PRODUCERS AND ROYALTY OWNERS ASSOCIATION;
+ F.W. ``PETE'' BROWN, CO-OWNER, CIMARRON PRODUCTION COMPANY;
+DAVID L. BOLE, CORPORATE RESEARCH AND DEVELOPMENT, RANDALL AND
+ DEWEY, INC.
+
+ Mr. Sieminski. Thank you, Mr. Barton. I appreciate the
+opportunity to come in and provide a statement on some of the
+factual aspects associated with the Iraqi exports.
+ Let me first try to answer a question that you just asked,
+sir. What does $300 million worth of spare parts and equipment
+do for production? Let me just take a quick crack at that.
+ U.N. personnel experts who were sent to Iraq said that
+production would fall somewhere between 4 to 8 percent a year
+if they did not get $300 million in spare parts. So if we just
+said 5 percent or 6 percent, that would be somewhere between
+125,000 barrels a day, up to 150,000 barrels a day that,
+presumably, would be able to stay on line with those funds
+coming in.
+ And so that would--if we are now up to $600 million, I
+think we could be talking about this possibility of 250,000
+barrels a day of oil that would be available to the Iraqis to
+export.
+ Let me, in light of, I think, that 7-minute rule, let me
+make seven quick points. Again, putting the Iraqi oil exports
+into perspective, they were the greatest source of OPEC's
+difficulty in meeting their own compliance rule. Second point,
+exports have gone up quite a bit. We went from about 1.5
+million barrels a day in 1998, and that number should hit 2.1
+to 2.2 in 1999. That is a little bit less than the growth that
+occurred between 1997 and 1998.
+ The third point I had in my written statement said that
+Iraq's exports were the second largest influence in 1998 in
+driving oil prices lower. Listening to Mr. Hakes, I might want
+to revise that. He said that, I believe, that the incremental
+loss of demand in Asia was about a million barrels a day. And
+Iraq's exports went up just a little under 900,000. Mr. Hakes
+said that in his chart, he had the incremental amount in Asia
+was about 850,000. If we took his number, then Iraq was No. 1
+in terms of its impact on the market in 1998.
+ Fourth point. Production capacity in Iraq looks like it is
+stuck. Looks like it is stuck at 2.7 million barrels a day.
+That means that imports would presumably be capped at somewhere
+near 2.1. But the Iraqis have managed to somehow keep
+production growing faster than the U.N. technical experts
+thought they could. And it was only about a year ago that the
+U.N. said that exports would be limited to about 1.6 or 1.7
+million barrels a day, and they have gotten well over that
+level. So I don't know how that is being accomplished, and that
+might be a question that you might want to ask somebody.
+ Fifth point----
+ Mr. Barton. Our staff actually had that in the prepared
+questions. So it will be asked for the record.
+ Mr. Sieminski. The fifth point is that while taking the
+ceiling off of the $5.265 billion ceiling actually could become
+more than just a technical kind of thing very soon. Oil prices
+have already gone up quite a bit since the beginning of the
+year. Iraq sold oil last week for $12 a barrel. All they need
+is another $2 on top of that $12 number that they got last
+year, and they will hit their cap. And they will not do this
+during this fifth phase, but if you projected that $2 increment
+into the next phase which starts May 25, they would actually
+collect, if they exported 2.1 million barrels a day, $5.3
+billion. And if they can export more than 2.1, that cap could
+actually come into effect at a price $2 above current WTI.
+ Sixth point is kind of, I think, an interesting one and
+this is--you are going to have to ask somebody else because I
+don't know the answer to this question, but I would love to
+know the answer to it. The last two times that Iraq has gone to
+war--in late 1979 just before their invasion of Iran and then
+in 1990, in the first half of 1990, just before the invasion of
+Kuwait--there was a sharp rise in production in Iraq. And we
+have seen just recently another sharp rise in production.
+ And I heard the comment made earlier that oil or funds are
+fungible. Even if the sources--with more revenue coming into
+Iraq from these exports, that would give Saddam the ability to
+use his own internal funds for possible mischief, and I am kind
+of wondering what this big increase that we have seen in
+production exports just in the past month or so really means.
+ Final point is one that I really wish that Deputy Secretary
+Wood would have made and that is that if Iraq is allowed to
+rebuild its facilities--and this would be a lot easier done if
+the overall sanctions were moved or if the oil-for-food program
+was changed in some way, as there have been recommendations on
+the Security Council to allow companies to go in and invest to
+help Iraq rebuild its--and repair its equipment and facilities,
+I would think that Iraq would be quite capable of getting up to
+3.5 million barrels a day of production pretty quickly, and all
+of that increment would be available for export.
+ So I would conclude, Mr. Chairman, with sort of a kind of a
+recommendation, which is that one of the key focuses of this
+committee and the questions that I think you should pursue with
+the State Department is how do we keep direct foreign
+investment by other countries into the Iraqi oil industry
+limited during the period that sanctions are on and Iraq is
+still misbehaving. And I thank you for your time.
+ [The prepared statement of Adam E. Sieminski follows:]
+ Prepared Statement of Adam E. Sieminski, Principal and Senior Oil
+ Analyst, BT Alex. Brown Incorporated
+ iraq's oil exports and world oil markets
+Iraqi exports were a major reason for the drop in oil prices in 1998
+ The rise in Iraqi production from an average of 1.15 mmb/d in 1997
+and 2.11 mmb/d in 1998, to about 2.5 mmb/d currently has been the
+greatest source of OPEC's difficulty in meeting quota compliance under
+agreements reached in March and June of 1998. Iraq's oil exports, which
+rose along with production, were a major contributor to the oil price
+weakness of 1998 and early 1999. Two key factors played a role in this
+situation. First, the UN's Oil for Food Program sets a monetary (not
+oil volume) target for humanitarian relief. If oil prices decline for
+any reason, the amount of oil Iraq is allowed to sell under the program
+can rise. Low oil prices allowed Iraq to sell more barrels under the
+`old' $2 billion per six months plan. Second, in early 1998 the UN
+raised the oil-for-food revenue ceiling to $5.265 billion every 180
+days.
+Iraqi oil exports increased from 0.59 mmb/d in 1997 to 1.47 mmb/d in
+ 1998
+ During the recent period of low oil prices, the level of exports
+from Iraq was limited only by Iraq's wellhead production and pipeline/
+terminal capacities. A UN rule requiring at least 50% of exports to
+transit via the 1.0 mmb/d capacity Ceyhan (Turkey) route is being
+ignored, since all export amounts over that level are now exiting
+mainly via the Gulf port of Mina al-Bakr. Exports are currently
+averaging about 2.1 mmb/d and have exceeded 2.5 mmb/d for short periods
+of time since January 1999.
+How the rise in Iraqi exports influenced the oil markets in 1998
+ There is little doubt that the rise in exports from Iraq, a 0.87
+mmb/d increment between 1998 and 1999, had a significant impact on the
+oil markets. Of course there were other factors, but in our opinion,
+Iraq's exports were the second largest influence pushing oil prices
+lower in 1998.
+
+ The crisis in Asia reduced oil demand by 1.0 mmb/d against
+ expectations
+ Warm weather dropped demand by 0.5 mmb/d compared to `normal'
+ Russian exports rose contra-seasonally by 0.2 mmb/d in 4Q 1998
+ China curtailed oil imports (by about 0.3 mmb/d) in 2H 1998
+ OPEC's efforts to trim production in 1998 were neither timely
+ nor sufficient
+ OECD inventories rose some 200-300 mb above industry norms
+Production history
+ Iraq's oil production climbed from about 1.5 mmb/d in 1972 to an
+annual peak of 3.5 mmb/d in 1979. In the last quarter of 1979, Iraq
+managed to produce 3.7 mmb/d. The Iran-Iraq war, which started in
+September 1980, lead to a significant decline in export capacity and
+wellhead production. From a low of 1.0 mmb/d production in 1981-83,
+Iraq's output climbed back to 3.5 mmb/d just before the invasion of
+Kuwait in August 1990. In 1991-92 Iraq produced about 0.4 mmb/d (which
+is probably a good estimate of actual internal consumption). More
+recently, Iraq's internal use has appeared to be about 0.65 mmb/d, but
+this includes UN-approved exports of 0.1 mmb/d of products to Jordan,
+and probably reflects some level of smuggling.
+The main physical constraint on exports is now wellhead capacity
+ Production capacity in Iraq appears to be limited to about 2.7 mmb/
+d. The UN has been slow to approve imports of the equipment, expertise
+and capital required to boost Iraq much beyond this level.
+Nevertheless, Iraqi engineers have surprised the UN inspectors with
+their ability to keep output climbing. In March 1998 UN technical
+experts estimated that Iraq's wellhead production capability was
+unlikely to exceed 2.2 mmb/d (mid-1998) or 2.4 mmb/d (start 1999). In
+fact, Iraq has managed to exceed these estimates by about 0.2 mmb/d.
+Status of oil spare parts and equipment authorizations and repairs
+ In view of Iraq's inability to take full advantage of the $5.3
+billion oil-for-food allowance, in June 1998 the UN authorized Iraq to
+purchase up to $300 million in spare parts and equipment to repair its
+oil facilities. Later in 1998, an additional $300 million in purchase
+authority was granted. To date, UN's Office for the Iraq Programme has
+approved 395 contracts worth $237 million. Another $28 million in
+contracts is on hold. UN Security Council members (including the US)
+have argued that some of the requested equipment is either
+inappropriate or has military use potential. Several members of the
+Security Council are arguing for more active involvement of outside
+companies in the needed repairs and expansion of Iraq's oil
+infrastructure.
+Near term production difficulties
+ The Iraqi oil Ministry, UN technical experts and outside
+consultants all seem to agree that Iraq is experiencing production
+difficulties. According to a UN report, production in the north has
+been lost because of water encroachment problems. In the south,
+production water problems are coupled with pressure maintenance
+difficulties resulting from lack of water injection facilities. Some
+experts believe that without a significant increase in investment,
+Iraq's basic production capacity could fall by 4-8% per year. Many
+believe that the recent rise in production is related to very
+aggressive petroleum engineering practices--pushing output beyond
+normal levels in order to maximize near-term production and exports.
+There have been some reports that domestic use has been officially
+constrained as part of this policy.
+With higher oil prices, a new volumetric constraint could come into
+ force
+ During January and February, Iraq's oil sold for about $9 per
+barrel, a $2 discount to Brent, and a $3+ discount to WTI. With Brent
+prices now at $14 and WTI at $15, Iraq's exports are likely selling at
+close to $12 per barrel. This raises an interesting policy question if
+oil prices continue to rise. At a $14/bbl Iraqi sales price, Iraq would
+hit the UN's $5.3b ceiling at an export level of 2.1 mmb/d.
+ This potential limit to oil exports is more of an issue for the
+UN's Phase 6 program, which starts May 25, and not for the current
+Phase 5, because low prices in December-February make it highly
+unlikely that the $5.3b cumulative revenue ceiling would be achieved
+during the current Phase. The Clinton administration has proposed
+removing the ceiling on oil exports, but still opposes allowing direct
+foreign investment in the Iraqi oil industry--which may be necessary to
+significantly boost Iraq's production. Studies are underway now at the
+UN (with reports due in mid-April) which are intended to review the
+status of the oil-for-food program.
+Could there be an Iraqi-instigated interruption?
+ Although the US and Iraq are still at odds over weapons
+inspections, and Iraq has experienced some erosion of its support in
+the UN Security Council, there have been several new proposals advanced
+to alter the sanctions policy. Despite the US proposal to remove the
+ceiling, the Iraqi regime does not appear to favor expansion or
+indefinite continuation of the oil-for-food program. This suggests that
+some interruption in the program could occur when the current Phase 5
+expires May 24. Such an interruption does have precedent--in July 1997
+and December 1997 the Iraqi regime temporarily halted exports. However,
+in those two situations, Iraq's exports were constrained by the earlier
+monetary limit (and thus Iraq was able to `make up' its lost production
+by physically increasing the level of exports. At this time that option
+does not appear to be available to Iraq.
+What about longer-term production and export capability?
+ With investment in both production and pipeline/terminal
+facilities, Iraq could probably continue to increase its output and
+exports. Repairs to the Kirkuk-Ceyhan pipeline could boost its capacity
+from the current 1.0-1.1 mmb/d level to its 1.5 mmb/d pre-Gulf war
+level. Iraq has had discussions with Syria about re-opening the 0.65
+mmb/d capacity Banias line that was closed in 1982 during the Iran-Iraq
+war. The IPSA pipeline through Saudi Arabia to the Red Sea could be
+opened if currently unfriendly relations between the two governments
+were to improve.
+Upstream production could rise significantly with access to outside
+ capital and expertise
+ Iraqi official have claimed that 3.0-3.5 mmb/d of production
+capacity could be reached fairly quickly once sanctions are removed.
+Iraq's NIOC believes that this can be accomplished by a development
+effort that includes: re-working and upgrading existing upstream
+facilities; attracting foreign investment for new fields; and
+establishing an E&P effort in Iraq's Western desert region. In 1997,
+former Iraqi oil minister al-Chalabi estimated that Iraq would require
+a least $5 billion of foreign capital during the first two or three
+years after sanctions to lift production capacity to 3.5 mmb/d. There
+does not seem to be any shortage of potential investors as seen in the
+material prepared by the Energy Intelligence Group (attached as an
+exhibit), although the incremental 2.8 mmb/d of production is estimated
+by EIG to cost about $18 billion.
+What is the most likely near-term impact on the oil markets?
+ Downside risk to oil prices: The UN allows more upstream
+investment, perhaps due to a change of regime in Iraq, or a further
+softening in the US stance. Upside potential: Iraq carries out its
+recurring threat to cease cooperation with oil-for-food when it expires
+in May, or some form of conflict (with the US or internal) physically
+interferes with exports. Most likely outcome: an extension of the
+status quo with no monetary ceiling. This implies no interruption in
+exports, a likely gradual rise in the overall level of production and
+exports, but no large-scale near-term expansion of production.
+
+[GRAPHIC] [TIFF OMITTED] T5644.008
+
+[GRAPHIC] [TIFF OMITTED] T5644.009
+
+[GRAPHIC] [TIFF OMITTED] T5644.010
+
+[GRAPHIC] [TIFF OMITTED] T5644.011
+
+ Mr. Barton. Mr. Taylor, we will put your statement in the
+record and delighted to hear from you. My understanding is that
+you actually are an independent producer. Is that correct?
+ Mr. Taylor. I am trying to be.
+ Mr. Barton. Trying to be. That is the right answer. Welcome
+to the committee.
+
+ STATEMENT OF TOM TAYLOR
+
+ Mr. Taylor. I want to thank you for allowing me to be here
+to testify, Mr. Chairman.
+ Yes, I am trying to be an oil producer in West Texas. I
+also am the regional vice president for the Texas Independent
+Producers and Royalty Owners Association, TIPRO, which I am
+representing here today, consists of approximately 1,600
+members with petroleum interests in the State of Texas making
+us the largest statewide group in our industry.
+ We are not here to advocate making life even more
+unbearable for the Iraqi people. It would be unreasonable, as
+well as unrealistic, for Americans whose jobs depend on the
+American oil industry to expect our economic problems to be
+solved through a ``beggar thy neighbor'' policy. We are having
+a humanitarian crisis out in West Texas right now. We are
+plugging wells. These wells are not shut in; they are plugging
+wells. Because we don't have--we have 2 years in order to not
+plug wells. But in all due respect there might have been an
+attorney or two here in the room. Landowners who don't get
+royalty checks to provide for their food are concerned. They
+call their attorneys. They ask them why. The attorneys say
+those wells are not producing. We have 90 days in most
+situations to produce those wells. In the event we don't
+produce those wells, our leases are expired. Then we have 2
+years to plug those wells.
+ By virtue of that, those wells become worthless; and the
+school systems, as Commissioner Williams pointed out, are
+losing a tremendous amount of money. Up to 40 percent of our
+revenues to run our school systems in West Texas are being lost
+because of this.
+ Our knowledge is limited about the Iraqi situation, but we
+know that anyone who thinks the world oil market is a free
+market is kidding themselves. War, threat of war, political
+instability, sanctions, government fiats--these are not exactly
+what one thinks of when one thinks of a willing buyer and
+willing seller with each other in a properly functioning
+marketplace. We know that Mr. Wood and the U.S. policymakers
+like to tell themselves that our Iraq policy is neutral in
+terms of effect on oil prices, but they are kidding themselves
+once again. The sanctions policy, in particular the oil-for-
+food program, represents significant government intervention
+into the world oil market and, as presently structured, has a
+depressing effect on prices.
+ Finally, we know that low oil prices are bad for any
+program that depends on revenues for oil, whether the program
+is a small drilling venture in West Texas, a major development
+such as that down in the Caspian Sea, or the oil-for-food
+program in Iraq. If policymakers want to increase the amount of
+oil revenues available to each of the suffering people in Iraq,
+the policy focus should be shifted from increasing production
+to increasing price in order to reach whatever revenue target
+they may be seeking.
+ I will elaborate briefly. As has been discussed here,
+certainly world events other than the Iraq situation have an
+impact on this. As we discussed, the Asian energy demand,
+increasing oil production from OPEC, and recent warm winters
+have all contributed to the current crisis. But increased Iraq
+production must also be recognized as a material influence on
+the price. As you have stated, in our records 1.3 million
+barrels of exports is a direct reflection of this. You have
+Saudi Arabia that is decreasing by 2 million barrels; and,
+therefore, they are basically subsidizing the production from
+Iraq. And as we discussed, there has been a 20 percent rise
+just off of this speculation.
+ Now, before a reporter would take that and inflate that,
+oil prices are back up. They have increased 20 percent from an
+all-time low, which still causes an uneconomic situation as a
+producer. The surplus capacity dictates that producers reduce
+supply, yet our government is encouraging the United Nations to
+allow Iraq, a distressed seller if there ever was one, to
+increase supply.
+ Basically, we are going to be the next 2 million barrels is
+what we are afraid of as independent producers. We have lost
+almost 250,000 barrels in Texas alone. I think we have lost, as
+we stated earlier, 600,000 barrels in the United States as
+independent producers, and we don't have the luxury of turning
+those wells back on like they do over there.
+ The effect of low oil prices in the U.S. has been
+staggering, as we discussed. The charts prepared by the
+Independent Petroleum Association is included as an appendices
+to my testimony, and this will illustrate all too well. It
+shows the workover rigs, not the drilling rigs, but the
+workover rigs, which is a key indicator of the industry's
+efforts to maintain production, has declined almost 50 percent.
+So we are not even able to be able to work over these wells,
+because their economics, it doesn't justify the expenditure.
+ Appendix 2 shows that oil and gas extraction employment has
+fallen by over 50,000 jobs. In Texas I might also add
+unemployment claims in my industry quadrupled in 1998 and in
+1999 it is even worse. Low oil prices are troublesome for the
+Oil-For-Food Program, and Appendix 3 outlines the difference in
+price and pro-
+
+duction scenarios facing this program. At current prices, Iraq
+will raise over $3 billion during phase 5. So far, it is far
+short of the $5 billion target. The table also shows that at
+current price average, Iraq will need to export 3 million
+barrels at the current price to raise $5 billion. The
+Department of Energy Secretary Bill Richardson testified last
+week that Iraq appears unable to increase production to this
+level. So it appears Iraq will not raise $5 billion--the $5.2
+billion target price for the foreseeable future. Put simply,
+the Oil-For-Food Program simply does not work in a world of $10
+oil.
+ I will conclude with two suggestions for policymakers, and
+it should be noted that it is important that these suggestions
+be pursued in concert. First, we suggest that the U.S. press
+the United Nations to restructure the Oil-For-Food Program so
+that it no longer gives Iraq an incentive to depress world oil
+prices. We submit that production increases measured in
+hundreds of thousands of barrels per day would cause prices to
+fall further, and the Oil-For-Food Program would still come up
+short. Put simply, humanitarian needs in Iraq will not be met
+in a world of $10 oil.
+ We believe that the way to restructure the Oil-For-Food
+Program so that it no longer serves to depress oil prices is
+for the United Nations to establish an oil quota for Iraq. The
+quota would be equal to the number of barrels per day that can
+be reasonably expected to yield the revenues that are believed
+necessary. The production quota could be adjusted every 80 days
+as revenue targets and oil price forecasts change. A potential
+quota table is attached as Appendix 4. As you can see, a slight
+increase in the dollar amount makes a significant difference.
+ This proposal may have some flaws and I present it only as
+a potential option. However, by maintaining Iraq's production
+at a level that bears some relation to market demand, we can
+eliminate the downward pressure Iraq's increased production has
+on price.
+ In summary, if the United Nations wants to increase the
+amount of oil revenue available to ease the suffering of the
+Iraq population, the policy focus should be shifted from
+increasing production to increasing price. What we are saying
+is give price a chance.
+ Our second suggestion is to couple the restructuring of the
+Oil-For-Food Program with meaningful efforts to stabilize the
+price of oil at levels that reflect its hidden environmental
+and military cost. The United States can help achieve this
+through variable import fees such as fees on tankers that move
+oil in environmentally sensitive coastal waters, fees
+designated to recoup some of our Nation's enormous military
+cost devoted to protecting Middle East oil supplies and/or fees
+that offset the advantage that imported oil currently enjoys
+over domestic production due to minimal environmental
+regulations of foreign production practices.
+ I close in saying that I would be honored to assist Mr.
+Woods in explaining to the State Department the effect this has
+on the small independent producer. I would like to take this
+opportunity to thank you again, and we would be more than happy
+to answer any questions.
+ [The prepared statement of Tom Taylor follows:]
+ Prepared Statement of Tom Taylor, Regional Vice President, Texas
+ Independent Producer and Royalty Owners Association
+ Mr. Chairman and Members, my name is Tom Taylor from Abilene,
+Texas. I am an oil producer and serve as a Regional Vice President for
+the Texas Independent Producers and Royalty Owners Association (TIPRO).
+TIPRO, which I am representing here today, consists of 1600 members
+with petroleum interests in the State of Texas, making us the largest
+statewide group in our industry.
+ We come to you today with a sense of humility. My association has
+no magic solution to the difficulties in Iraq, and I am not a foreign
+policy expert. It is tempting to say that the experts don't have the
+answers either, but we are not here to make a wholesale indictment of
+Iraq policy.
+ Neither are we here to advocate making life even more unbearable
+for the Iraqi people. It would be unreasonable, as well as unrealistic,
+for Americans whose jobs depend on the domestic oil and gas industry to
+expect our economic problems to be solved through a ``beggar thy
+neighbor'' policy. In other words, and we want to be quite clear about
+this, Texas oil producers are not here to ask for elimination of the
+oil-for-food program or even to suggest that Iraqi oil production
+levels should return to those that prevailed a year or two ago.
+ While our knowledge about Iraq is limited, we do know a few things:
+
+ We know that anyone who thinks the world oil market is a free
+ market is kidding themselves. War and threat of war, political
+ instability and intrigue, sanctions and governmental fiats--
+ these are not exactly what one thinks of when one thinks of
+ willing buyers and willing sellers dealing with each other in a
+ properly functioning marketplace.
+ We know that U.S. policymakers like to tell themselves that
+ our Iraq policy is neutral in terms of effects on oil prices,
+ but they are kidding themselves once again. The sanctions
+ policy, in particular the oil-for-food program, represents
+ significant government intervention in the world oil market
+ and, as presently structured, has a depressing effect on
+ prices.
+ Finally, we know that low oil prices are bad for any program
+ that depends on oil revenues, whether the program is a small
+ drilling venture in West Texas, a major development such as
+ that found in the Caspian Sea, or the oil-for-food program in
+ Iraq. If policymakers want to increase the amount of oil
+ revenue available to ease the suffering of the Iraqi people,
+ the policy focus should be shifted from increasing production
+ to increasing price in order to reach whatever the revenue
+ target may be.
+ I want to elaborate on the two latter points, that is, how the
+present design of the oil-for-food program depresses prices and how
+higher oil prices would further both the Iraq program and domestic
+energy production.
+(1) The oil-for-food program, as presently structured, depresses world
+ oil prices.
+ Certainly, world events other than what is taking place in Iraq
+have had an impact on oil prices. Reduced Asian energy demand,
+increased OPEC production and recent warm winters have all contributed
+to the current price crisis. But, increased Iraqi production must also
+be recognized as a material influence on prices. Iraq has added at
+least 1.3 million barrels per day to the market since 1997--1.3 million
+barrels of new supply compared to a global surplus of approximately one
+to two million barrels per day.
+ What kind of impact has this had? A big impact. To put the impact
+of 1.3 million barrels in perspective, note that oil prices in recent
+weeks have risen over 20 percent merely upon OPEC's declaration that it
+will reduce production by a total of about 2 million barrels. Surplus
+capacity dictates that producers reduce supply. Yet our government is
+encouraging the United Nations to allow Iraq, a distressed seller if
+ever there was one, to increase supply.
+ The sanctions policy, if it is enforced as intended, gives Saddam
+only one way to raise meaningful revenue--taking whatever is available
+to him under the oil-for-food program. Since the program is structured
+only in terms of revenue limits, with no limits on the amount of Iraqi
+production, Saddam's incentive is to produce whatever it takes to
+generate permitted revenue. And if the limits on the revenues were
+simply removed, his incentive would be to produce even more, without
+regard to the glut in the marketplace that motivates producers who are
+under less duress to curtail production.
+(2) Low oil prices are bad for both U.S. producers and the oil-for-food
+ program.
+ The effect of low oil prices in the U.S. has been staggering. Two
+charts prepared by the Independent Petroleum Association of America
+(IPAA), included as appendices to my testimony, illustrate this all too
+well. Appendix One shows that the workover rig count, a key indicator
+of the industry's efforts to maintain production, has declined
+dramatically; from 1,459 in December 1997 to 766 in January 1999.
+Appendix Two shows that oil and gas extraction employment has also
+fallen from 339,000 employees in December 1997 to 288,000 in February
+1999. In Texas, I might add, unemployment claims from my industry
+quadrupled in 1998 and 1999 is even worse.
+ Low oil prices are also troublesome for the oil-for-food program.
+Appendix Three outlines different price and production scenarios facing
+the program. According to the United Nations, since the beginning of
+Phase V (which runs from November 26, 1998 to May 24, 1999) Iraq has so
+far exported an average of 1.9 million barrels per day at $9.31 a
+barrel. At this price, Iraq will raise $3.18 billion during Phase V--
+far short of the $5.26 billion target. The table also shows that at the
+current average price, Iraq will need to export 3.1 million barrels of
+oil per day to raise $5.2 billion. Department of Energy Secretary Bill
+Richardson testified last week that Iraq appears unable to increase
+production to this level, so it appears Iraq will not raise the $5.26
+billion target for the foreseeable future. The oil-for-food program
+simply does not work in a world of $10 oil.
+ recomnendations and conclusion
+ I will conclude with two suggestions for policymakers, and it
+should be noted that it is important that these suggestions be pursued
+in concert.
+(1) Restructure the Oil-for-Food Program so it does not depress world
+ oil prices.
+ First, we suggest that the U.S. press the United Nations to
+restructure the oil-for-food program so that it no longer gives Iraq an
+incentive to depress world oil prices. TIPRO is concerned that to
+simply lift the ceiling on oil sales, as the Administration has
+recently proposed to the United Nations Security Council, would depress
+oil prices further. In a world of $10 oil, Iraq would need to produce
+almost 3 million barrels per day--which is almost half a million
+barrels per day more than it produces currently--to generate $5.26
+billion every 180 days, as the current ceiling allows. Given that a
+world oil surplus of perhaps 2 million barrels a day (half of which can
+be attributed to increased production by Iraq) yields oil prices that
+are only slightly above historic lows, what will happen if Iraq
+increases production by a half million barrels per day in the next
+year?
+ We submit that production increases measured in hundreds of
+thousands of barrels per day would cause prices to fall further, and
+the oil-for-food program would still come up short. Put simply,
+humanitarian needs in Iraq will not be met in a world of $10 oil.
+ We believe that the way to restructure the oil-for-food program so
+that it no longer serves to depress oil prices is for the United
+Nations to establish an oil quota for Iraq. The quota would be equal to
+the number of barrels per day that can be reasonably expected to yield
+the revenues that are believed necessary.
+ The production quota could be adjusted every 180 days as revenue
+targets and oil price forecasts change. A potential quota table is
+attached as Appendix Four. For example, if the forecast is that Iraq
+will receive an average of $12 per barrel during the next United
+Nations reporting period, and $5.25 billion is the target revenue for
+the period, the quota would only need to be 2.43 million barrels per
+day. If the United Nations determines that more revenue is needed, $6
+billion for example, the quota for the period would be 2.78 million
+barrels per day. If the price of Iraqi crude should rise to $16 per
+barrel, a 2.43 million barrels per day quota would provide $7 billion
+of revenue in 180 days, should the United Nations want to provide that
+much revenue to the program.
+ This proposal may have some flaws, and I present it only as a
+potential option. However, by maintaining Iraq's production at a level
+that bears some relation to market demand, we can eliminate the
+downward pressure Iraqi increased production has on price.
+ In summary, if the United Nations wants to increase the amount of
+oil revenue available to ease the suffering of the Iraqi population,
+the policy focus should be shifted from increasing production, to
+increasing price, in order to reach the revenue target.
+(2) Seek to stabilize oil prices at reasonable levels.
+ Our second suggestion is to couple the restructuring of the oil-
+for-food program with meaningful efforts to stabilize the price of oil
+at levels that reflect its hidden environmental and military costs. The
+United States can help achieve this through variable import fees, such
+as fees on tankers that move oil in environmentally sensitive coastal
+waters, fees designed to recoup some of our nation's enormous military
+costs devoted to protecting Middle Eastern oil supplies, and/or fees
+that offset the advantage that imported oil currently enjoys over
+domestic production due to minimal environmental regulation of foreign
+production practices.
+ I appreciate the opportunity to be with you today and would be
+happy to try to answer any questions.
+
+[GRAPHIC] [TIFF OMITTED] T5644.012
+
+[GRAPHIC] [TIFF OMITTED] T5644.013
+
+ Appendix Three
+
+ Price and Production Scenarios Under Oil-for-Food
+ Total Revenues Derived from Iraqi Oil Sales
+ (Billions of Dollars Every 180 Days)
+--------------------------------------------------------------------------------------------------------------------------------------------------------
+ Dollars per barrel
+ MMB/D -----------------------------------------------------------------------------------------------
+ 9.31 10 11 12 13 14 15 16 17 18 19 20
+--------------------------------------------------------------------------------------------------------------------------------------------------------
+5.0..................................................... 8.38 9.00 9.90 10.80 11.70 12.60 13.50 14.40 15.30 16.20 17.10 18.00
+4.5..................................................... 7.54 8.10 8.91 9.72 10.53 11.34 12.15 12.96 13.77 14.58 15.39 16.20
+4.0..................................................... 6.70 7.20 7.92 8.64 9.36 10.08 10.80 11.52 12.24 12.96 13.68 14.40
+3.5..................................................... 5.87 6.30 6.93 7.56 8.19 8.82 9.45 10.08 10.71 11.34 11.97 12.60
+3.1..................................................... \1\ 5. 5.63 6.20 6.76 7.32 7.89 8.45 9.01 9.58 10.14 10.70 11.27
+ 25
+2.5..................................................... 4.19 4.50 4.95 5.40 5.85 6.30 6.75 7.20 7.65 8.10 8.55 9.00
+2.0..................................................... 3.35 3.60 3.96 4.32 4.68 5.04 5.40 5.76 6.12 6.48 6.84 7.20
+1.9..................................................... \2\ 3. 3.42 3.76 4.10 4.45 4.79 5.13 5.47 5.81 6.16 6.50 6.84
+ 18
+--------------------------------------------------------------------------------------------------------------------------------------------------------
+\1\ According to the United Nations Office of the Iraq Programme Weekly Update for 13 to 19 March, since the beginning of Phase V, which runs from
+ November 26, 1998 to May 24, 1999, Iraq has exported an average of 1.9 mb/d at $9.31 a barrel. At this rate Iraq will raise $3.18 billion during Phase
+ V.
+\2\ At the current average price, Iraq will need to export 3.13 million barrels of oil per day to raise 5.25 billion.
+
+ Appendix Four
+
+ Potential Iraq Production Quotas
+ (Million Barrels Per Day)
+--------------------------------------------------------------------------------------------------------------------------------------------------------
+ Dollars per barrel
+ Total Revenue ($billion per 180 days) -----------------------------------------------------------------------------------------------
+ 9.31 10 11 12 13 14 15 16 17 18 19 20
+--------------------------------------------------------------------------------------------------------------------------------------------------------
+3.25.................................................... 1.94 1.81 1.64 1.50 1.39 1.29 1.20 1.13 1.06 1.00 0.95 0.90
+3.50.................................................... 2.09 1.94 1.77 1.62 1.50 1.39 1.30 1.22 1.14 1.08 1.02 0.97
+3.75.................................................... 2.24 2.08 1.89 1.74 1.60 1.49 1.39 1.30 1.23 1.16 1.10 1.04
+4.00.................................................... 2.39 2.22 2.02 1.85 1.71 1.59 1.48 1.39 1.31 1.23 1.17 1.11
+4.25.................................................... 2.54 2.36 2.15 1.97 1.82 1.69 1.57 1.48 1.39 1.31 1.24 1.18
+4.50.................................................... 2.69 2.50 2.27 2.08 1.92 1.79 1.67 1.56 1.47 1.39 1.32 1.25
+4.75.................................................... 2.83 2.64 2.40 2.20 2.03 1.88 1.76 1.65 1.55 1.47 1.39 1.32
+5.00.................................................... 2.98 2.78 2.53 2.31 2.14 1.98 1.85 1.74 1.63 1.54 1.46 1.39
+5.25.................................................... 3.13 2.92 2.65 2.43 2.24 2.08 1.94 1.82 1.72 1.62 1.54 1.46
+5.50.................................................... 3.28 3.06 2.78 2.55 2.35 2.18 2.04 1.91 1.80 1.70 1.61 1.53
+5.75.................................................... 3.43 3.19 2.90 2.66 2.46 2.28 2.13 2.00 1.88 1.77 1.68 1.60
+6.00.................................................... 3.58 3.33 3.03 2.78 2.56 2.38 2.22 2.08 1.96 1.85 1.75 1.67
+6.25.................................................... 3.73 3.47 3.16 2.89 2.67 2.48 2.31 2.17 2.04 1.93 1.83 1.74
+6.50.................................................... 3.88 3.61 3.28 3.01 2.78 2.58 2.41 2.26 2.12 2.01 1.90 1.81
+--------------------------------------------------------------------------------------------------------------------------------------------------------
+This chart reflects the number of barrels that Iraq would need to produce per day to reach a 180 day revenue target at a given price. As the price of
+ oil price or revenue target changes, the amount of oil Iraq would be allowed to produce in subsequent phases would change accordingly.
+
+
+ Mr. Barton. We want to thank you, Mr. Taylor, for your
+testimony, and the appendices especially will be used as we
+pursue this. Our friends in the State Department I don't think
+have enough personnel to do some of the basic math that you
+have done.
+ Mr. Taylor. Thank you, sir.
+ Mr. Barton. We appreciate that.
+ Mr. Brown, we appreciate you being here on behalf of
+Congressman Largent. He recommended that you be asked to
+testify and we appreciate you coming up. We will put your
+statement in the record, and give you such time as you may
+consume to elaborate on it. But try to do it within 5 to 7
+minutes.
+
+ STATEMENT OF F.W. ``PETE'' BROWN
+
+ Mr. Brown. Thank you, Mr. Chairman. Mr. Chairman and
+Representative Hall and members of the audience, I believe
+myself to be a very typical independent oil and gas producer,
+not only in Oklahoma, but throughout the entire Nation.
+ In 1998, 32 percent of the wells in which I own an interest
+lost money due to low oil prices. In the month of December
+alone, that same year, 57 percent of my wells were losing money
+for the same reason. I accepted these losses in the hopes that
+oil prices would rebound.
+ In the past 17 months, the price of oil has plummeted to
+levels far below the lifting cost of independent producers
+throughout the United States. To understand the reason for this
+drop, we first must understand why exporting countries until
+recently have not taken the initiative to curtail production.
+ First of all, it needs to be noted the world's so-called
+oversupply of crude oil is based on the ability of a country to
+produce oil versus worldwide consumption. In order to maintain
+stability in the marketplace, those of us who import oil, like
+the United States, should also want supply to exceed demand.
+Excess production capacity is not actually produced. Aside from
+above ground storage, there is very little ability to store
+large quantities of oil once it is produced. Saudi Arabia, for
+example, is estimated to have the capability of producing up to
+10 million barrels of oil per day, and yet it actually produces
+just a little over 8 million barrels of oil per day. This can
+be misleading in that the ability to produce oil in the field
+does not necessarily mean that it can be transported to
+terminals and loaded into tankers at the same rate.
+ Actually, no one really knows how much surplus production
+capacity exists in the world today. Some believe the world's
+ability to produce oil exceeds demand by about 3.5 million
+barrels a day, but that compares to estimates of 10 million
+barrels a day of surplus capacity in 1981, the year in which
+the price of oil reached $38 a barrel. Today we are actually
+closer than ever before to a point where demand will exceed the
+world's ability to produce. Part of the reason for this
+reduction in surplus production capacity is increased demand,
+but part of the reason is reduction of production.
+ Why, then, is the price of crude at such low levels? The
+price of crude first started to drop when the Saudis began to
+lose market share as a result of Venezuelan production.
+Venezuela began increasing exports about the same time that
+crude oil prices began their downward spiral. As production
+increased in Venezuela, it began to capture market share from
+Saudi Arabia. The Saudis had two choices. They could curtail
+production even further, causing the price to rise, or they
+could keep production levels the same, allowing the price to
+drop below Venezuela's cost of production, which was
+significantly higher than the Saudis.
+ This strategy discourages drilling in areas that have
+associated high cost of drilling such as the North Sea,
+Siberia, deep offshore drilling, the Caspian Sea, which is an
+area estimated to contain reserves equivalent to the Persian
+Gulf, and of course U.S. domestic onshore production. In
+addition, it has had the side benefit to the Saudis, that is,
+of shutting down much of the stripper production in the United
+States. It is not the intention of the Saudis to maintain the
+low prices; rather, they want to create market volatility,
+which has the affect of discouraging high drilling in high-cost
+regions.
+ Saudi Arabia, like many Middle Eastern countries, has
+social costs associated with their crude production. Crude oil
+funds social programs set up for the Saudi citizens such as
+free medical care, no taxes, low-cost housing and many more
+programs that once established cannot be easily discontinued.
+In recent months, OPEC has dropped production levels that would
+ordinarily be sufficient to bolster the price of crude oil to
+1997 levels. This has failed to produce the desired results for
+very important reasons. Iraq has been allowed to produce
+additional volumes of oil to offset the drop in production,
+even while men and women of our armed forces are in a shooting
+war with Iraq. Allowing Iraq to produce this oil has had a
+devastating effect on U.S. independent producers and threatens
+to drop U.S. crude production as much as 1 to 2 million barrels
+per day. The 4-week average of domestic crude oil production is
+already down 416,000 barrels a day from 1 year ago, according
+to figures published in the Oil and Gas Journal.
+ It is argued that it is necessary to allow the Iraqi
+government to increase production so that they can have
+sufficient revenue to feed their people. Yet, grain and food
+purchased with these funds sits in warehouses undistributed. We
+also might want to consider the fact that the Iraqi government
+has never provided their citizens with free food, and probably
+has no intention of doing so now.
+ By allowing the sale of crude oil for humanitarian reasons,
+we have, in effect, taken the pressure off the Iraqi government
+to provide for its own people. In doing so, we provide them the
+means by which they can fund their continued production of
+biological and chemical weapons. At the same time, we eliminate
+a valuable natural resource in this country which will
+ultimately give countries with surplus oil production such as
+Iraq an enormous amount of power in the not too distant future.
+If, in fact, we feel it necessary to reward Iraqi's
+noncompliance for humanitarian reasons by allowing
+overproduction of crude oil, steps should and must be taken to
+protect our domestic producers.
+ The paramount tragedy here is allowing a viable, important
+industry to be systematically dismantled, causing the loss of
+thousands of jobs, as well as causing economic depression in
+oil producing States. All the while, our government continues
+to subsidize foreign governments and ignores its own domestic
+oil and gas producers. By spending billions of dollars to
+ensure the free flow of oil out of the Persian Gulf, my
+government and yours, in effect, is subsidizing my foreign
+competition.
+ Those of us in the oil and gas industry believe in a free
+market economy. World crude oil production is far from a free
+market. When foreign governments control the flow of oil, our
+own government has not only the right, but the obligation to
+protect its domestic industry. This can be accomplished by
+allowing the defense equalization fee to be charged on crude
+oil from the Middle East. Revenues from such a fee could be
+used to offset the cost of subsidizing their production and
+maintaining a military presence in the Persian Gulf.
+ Another disadvantage we face as domestic producers is our
+environmental costs. The crude oil purchased from foreign
+countries is subject to barely a fraction of our environmental
+regulations protections and the associated environmental costs
+in terms of dollars. Thus, an environmental equalization fee
+would be appropriate to level the playing field for domestic
+oil and gas producers. This fee should be put in place
+regardless of price, as long as America continues to allow
+foreign governments to have a competitive advantage.
+ At normal prices, the wells in which I own an interest that
+are daily losing money still have thousands of barrels of
+recoverable oil. But as anyone, I can only lose money for so
+long. My wells that are losing money must now be plugged and
+abandoned. I have no choice. Once these wells are plugged, they
+will never be brought back on, as the remaining reserves would
+not justify the additional substantial investment required to
+do so.
+ If Congress fails to act, the United States of America
+stands to lose a substantial portion of a precious national
+asset, as well as turning over an even greater share of our
+future energy requirements to foreign governments that don't
+have America's best interests at heart.
+ Mr. Chairman, members of the subcommittee, we citizens of
+the United States face a crisis that will have far-reaching
+consequences if left unabated. I urge each of you on behalf of
+our domestic oil and gas industry and our country to take
+action to curb production from Iraq. The energy future of
+America now and for generations to come is in your hands. It
+has been my honor to address you and I thank you for the
+opportunity to be heard on this issue, and I would be glad to
+answer any questions.
+ [The prepared statement of F.W. ``Pete'' Brown follows:]
+ Prepared Statement of F.W. ``Pete'' Brown, Independent Oil and Gas
+ Producer
+ Mr. Chairman, members of the subcommittee and distinguished guests,
+thank you for the opportunity to provide testimony on this vital issue.
+I come before you, as a very typical and average independent oil & gas
+producer, not only in Oklahoma but throughout the entire nation. In
+1998 32% of the wells from which I receive production lost money due to
+low crude oil prices. By the month of December in 1998, 57% of my wells
+were losing money. I have continued to accept these losses in the hope
+that crude oil prices would rebound.
+ In the past 17 months, the price of domestic crude oil has
+plummeted to levels far below the average lifting cost for the majority
+of independent producers in the United States. To understand the reason
+for this drop, one must first understand why the oil exporting
+countries have not taken the initiative to curtail production.
+ First of all it should be noted that the world's ``so-called
+oversupply'' of crude oil is based on the ability of countries to
+produce oil versus worldwide consumption. In order to maintain
+stability in the market place, those of us who rely on imports should
+always want supply to exceed demand. Excess production capacity is not
+actually produced. Aside from above ground storage (782,955,000 bbls
+crude and refined product or roughly a 42 day supply according to the
+Oil & Gas Journal dated March 22, 1999), there is very little ability
+to store large quantities of oil once it is produced. Saudi Arabia, for
+example, is estimated to have the capability of producing up to 10
+million barrels of oil per day and yet they actually produce a little
+over 8 million barrels per day. This can be misleading in that the
+ability to produce oil in the field does not necessarily mean that it
+can be transported to terminals and loaded into tankers at the same
+rate.
+ Actually, no one really knows how much surplus production capacity
+exists in the world today. Some believe the world's ability to produce
+& market oil exceeds demand by about 3.5 million barrels per day
+compared to estimates of 10 million barrels per day of surplus
+production capability in 1981, a year in which crude oil prices reached
+$38.00 per barrel. Today we are actually coming closer to the point
+where demand will exceed the world's ability to produce. Part of the
+reason for this reduction in surplus production capacity is increased
+demand.
+ Why then is the price of crude at such low levels? The price of
+crude first started to drop when the Saudis began to lose market share
+as a result of an increase in Venezuelan production. Venezuela began
+increasing exports about the time that crude oil prices began their
+downward spiral. As production increased in Venezuela, it began to
+capture market share from Saudi Arabia. The Saudis had two choices;
+they could curtail production even further, causing the price to rise,
+or they could keep production levels the same, allowing the price to
+drop below Venezuela's cost of production, which was significantly
+higher than the Saudi's. This strategy discourages drilling in areas
+that have associated high costs such as the North Sea, Siberia, the
+Caspian Sea (an area estimated to contain reserves equivalent to the
+Persian Gulf), deep offshore and U.S. domestic onshore. In addition, it
+has the side benefit (to the Saudis) of shutting down much of the
+stripper production in the U.S.
+ It is not the intention of the Saudis to maintain such low prices,
+rather they want to create market volatility, which has the effect of
+discouraging drilling in high cost regions. Saudi Arabia, like many
+Middle East countries, has ``social'' cost associated with their crude
+oil production. Crude oil funds these social programs, set up for Saudi
+citizens, such as free medical care, no taxes, low cost housing and
+many more programs that, once established, can not be easily
+discontinued.
+ In recent months, OPEC has dropped production to levels that would
+ordinarily be sufficient to bolster the price of crude oil to 1997
+levels. This has failed to produce the desired results for one very
+important reason. Iraq has been allowed to produce additional volumes
+of oil to offset the drop in prices, even while men and women of our
+Armed Forces are engaged in a shooting war with Iraq. Allowing Iraq to
+produce this oil has had a devastating effect on U.S. independent
+producers and threatens to drop U.S. crude production as much as 1 to 2
+million barrels per day. The four-week average of domestic crude oil
+production is already down 416,000 barrels per day from one year ago
+according to figures published in the Oil & Gas Journal dated March 22,
+1999. It is argued that it is necessary to allow the Iraqi government
+to increase production so that they can have sufficient revenue to feed
+their people. Yet grain purchased with these funds sits in warehouses
+undistributed. We might want to consider the fact that the Iraqi
+government has never provided its citizens with free food, and probably
+has no intention of doing so now. By allowing the sale of crude oil for
+humanitarian reasons, we in effect have taken the pressure off the
+Iraqi government to provide for its own people. In doing so we provide
+them the means by which they can fund their continued production of
+biological and chemical weapons.
+ At the same time we eliminate a valuable natural resource in this
+country which will ultimately give countries with surplus oil
+production, such as Iraq, an enormous amount of power in the not too
+distant future. If in fact we feel it necessary to reward Iraqs non-
+compliance, for humanitarian reasons, by allowing overproduction of
+crude oil, steps should and must be taken to protect our own domestic
+producers.
+ The paramount tragedy here is allowing a viable and important
+industry to be systematically dismantled causing the loss of thousands
+of jobs, as well as causing an economic depression in oil producing
+states. All the while our Government continues to subsidize foreign
+governments and ignores its own domestic oil and gas producers. By
+spending billions of dollars to insure the free flow of oil from the
+Persian Gulf my government and yours, in effect, is subsidizing my
+foreign competition. Those of us in the oil and gas industry believe in
+a free market economy. World crude oil production is far from a free
+market. When foreign governments control the flow of oil, our own
+government has not only the right, but also the obligation, to protect
+its domestic industry. This can be accomplished by allowing a defense
+equalization fee to be charged on crude oil from the Middle East.
+Revenues from such a fee would be used to offset the cost of
+subsidizing their production by maintaining a military presence in the
+Persian Gulf.
+ Another disadvantage we face as domestic producers is our
+environmental cost. The crude oil we purchase from foreign countries is
+subject to barely a fraction of our environmental regulations and
+protections, and the associated environmental cost in terms of dollars.
+Thus an environmental equalization fee would be appropriate to level
+the playing field for domestic producers. This fee should be put in
+place, regardless of price, as long as America continues to allow
+foreign governments have a competitive advantage.
+ At normal prices the wells in which I own an interest, and that are
+losing money today, still have thousands of barrels of recoverable oil.
+But I, as anyone, can only lose money for so long. My wells that are
+losing money must now be plugged and abandoned. I have no choice. Once
+these wells are plugged they can never be brought back on production,
+as the remaining reserves would not justify the substantial investment
+required to do so. If Congress fails to act, the United States of
+America stands to lose a substantial portion of a precious national
+asset as well as turning over an even greater share of our future
+energy requirements to foreign governments that don't have America's
+best interest at heart.
+ Mr. Chairman and members of the sub-committee, we, as citizens of
+the United States, face a crisis that will have far reaching
+consequences if left unabated. I urge each of you, on behalf of our
+domestic oil and gas industry and your country, to take action to curb
+excess production from Iraq. The Energy future of America, now and for
+generations to come, is in your hands.
+ It has been my honor to address you and I thank you for the
+opportunity to be heard on this issue.
+
+ Mr. Barton. Thank you. We want to hear from Mr. Bole. Mr.
+Hall has a plane at 1:45, so Ralph, do you want to ask a
+question?
+ Mr. Hall. May I say something here? I am the loser by not
+getting to stay here and talk to you for another hour, because
+this is the group I would listen to more than all the others
+put together, because you are my folks, and your testimony
+means more to me than any that I have heard or will hear. I
+think you can gather from the things that the chairman has said
+and I have said--by the way, you are not just talking to the
+two of us. This goes into the record and it is read by
+certainly the committees and by the members. So I thank you for
+your time. I will have some questions. I have questions built
+around whether or not the State Department has consulted with
+any of you or the domestic industry on this food program, and
+you know, I am pretty sure they haven't listened to you, but I
+would like to know if they have even made any effort, and that
+will be part of my questions. But I do have to be on a plane in
+34 minutes and I have to clear off my desk and put the fire out
+and call the dogs and get out.
+ Mr. Barton. Actually, he is leaving a little early. I have
+seen Ralph make it in less than 10 minutes.
+ Mr. Hall. Well, they close the door on you now. But I thank
+you very much. And Joe, thank you for holding the hearing.
+ Mr. Barton. We appreciate you, Congressman Hall.
+Congressman Hall has agreed to sign some of the letters that I
+just talked to the Deputy Assistant Secretary of State about,
+so we are going to be working on this in a bipartisan way.
+ Mr. Bole, we are delighted to have you up from Houston. We
+will put your testimony in the record again in its entirety and
+give you 5 to 7 minutes to elaborate on it.
+
+ STATEMENT OF DAVID L. BOLE
+
+ Mr. Bole. Thank you, Mr. Chairman, and also my thanks to
+Mr. Hall. My name is David Bole. I am Vice President of
+Corporate Research and Development for Randall and Dewey, Inc.,
+a Houston-based company that facilitates transactions in the
+upstream part of the petroleum industry for all segments of the
+industry, major companies, large and small interests, both
+public and private. In this business we have seen the
+disruptive effects of the current price crisis not only on the
+stability of this critical portion of the industry, but in the
+direct loss of producers' equity value. Today, I am
+representing the Independent Petroleum Association of America.
+IPAA submits that the current problems facing domestic
+producers are related in large part to the abuse of the U.N.
+Oil-For-Food sanctions program by Saddam Hussein.
+ The industry has faced low oil prices for more than a year,
+beginning with a combination of events: the collapse of Asian
+economies, which we have heard a lot about this morning, a
+warmer than normal winter in the Northern Hemisphere, and
+OPEC's decision to increase production quotas. However, as 1998
+progressed, key OPEC countries and other significant non-OPEC
+countries curtailed production to try to diminish surplus
+inventories around the world and stabilize oil prices at levels
+that permit profitable operation. As other countries cut
+production, the U.N. sanctions program created an opportunity
+for Iraq's leaders to influence the price of oil in ways that
+no one would have expected. The U.N. sanctions structure was
+changed in two significant ways in early 1998. First, the Oil-
+For-Food Program has always been based on a dollar amount
+rather than a volume allowance, and we have heard a lot about
+that this morning. The dollar amount has increased to $5.3
+billion per 6 months, which we have talked about, an amount at
+current prices that effectively allows Iraq to pump unlimited
+volumes.
+ Second, the $400 million every 6 months allocated to
+improve Iraq's oil production capacity allows them to increase
+their production. Thus, as other countries were making economic
+decisions to reduce production as prices fell, Iraq was given a
+perverse incentive to increase production.
+ At the beginning of 1998, Iraq was exporting approximately
+700,000 barrels of oil per day. By the beginning of 1999, it
+was exporting as much as 2.5 million barrels per day. In 1998,
+Iraq was the only country to increase its oil production. This
+more than threefold increase, coupled with OPEC's decision to
+curtail production, has allowed Iraq to become the world's
+swing producer. That is, the producer that sells the last
+barrels into the market and thereby defines the price for the
+entire market.
+ Let me explain what allows Iraq to become the swing
+producer. Currently, many industry analysts estimate that
+worldwide oil productive capacity exceeds demand by only about
+4 percent. As forecast demand increases at a rate of 1.5 to 2
+percent per year, this excess capacity will rapidly disappear.
+Current low oil prices have decimated upstream capital
+development budgets by an estimated 40 percent. My good friend
+Pete here knows that. There is just not enough money out there
+to continue drilling.
+ Simply put, without the expenditure of enormous development
+funds, current capacity will not be expanded to keep pace with
+increasing demand. This is the situation we now face. As a
+result, any country with exports matching the excess productive
+capacity, has the ability to be the world's swing producer.
+Iraq now supplies about 3 percent of the world's demand, and
+has the ability to dramatically influence prices by either
+cutting or increasing its production. As demand increases and
+excess capacity drops, the export volume needed to drive prices
+will decrease. In the not too distant future, if not already,
+Saddam Hussein will be in the position to drive prices upward
+and punish consumer countries, perhaps when sanctions are
+lifted and all the money from Iraqi oil sales goes to him.
+ We submit that Iraq is using this position for its leader's
+own political purposes. Saddam's objectives differ from other
+oil producers. We have heard a lot about that this morning. He
+wanted higher oil prices when he invaded Kuwait, money he
+needed to build his military forces. Now, he can't spend money
+to buy arms. But, he can, by keeping oil prices low, punish his
+enemies, first by reducing the income to Saudi Arabia, Kuwait
+and all the exporting countries; and second, to increase market
+share by driving down prices and causing critical U.S.
+production to be shut down and plugged forever, and that hurts
+the guys sitting right here. Thus, while condemning the U.N.
+sanctions and thwarting efforts to deliver to his people the
+humanitarian aid the sanctions purchase, Saddam is effectively
+manipulating the world oil markets for his own political
+purposes. This is where we stand today, and that is why we are
+here.
+ At issue, then, is what will happen next. Last week, the
+Secretary of Energy argued that Iraq's ability to increase its
+production is limited and is not expected to go up measurably
+this year. As a result, EIA believes that whatever effect Iraqi
+production has had on prices has already occurred, because Iraq
+cannot increase oil production much more over the next year or
+two.
+ While we agree with the Secretary that Iraqi production has
+impacted prices, the statement that Iraq cannot increase
+production is a costly assumption that must be proven. Given
+that the current sanctions program continues to fund additional
+improvements to the oil export capabilities of Iraq, there is
+no certainty that exports will not increase further. Clearly,
+today's crude market is forcing other major oil exporting
+nations to develop elaborate plans to limit their production.
+The success of these efforts is limited by the ability of Iraq
+to add more oil to the market. If the current Oil-For-Food
+Program results in further Iraqi oil production increases, it
+will allow Iraq to continue to hurt the other oil producing
+countries and the strategically essential domestic production
+of the United States. If it does, the U.N. sanctions will
+continue to be fatally flawed at two levels. First, they will
+have failed in its primary mission to provide humanitarian aid
+to the Iraqi people. Second, they will have handed Saddam
+Hussein the victory he lost in the Gulf War.
+ For the United States these options reflect policies we
+must change. They make no sense. The world fought a war to
+prevent Saddam Hussein from controlling world oil prices. Now,
+we have, however inadvertently, handed him this ability without
+a fight, and we are handing him control of the future of our
+domestic resources, an unbelievable policy choice. Current
+national policy on Iraq is flawed. Today, domestic production
+is at risk, while tomorrow the U.S. consumer may soon feel the
+shock of higher energy prices brought on by the actions of a
+rogue nation, a policy that hurts producers and consumers
+alike.
+ Our domestic oil production resource is the true national
+strategic petroleum reserve. We must value that resource. With
+respect to Iraq, we must recognize that its role in oil pricing
+may not have been planned, but it is now significant and it is
+not benign. If we fail to act in the short term, precious
+domestic resources will be lost forever. As we have heard this
+morning, in the last year we have lost nearly 600,000 barrels
+per day of domestic production, which has reduced the U.S.
+crude production to a level that has not been seen since 1950.
+Since 1986, when the last price free-fall crippled the
+industry, domestic oil production has dropped 2 million barrels
+per day. We need to act now to prevent a similar consequence
+from the current price crisis.
+ We thank you for your interest, we thank you for your time
+today, and God bless you for being on the side of the
+producers.
+ [The prepared statement of David L. Bole follows:]
+Prepared Statement of David L. Bole, Vice President, Corporate Research
+ and Development, Randall & Dewey, Inc.
+ Mr. Chairman, my name is David Bole. I am Vice President of
+Corporate Research and Development for Randall & Dewey, Inc., a
+Houston-based company that facilitates transactions in the upstream
+part of the petroleum industry for all segments of the industry--major
+companies, large and small independents, both public and private. In
+this business, we have seen the disruptive effects of the current price
+crisis not only on the stability of this critical portion of the
+industry but in the direct loss of producers' equity value. Today, I am
+representing the Independent Petroleum Association of America. IPAA
+submits that the current problems facing domestic producers, and
+potentially significant future problems, are related in large part to
+the abuse of the UN ``oil for food'' sanctions program by Saddam
+Hussein.
+ The industry has faced a low oil price crisis for more than a year,
+but today's problems are very different. Just over a year ago, the
+price crisis was started by a combination of events--the collapse of
+Asian economies, a warmer than normal winter in the Northern
+Hemisphere, and OPEC's decision to increase production quotas. The
+production most at risk was marginal oil wells in the United States--
+wells that produce about 20 percent of America's domestic production,
+an amount equivalent to our imports from Saudi Arabia.
+ However, as 1998 progressed, key OPEC countries and other
+significant non-OPEC countries curtailed production to try to diminish
+surplus inventories around the world and stabilize oil prices at levels
+that permit profitable operation. As other countries cut production,
+the UN sanctions program created an opportunity for Iraq's leaders to
+influence the price of oil in ways that no one would have expected. The
+UN sanctions structure was changed in two significant ways in early
+1998. First, the ``oil-for-food'' program has always been based on a
+dollar amount rather than a volume allowance. The dollar amount was
+increased to $5.265 billion per six months--an amount at current prices
+that effectively allows Iraq to pump unlimited volumes. Second, $300
+million every six months was allocated to improve Iraq's oil production
+capacity. Thus, as other countries were making the economic decisions
+to reduce production as prices fell, Iraq was given a perverse
+incentive to increase production.
+ And, increase it did. At the beginning of 1998 Iraq was exporting
+approximately 700,000 barrels of oil per day. By the beginning of 1999
+it was exporting as much as 2.5 million barrels per day. In 1998 Iraq
+was the only country to increase its production of oil. This increase
+has allowed Iraq to become the world's swing producer--the producer
+that sells the last barrels into the market and thereby defines the
+price for the entire market.
+ Let me explain what allows Iraq to become the swing producer.
+Currently, many industry analysts estimate that worldwide oil
+productive capacity, that is production that could quickly be added to
+the world market, exceeds demand by only about 4 percent. As demand
+increases at a rate of 1.5 to 2 percent per year, this excess capacity
+is rapidly disappearing. Current low oil prices have decimated upstream
+capital development budgets by an estimated 40 percent. Simply put,
+without the expenditure of enormous development funds current capacity
+will not be expanded to keep pace with increasing demand. This is the
+situation we now face. As a result any country with exports matching
+the excess productive capacity, has the ability to be the world's swing
+producer. Iraq now has about three percent of the world's demand and
+has the ability to dramatically influence prices by either cutting or
+increasing its production. As demand increases and excess capacity
+drops, the export volume needed to drive prices will decrease. In the
+not too distant future--if not already--Saddam Hussein will be in the
+position to drive prices upward and punish consuming countries--perhaps
+when sanctions are lifted and all the money from Iraqi oil sales goes
+to him.
+ We submit that Iraq is using this position for its leader's own
+political purposes. Saddam's objectives differ from other oil
+producers. He wanted higher oil prices when he invaded Kuwait--money he
+needed to build his military forces. Now, he can't spend money to buy
+arms. But, he can--by keeping oil prices low--punish his enemies, first
+by reducing the income to Saudi Arabia, Kuwait, UAE, Iran, and all the
+exporting countries; second, to increase market share by driving down
+prices and causing critical U.S. production to be shutdown and plugged
+forever. Thus, while condemning the UN sanctions and thwarting efforts
+to deliver to his people the humanitarian aid the sanctions purchase,
+Saddam is effectively manipulating the world oil markets for his own
+political purposes. This is where we stand today. And that is why we
+are here.
+ At issue then is what will happen next. Last week, the Secretary of
+Energy argued that ``Iraq's ability to increase its production is
+limited and is not expected to go up measurably this year. As a result,
+EIA believes that whatever effect Iraqi production has had on prices
+has already occurred, because Iraq cannot increase oil production much
+more over the next year or two.'' While we agree Iraqi production has
+impacted prices, the statement that Iraq cannot increase production is
+a costly assumption that must be proven. Given that the current
+sanctions program continues to fund additional improvements to the oil
+export capabilities of Iraq, there is no certainty that exports will
+not increase further. In the middle of 1998 most experts believed that
+Iraq could not reach the export levels it is currently sustaining.
+Clearly, today's crude market is forcing other major oil exporting
+nations to develop elaborate plans to manage their production, the
+success of these efforts is limited by the ability of Iraq to add more
+oil to the market. If the current ``oil-for-food'' program results in
+further Iraqi oil production increases, it will allow Iraq to continue
+to hurt the other oil producing countries--Saudi Arabia, Kuwait,
+Venezuela, Russia, Indonesia, Mexico, and the strategically essential
+domestic production of the United States. If it does, the UN sanctions
+will continue to be fatally flawed at two levels. First, they will have
+failed in its primary mission to provide humanitarian aid to the Iraqi
+people. Second, they will have handed Saddam Hussein the victory he
+lost in the Gulf War.
+ For the United States these options reflect policies we must
+change. They make no sense. The world fought a war to prevent Saddam
+Hussein from controlling world oil prices. Now, we have--however
+inadvertently--handed him this ability. And, we are handing him control
+of the future of our domestic resources--an unbelievable policy choice.
+Current national policy on Iraq is faulty. Today, domestic production
+is at risk, while tomorrow the U.S. consumer may soon feel the shock of
+higher energy prices brought on by the actions of a rogue nation--a
+policy that hurts producers and consumers alike.
+ Our domestic oil production resource is our true national strategic
+petroleum reserve. We must value that resource. IPAA has presented an
+array of options for Congress to address in response to the current
+price crisis. With respect to Iraq we must recognize that its role in
+oil pricing may not have been planned, but it is now significant and it
+is not benign. If we fail to act in the short term, precious domestic
+resources will be lost forever. Then, in the longer term when Saddam
+shuts in production, we will not have the production needed to respond.
+In the past year we have lost nearly 600,000 barrels per day of
+domestic production, which has reduced the U.S. crude production to a
+level that has not been seen since 1950. Since 1986, when the last
+price crisis crippled the industry, domestic oil production has dropped
+by 2 million barrels per day. We need to act now to prevent a similar
+consequence from the current price crisis.
+
+ Mr. Barton. Thank you. Seeing no other member present, the
+Chair is going to recognize himself for questions. And I am not
+going to use the clock.
+ I am going to ask Mr. Hall's question since he had to
+leave. Was anybody at TIPRO or IPAA or any other producer,
+maybe the API, consulted before this Oil-For-Food Program was
+put in place last year? Does anybody know?
+ Mr. Taylor. Not that I am aware of.
+ Mr. Brown. No.
+ Mr. Barton. Mr. Sieminski, do you remember?
+ Mr. Sieminski. Well, I do talk to people at the State
+Department and elsewhere, but it seems to me that that program
+was being driven mainly out of the United Nations and some of
+the issues there I don't think that that domestic oil
+consideration has gotten a lot of attention as part of that
+program.
+ Mr. Barton. As far as anybody on this panel knows, there
+was no formal attempt by the State Department or the Energy
+Department or the United Nations directorate to contact the
+production sector of the United States?
+ Mr. Bole. Not at all.
+ Mr. Barton. That is a fair statement.
+ Is there anybody on this panel that is opposed to providing
+in some way food and medicine for the Iraqi people?
+ Mr. Bole. No.
+ Mr. Taylor. No.
+ Mr. Brown. No.
+ Mr. Sieminski. Not at all.
+ Mr. Barton. So we are not in opposition to at least the
+publicized purpose of the program, which is to provide for
+basic food, nutrition and medicine and humanitarian programs.
+ Is it in the national interest for us not only to allow
+this production that is currently under way, but to give them
+spare parts to increase production? Does anybody think that
+makes sense from a national security standpoint, or even in the
+interests of the United States standpoint?
+ Mr. Bole. Well, it makes absolutely no sense to allow Iraq
+to increase production, while other OPEC nations are working in
+concert to lower production so that we have a viable supply of
+oil at a reasonable price to continue development.
+ Mr. Barton. Well, you all heard one of my final questions
+to the gentleman from the State Department. Congressman Hall
+and I are going to send a letter next week asking that they not
+go forward with the spare parts program while we review it. I
+would assume that you all would support that position that we,
+at a minimum, while we review the larger program, we at least
+stop the ability to increase production in Iraq.
+ Mr. Sieminski. Absolutely.
+ Mr. Taylor. Mr. Barton, I might even go a step further and
+ask if you could somehow get through to them that a very
+minuscule amount of that money would help restructure our own
+industry here, and that they might consider the cost--it is bad
+enough that Mr. Brown and I have to plug our wells. We lose the
+production, and we have been taking a loss for quite a time on
+these. When you decide to finally plug them on top of that, you
+get a golden ring of about another $5,000 or $10,000 hit that
+you have to pay to plug these wells in accordance with the
+environmental regulations. So I would like for them to consider
+our industry here that you know, maybe they would consider,
+since they are encouraging them to dump all this oil on the
+market over this, for the humanitarian reasons over there, that
+they would consider the humanitarian reasons over here in the
+United States and possibly give us some of that money for our
+plugging costs. Maybe that will make them realize just how much
+oil we are losing.
+ Mr. Barton. Interestingly enough, we didn't get--at least I
+didn't understand the State Department's answer on how much
+money had been collected, but I did understand that a large
+portion that had been collected had not been spent for food.
+Its label is oil for food, but in practical effect, they are
+paying reparations to the Kuwaiti government and they are
+paying for the cost of the U.N. bureaucracy, and they are
+paying for the cost of the inspections which are not even going
+on, and he upped his ante from $900 million I think to about
+$2.5 billion for food, so I would guess about half the money so
+far collected has gone for food. There are numerous ways to get
+$2.5 billion worth of food to the Iraq people without allowing
+the Iraqi government to produce oil.
+ Mr. Taylor. I have a tip from all the other oil producers.
+We would like to get on that list of helping Kuwait and the
+other oil countries that have gotten hurt.
+ Mr. Barton. We are going to give you an opportunity, I
+think, to consult with the State Department, and if you want to
+divert the spare parts to west Texas, that is fine with me. My
+daughter is a teacher at South Elementary in Midland, Texas,
+and she has seen the negative effects of what has happened, so
+I don't think it would be a burden to reverse some of those
+parts.
+ Yes, sir.
+ Mr. Sieminski. Mr. Barton, as bad as this Oil-For-Food
+Program seems to you today, there are two ways that it could
+get worse. The first one is if our policy of getting rid of
+Saddam Hussein were to be successful and there were a new,
+let's say, politically friendly regime in Iraq that somehow
+changed the political course over there that would allow that
+country to come out from under sanctions, and at that point
+they would be like every other producer. They would produce
+whatever they could economically want to do.
+ Mr. Barton. Well, they would be within the OPEC cartel.
+ Mr. Sieminski. Right.
+ Mr. Barton. Which although they are now, they are being
+given a free ride apparently for political considerations
+within the Arab world. The rest of the cartel is trying to
+limit production, but they are not requesting even a
+proportionate cut of Iraqi production.
+ Mr. Sieminski. I think the Iraqis are making the assumption
+that their production was held down for so long that they have
+a lot of catch-up to do before they are going to cooperate with
+their other cartel members.
+ Mr. Barton. Well, they can assume whatever they want. That
+doesn't mean the U.S. Congress----
+ Mr. Sieminski. Has to give it to them.
+ The second way that I think that again is worth more
+questioning, that where things could get worse is there are
+proposals that have been advanced on the Security Council to
+allow foreign investment in the Iraqi industry, even as the
+full sanctions are still on. There are a number of companies
+and countries that are eagerly awaiting the opportunity to go
+in and develop fields in Iraq, and one way perhaps to get at
+the head of that line would be to assist the Iraqis in
+rebuilding current facilities.
+ I think that you might want to look into the issue of how
+the Oil-For-Food Program could be structured in such a way as
+to delay that kind of activity, which I think would be
+detrimental to U.S. foreign policy, certainly as long as that
+regime in Iraq is in place, that there is a very definite
+danger that the level of Iraqi production exports could rise
+fairly dramatically and fairly quickly if companies were
+allowed to go in and make investments in Iraq, and then again,
+you would be back to, there wouldn't be any way--I mean if the
+Oil-For-Food Program were to be revamped to allow for that, it
+would be a considerably worse situation for domestic production
+here in the United States than we are looking at now.
+ Mr. Barton. I understand that, and I don't advocate this,
+but I don't buy the argument that you have to allow this
+program to continue in order to keep sanctions being enforced.
+Because--and again I am not an advocate of this, so I don't
+want this to be the headline coming out of the hearing, but in
+a worst-case situation, the United States Air Force could bomb
+the oil terminals. We can enforce the ability not to let Iraq
+export oil very easily. Again, that is not the purpose of this,
+but there are ways to prevent the oil from being shipped, and
+we have the military ability to do that. We don't choose to act
+unilaterally, and I am not advocating that we should, but I
+don't buy the argument that we are somehow helpless in the U.N.
+and the world community while our domestic industry is
+decimated. Because it was pointed out in a question that I
+asked, there is no other nation that is losing permanently
+domestic production because of this program except the United
+States and perhaps to a smaller extent Canada.
+ If we can get the State Department's attention and the
+Energy Department's attention and the United Nations' attention
+to review this program, I assume that your trade associations
+would be willing to participate in a dialog about how to revamp
+it, is that correct?
+ Mr. Bole. Yes, sir.
+ Mr. Barton. There is not anybody that is opposed to that.
+ Mr. Bole. Mr. Chairman, I just have one comment. Tom made a
+good point here a minute ago about a little financial help to
+the producers as our stripper and marginal production is made
+irrelevant by the sales of Iraq crude. A point of comparison is
+Wes Watkins' marginal well tax credit bill is estimated to cost
+only $600 million over 10 years, compared to billions of
+dollars that we are funneling into Iraq. And I think there are
+other measures that could benefit the plight of the domestic
+producers when compared in dollar amounts to others are
+insignificant, but significant to the producer.
+ Mr. Barton. Right. We know that, as a Nation, we are
+importing more oil than we ever have. We know what the Iraqi
+oil production is, and we know the number of barrels that they
+are exporting. We didn't ask the prior panel how much of that
+Iraqi oil is imported into the United States. Now, I have been
+told that it is about 700,000 barrels a day of Iraqi oil into
+the United States. Is that a number that anybody here is
+familiar with, or if that is the wrong number, are any of you
+gentlemen able to tell us approximately how much Iraqi oil is
+coming into the United States?
+ Mr. Taylor. Maybe that is just a sheer coincidence of the 6
+to 700,000 barrels we have lost as independent producers. That
+would be a good number.
+ Mr. Barton. I am not putting that on the record that that
+is a valid number, but I have been told that. Mr. Sieminski, do
+you know how much Iraqi oil we are importing?
+ Mr. Sieminski. I don't have that number available right
+now, but I think you would get that really quick.
+ Mr. Barton. Mr. Bole, do you----
+ Mr. Bole. Yes. Our staff says that that number has ranged
+from 500, 600, 700,000 barrels and it varies on a month-to-
+month basis.
+ Mr. Barton. So it is verifiable that not only are we
+importing more oil than we ever have into this country, but
+that between 500,000 and 700,000 barrels per day is coming from
+Iraq.
+ Mr. Brown. Mr. Chairman, added to Mr. Smith's testimony are
+some graphs indicating select imports to the United States
+which indicates that in August Iraqi oil was in the range of
+650,000 barrels, and that, from January, steadily increased
+upward. If you will look at, I think it is this lower chart
+here. It is in Mr. Smith's testimony.
+ Mr. Barton. I have it right here in front of me.
+ Mr. Brown. I will be glad to pass this up to you.
+ Mr. Barton. No. We have it. We appreciate your offer to
+help the chairman do his job, but I think I have it right here
+in front of me.
+ We are going to do a number of hearings on the domestic oil
+and gas industry on this subcommittee this year. We are
+obviously going to look at this issue very closely and very
+skeptically based on what testimony we heard from the
+administration representative today.
+ Are there any other items? Mr. Bole, you mentioned the
+Watkins bill. Are there any other items that would be of
+immediate benefit that we should address in our hearings that
+you would like to put on the agenda today?
+ Mr. Bole. Yes, and it is not a specific item, it is more of
+a question. In listening to the testimony today and the
+interests of you and the committee members, I am impressed by
+the agreement, the majority agreement here that we, as a
+Nation, our oil and gas-producing States are in trouble, that
+the Iraqi policies and other things are hurting us. But the
+question that I would like to have answered, not today but
+perhaps in the future, is if you are not from a producing oil
+and gas State, why should you care?
+ Mr. Barton. Well, that is a dilemma that we have. If you
+are from a producing State or a producing region, you see the
+negative effect of low prices, and again, my daughter is a
+sixth grade social studies teacher in Midland, Texas. She has
+lived out there this year and she teaches in a lower-income
+school, and she has firsthand knowledge of people who have lost
+their jobs and who have been thrown out of work and children
+who have had to go on food stamps because their parents do not
+have a job. So it is a real problem. But the other side of
+these low oil prices is gasoline, and in my part of Texas, just
+south of Dallas, for 75 cents a gallon, and people get used to
+that.
+ Mr. Bole. Yes, sir.
+ Mr. Barton. Gas prices have gone back up a little bit in
+the last couple of weeks to about 89 cents a gallon or 85
+cents, and people are complaining of price gouging. They get
+used to 75 cents, and of course up here it is a little bit
+higher. So we do have to have a very good answer to that.
+ The question why should Congressman Markey from
+Massachusetts or Congressman Pallone from New Jersey care as
+members of the subcommittee what is happening, and the long-
+term answer is national security and the best interests long
+term of the people of the United States of America. But we are
+going to have to do some research to make sure that we give a
+good short-term answer. I agree with that.
+ We have had a good hearing today. Most of our members who
+stayed for the hearing come from regions of the country that
+see the negative side of this issue. But it is not going to be
+easy to convince a majority of the Congress and the Senate and
+the President to make some of these changes that I think need
+to be made.
+ Mr. Bole. Would it be appropriate to suggest a partial
+answer to why they should care?
+ Mr. Barton. You can--my plane doesn't leave until 4:15. I
+am going to have to take a personal convenience break at some
+time, but I will listen as long as you want to talk.
+ Mr. Bole. You have a great constituency, and I will be
+uncharacteristically brief.
+ The oil and gas industry is no longer an oil and gas
+industry, it is an energy industry. As you know, Congress is
+deregulating electricity.
+ Mr. Barton. We are trying to.
+ Mr. Bole. We are trying to.
+ Mr. Barton. This same subcommittee.
+ Mr. Bole. Absolutely. And so what we are looking at is a
+domestic energy industry which is made up of electricity, oil,
+gas and all the other fuels. The utility business, and I have a
+background of working for the utility companies, estimates that
+it is going to take Pete and others to invest $180 billion over
+the next 10 years in domestic drilling to allow us to grow from
+a 21.5 TCF market to a 30 TCF market. There are 1,300
+independent power projects on the drawing boards; 1,150 are
+supposed to be powered by natural gas, a 3-year backlog from
+General Electric and General Electric's turbines to build the
+cogen plants.
+ Mr. Barton. I am aware of them.
+ Mr. Bole. The utility industry only has to invest $40
+billion to reconfigure the pipe to get this gas to the markets
+to fuel the power plants. They are making 15 to 17 percent
+return on their investment. These guys are making no money on
+their investment. As an industry, the Oil and Gas Journal 200
+gets 6 percent return on total capital.
+ Now, I don't think it is going to happen that our industry
+is going to invest $180 billion for a 6 percent return to get
+from 21 to 30 TCF.
+ The second thing that has happened in our business is we do
+a lot of transactions. We sell to Mobil, Exxon, Amoco and BP.
+We are seeing the major companies divest properties in the
+United States.
+ Mr. Barton. Right.
+ Mr. Bole. We have seen the total amount of sales, property
+sales in the 1990's go from an average of $7 billion a year, 2
+years ago, $23 billion, last year, $82 billion. These
+properties are being sold to the independents. Where are the
+independents going to get the money to develop these properties
+and continue to drill them to keep our production up to satisfy
+the total energy demands of the U.S. if the price of oil is at
+$12 to $14, and gas is, you know, under $2.
+ Mr. Barton. What is a reasonable price that brings some
+stability, yet protects consumers against price spikes, if we
+could somehow come up with a policy that kept oil prices within
+a certain range, what would that range be, so that we would
+have reasonable prices at the pump for our motorists, and yet
+enough revenue so that we could do some of the things that Mr.
+Bole just talked about?
+ Mr. Bole. Well, I would stick my neck out and let the other
+guys comment, but the number that seems to be most prevalent is
+oil staying in the range of say $18 to $22 a barrel and gas
+closer to $3 than $2.
+ Mr. Barton. In MCF.
+ Mr. Bole. In MCF, yes, sir.
+ Mr. Barton. Do you agree with that, Mr. Brown?
+ Mr. Brown. My company just did a study on that to find out
+what would it take for us to go back out and drill for oil
+again. I mean right now all we do is drill for gas. But to
+drill for oil it would take $22 a barrel plus in a stable
+market. The problem is the volatility in the market. And you
+have to understand that when oil prices are low, gas prices are
+competitive with oil; in other words, home heating oil versus
+natural gas. So gas gets pushed down at the same time, and it
+just takes revenue out of our ability to go out and drill for
+more oil. I am like a grocery store owner. I mean I have to
+restock my shelves. I am going out of business if I don't drill
+for oil.
+ Mr. Barton. Right. Mr. Taylor.
+ Mr. Taylor. I don't know about Mr. Brown, but in our area,
+and I am taking in quite a bit of Texas, our lifting costs are
+anywhere from $12 to $15 a barrel, and that is not taking into
+consideration if you have to pull a down hole pump or your rods
+part, your maintenance and repairs. One of the big fields in
+Texas, the Kelly Snyder field, that thing produces a tremendous
+amount of oil and lifting costs are at $15 per barrel.
+ Mr. Barton. So we need kind of a floor at the $15 range and
+it would be nice to go to the $25, so kind of a $10 range.
+ Mr. Taylor. Of course we get nervous when the price gets
+over $20 a barrel, because this is what happens. I mean all of
+a sudden we realize that we are basically the stepchildren of
+this booming economy. Mr. Brown and I, I have four little kids
+I am trying to raise, and I am trying to make a living, and if
+I can get $18 to $20 a barrel, you know, I think I can do it.
+But if I am making less than $15 I am losing money.
+ Mr. Barton. Do any of you know what the OPEC model is for,
+what is their optimal target price that they shoot for in their
+5-year program?
+ Mr. Brown. I asked Dr. Mankin, who is in charge of the
+Oklahoma Geological Survey, that very question and he said that
+OPEC would probably shoot for something around $17 a barrel.
+ Mr. Barton. Okay.
+ Mr. Taylor. It would equate to us to be $21. I think there
+is maybe $3 between tanker charges, et cetera.
+ Mr. Barton. How many wells, Mr. Taylor, that you have had
+an interest in have had to be plugged in the last year? That
+you had personal financial interest?
+ Mr. Taylor. Personal interest, I would say probably 28 to
+32 percent, and then of the remaining wells that I have
+interest in, we continue to lose money or we shut them in. But
+as far as wells that have been plugged, I live on a small ranch
+south of Abilene, and we had 12 wells out there and they all
+made a barrel or two a day. And the company that was operating
+those wells turned them over to the pumper. Because he couldn't
+make any money, the pumper just recently turned them over to a
+salvage company. So they pulled the pumping units off of them.
+They haven't plugged them yet.
+ Mr. Barton. Now, if we hadn't had the collapse in prices,
+how many more years would those wells have produced?
+ Mr. Taylor. They have been out there for approximately 18
+years and they would produce for another 10 years. Once they
+get down to a level of a barrel or 2 to 5 barrels a day, they
+will maintain that level. You have a low-fluid entry, but when
+you pump them for a few hours, you turn them off, you nurse
+those wells, you can pump them for another 10 years.
+ Mr. Barton. There were substantial amounts of oil yet to be
+obtained if, in fact, we could have kept the wells flowing and
+the fact that, you know, at one time west Texas, the actual
+price at the well had gotten down to about $6.50 a barrel.
+ Mr. Taylor. That is correct.
+ Mr. Barton. And nobody, I mean God couldn't keep those
+wells going at $6.50 a barrel for very long.
+ Mr. Taylor. In the event you have a landowner such as
+myself that was encouraging that operator to go ahead and
+continue those wells, I gave them an extension on the lease,
+they kept the wells shut in, but when you do that for an
+extended amount of time, your down hole pumps start corroding,
+your rods start corroding, so the equipment starts rotting and
+you can't keep them shut in for so long.
+ Mr. Barton. Mr. Brown, you said you are principally looking
+at gas now, but have you had to plug some oil wells that you
+had an interest in in the last year?
+ Mr. Brown. In my testimony I talked about 57 percent of the
+wells in December lost money, and one of my problems is getting
+the operators to plug them. They don't want to give them up,
+and they know they are losing money, but they just think well,
+the price, it is just around the corner, it is going to go back
+up and they are going to start making money again, but we keep
+losing money every month. And as I say, you can only lose money
+for so long.
+ So I think a lot of the wells that need to be plugged are
+yet to be plugged. We have shut a lot of them in, but at some
+point in time, like you said, your equipment starts to
+deteriorate and when you try to start it back up, it means a
+sizable investment, so you are better off plugging the well
+than spending the money trying to put it back on production.
+ Mr. Barton. I am going to conclude the hearing.
+ I want to thank you all for coming. The issues that we are
+going to look at, we are going to continue to look at the Iraqi
+Oil-For-Food Program. We have a possibility to reauthorize the
+Strategic Petroleum Reserve this year in this subcommittee, we
+are going to look at that to use the petroleum stripper well
+production. I have had one suggestion from an independent in
+Texas that we might relax some of the antitrust rules that
+would allow small producers to form co-ops in which they could
+pool their oil for transportation at the refinery. That is not
+allowed under current antitrust laws. If you have any other
+suggestions, a number of the tax issues are not before this
+subcommittee's jurisdiction. They go to the Ways and Means, but
+Bill Archer of Texas and Wes Watkins of Oklahoma are very
+interested.
+ Did you want to put something else in the record, Mr.
+Chairman?
+ Mr. Smith. Thank you. Mike Smith again. One thing I forgot
+to mention in my testimony----
+ Mr. Barton. We don't normally have witnesses want to come
+back.
+ Mr. Smith. I know of at least one that doesn't want to come
+back that was on my panel. But there has been a lot of
+conversation about the cost to produce a barrel of oil, and the
+Oklahoma Marginal Well Commission, which is a State agency in
+Oklahoma that is in my cabinet jurisdiction, in concert with
+Oklahoma State University, spent about a year making an
+exhaustive study in Oklahoma on the true cost of producing a
+barrel of oil. And the average well in Oklahoma costs about $14
+a barrel simply in lifting costs. That is electric, pumper,
+environmental costs. That does not include if you have rods
+part, or you have a pump problem or any down hole problem. And
+no rework. It is strictly day-to-day production.
+ Mr. Barton. Well, thank you. As I said at the top of the
+hearing, this is the first, but it is not the last. We are
+going to be working with the State Department on the specific
+issue, but we are going to look at a wide range of issues in
+the domestic oil and gas industry, and your input will be
+appreciated as we continue these hearings.
+ This hearing is adjourned.
+ [Whereupon, at 1:50 p.m., the subcommittee was adjourned.]
+ [Additional material submitted for the record follows:]
+
+ United States Department of State
+ Washington, D.C. 20520
+ April 16, 1999
+The Honorable Joe Barton, Chairman,
+Subcommittee on Energy and Power,
+House of Representatives.
+ Dear Mr. Chairman, thank you for your letter of April 2 concerning
+the recent testimony before the Subcommittee on Energy and Power by
+William B. Wood of the Bureau of International Organization Affairs.
+ Your letter requested information on revenues and disbursements
+under the UN Oil-for-Food program in Iraq, which is included in the
+attachments to this letter. As the Oil-for-Food program runs in six
+month phases, some of the information is presented by program phase.
+The material attached includes information on:
+
+ actual Oil-for-Food sale revenues by phase;
+ approved contracts from phases I-IV (12/96 to 11/98) and
+ projected allocations in phase V (11/98 to 5/99); and
+ purchases of spare parts and equipment for the Iraqi oil
+ infrastructure from Phase IV, when the special set-aside of
+ funds for this purpose began, to date.
+ With respect to these figures, it is worth noting that only two-
+thirds of the Iraqi oil revenue is available for humanitarian
+purchases.
+ Of the remaining funds, thirty percent goes to the United Nations
+Compensation Commission, which compensates those who suffered economic
+losses--including U.S. citizens and corporations--as a result of the
+Iraqi invasion and occupation of Kuwait, and the remainder goes to fund
+UNSCOM disarmament activities in Iraq and UN Oil-for-Food management
+expenses.
+ I hope you find this information useful. We appreciate the
+Subcommittee's interest in the Oil-for-Food program, which is a
+critical element of our Iraq policy. The program is crucial to
+maintaining Security Council and wider international support, including
+the support of other oil-producing nations, for the UN sanctions which
+contain Iraq's ability to threaten its neighbors while we continue our
+efforts for regime change. The Oil-for-Food program helps meet the
+genuine humanitarian needs of the Iraqi people and our support for it
+reinforces the message that the United States is not against the people
+of Iraq-only the regime that is responsible for their plight.
+ Sincerely,
+ Barbara Larkin
+ Assistant Secretary, Legislative Affairs
+Attachments:
+Tab 1: Oil-for-Food revenues
+Tab 2: Oil-for-Food Contracts by phase
+Tab 3: Contracts for oil spare parts and equipment
+
+ Oil-for-Food Oil Sale Revenues By Phase
+----------------------------------------------------------------------------------------------------------------
+ Approved Ave Price
+ Phase Oil Barrels $ Revenue per
+ Contracts (million) (million) Barrel
+----------------------------------------------------------------------------------------------------------------
+I (12/96-6/97).................................................. 51 121 $2150 $17.99
+II (6/97-12/97)................................................. 34 127.3 $2125 $16.74
+III (12/97-5/98)................................................ 52 183.9 $2092 $11.49
+IV (5/98-11/98)................................................. 59 308.1 $3040 $9.36
+V (11/98-5/99).................................................. 82 274.9 $983*
+ TOTAL......................................................... 278 1015 $10390**
+----------------------------------------------------------------------------------------------------------------
+*Sales through mid-April
+**One third of this total is used for UNCC and UN Oil-for-Food management operations.
+
+
+ Oil-for-Food Contracts by Phase
+ [in millions of US dollars]
+------------------------------------------------------------------------
+ Phases I-
+ IV Phase V
+ Sector Approved Projected
+ Contracts Allocations
+------------------------------------------------------------------------
+Food........................................... 3797.12 1,026
+Medicine & Health.............................. 744 240
+Water & Sanitation............................. 152.25 150
+Electricity.................................... 351.54 409
+Agriculture.................................... 273.70 180
+Education...................................... 115.99 100
+Settlement Rehabilitation...................... 41.10 40
+Mines.......................................... 2.99 9
+Nutrition...................................... 23.92 16
+Infrastructure Support......................... * 126
+Oil............................................ 114.31 300
+ Total........................................ 5616.92 2,596
+------------------------------------------------------------------------
+*The UN did not report funding for this category
+
+
+ United Nations Office of the Iraq Programme
+ All Oil Spare Parts Contracts Approved as at 16 April 1999 under the
+ terms of resolutions 1175 and 1210--funded under Phases IV and V of the
+ oil for food programme
+------------------------------------------------------------------------
+ Country Nature of Spares Contract Value
+------------------------------------------------------------------------
+Denmark.......................... PIPELINE EQUIPMENT & $1,043,090
+ SPARES (OIL).
+Spain............................ Pipeline Equip & $630,280
+ Spares.
+Germany.......................... Pipeline Equip & $189,349
+ Spares.
+Germany.......................... Pipeline Equip & $8,746,858
+ Spares.
+Belgium.......................... Pipeline Equip & $287,508
+ Spares.
+Denmark.......................... PIPELINE EQUIPMENT & $2,270,804
+ SPARES (OIL).
+Denmark.......................... PIPELINE EQUIPMENT & $100,580
+ SPARES (OIL).
+Denmark.......................... PIPELINE EQUIPMENT & $20,139
+ SPARES (OIL).
+Russian Federation............... Pipeline Equip & $976,191
+ Spares.
+Turkey........................... Pipeline Equip & $8,600,426
+ Spares.
+France........................... Pipeline Equip & $1,140,000
+ Spares.
+France........................... Pipeline Equip & $1,283,966
+ Spares.
+France........................... PIPELINE EQUIPMENT & $5,000,000
+ SPARES (OIL).
+France........................... Pipeline Equip & $177,793
+ Spares.
+France........................... Pipeline Equip & $287,622
+ Spares.
+France........................... Pipeline Equip & $158,930
+ Spares.
+France........................... Pipeline Equip & $148,240
+ Spares.
+France........................... Pipeline Equip & $98,478
+ Spares.
+France........................... Pipeline Equip & $260,328
+ Spares.
+France........................... Pipeline Equip & $276,606
+ Spares.
+France........................... Pipeline Equip & $23,520
+ Spares.
+France........................... Pipeline Equip & $72,176
+ Spares.
+France........................... Pipeline Equip & $82,030
+ Spares.
+China............................ Tug Boats........... $9,350,000
+Italy............................ PIPELINE EQUIPMENT & $2,885,039
+ SPARES (OIL).
+Italy............................ PIPELINE EQUIPMENT & $221,100
+ SPARES (OIL).
+Italy............................ PIPELINE EQUIPMENT & $1,036,000
+ SPARES (OIL).
+China............................ PIPELINE EQUIPMENT & $4,338,000
+ SPARES (OIL).
+The Netherlands.................. Demulsifier......... $1,750,000
+Turkey........................... Pipeline Equip & $580,000
+ Spares.
+Turkey........................... N/A................. $226,500
+China............................ Pipeline Equip & $456,000
+ Spares.
+Jordan........................... Pipeline Equip & $914,924
+ Spares.
+Jordan........................... Pipeline Equip & $914,924
+ Spares.
+Russian Federation............... Pipeline Equip & $700,000
+ Spares.
+Denmark.......................... OIL SPARE PARTS..... $92,298
+Denmark.......................... OIL SPARE PARTS..... $84,370
+Denmark.......................... N/A................. $193,349
+Denmark.......................... N/A................. $374,115
+Turkey........................... OIL SPARE PARTS..... $555,606
+Turkey........................... N/A................. $919,260
+France........................... Pipeline Equip & $32,960
+ Spares.
+Belgium.......................... PIPELINE EQUIPMENT & $45,323
+ SPARES (OIL).
+France........................... Pipeline Equip & $16,692,147
+ Spares.
+France........................... Pipeline Equip & $132,288
+ Spares.
+Russian Federation............... Pipeline Equip & $383,758
+ Spares.
+Russian Federation............... PIPELINE EQUIPMENT & $454,800
+ SPARES (OIL).
+Russian Federation............... PIPELINE EQUIPMENT & $1,367,800
+ SPARES (OIL).
+Belgium.......................... OIL SPARE PARTS..... $277,500
+Russian Federation............... STORAGE TANKS/SPARE $3,000,000
+ PARTS.
+France........................... VALVE/PARTS......... $86,472
+France........................... VALVE/PARTS......... $153,259
+France........................... VALVE/PARTS......... $65,507
+France........................... PIPELINE EQUIPMENT & $27,019
+ SPARES (OIL).
+France........................... PIPELINE EQUIPMENT & $539,240
+ SPARES (OIL).
+France........................... PIPELINE EQUIPMENT & $94,346
+ SPARES (OIL).
+Russian Federation............... PIPELINE EQUIPMENT & $41,603
+ SPARES (OIL).
+Russian Federation............... PIPELINE EQUIPMENT & $329,497
+ SPARES (OIL).
+China............................ VALVE/PARTS......... $18,500
+China............................ PIPELINE EQUIPMENT & $80,000
+ SPARES (OIL).
+China............................ VALVE/PARTS......... $27,853
+France........................... DEMULSIFIER......... $1,067,500
+Singapore........................ PIPELINE EQUIPMENT & $3,270,000
+ SPARES (OIL).
+Turkey........................... PIPELINE EQUIPMENT & $91,280
+ SPARES (OIL).
+France........................... PIPELINE EQUIPMENT & $185,693
+ SPARES (OIL).
+France........................... PIPELINE EQUIPMENT & $28,982
+ SPARES (OIL).
+France........................... PIPELINE EQUIPMENT & $165,000
+ SPARES (OIL).
+France........................... FIRE FIGHTING TRUCKS/ $954,600
+ SPARES.
+France........................... VEHICLE............. $488,000
+France........................... PIPELINE EQUIPMENT & $95,000
+ SPARES (OIL).
+France........................... PIPELINE EQUIPMENT & $62,910
+ SPARES (OIL).
+The Netherlands.................. PIPELINE EQUIPMENT & $50,357
+ SPARES (OIL).
+Turkey........................... FIRE FIGHTING TRUCKS/ $218,000
+ SPARES.
+Spain............................ BATTERIES........... $949,980
+China............................ PIPELINE EQUIPMENT & $945,800
+ SPARES (OIL).
+China............................ OIL SPARE PARTS..... $133,000
+France........................... PIPELINE EQUIPMENT & $322,839
+ SPARES (OIL).
+Belgium.......................... PIPELINE EQUIPMENT & $23,000
+ SPARES (OIL).
+Belgium.......................... PIPELINE EQUIPMENT & $118,500
+ SPARES (OIL).
+UAE.............................. DIESEL ENGINE MOTOR $7,496
+ SPARE PARTS.
+UAE.............................. CABLE............... $26,500
+UAE.............................. COMPRESSOR.......... $78,696
+UAE.............................. COMPRESSOR.......... $62,511
+Cyprus........................... BATTERY/ACCESSORIES. $191,440
+UAE.............................. OIL SPARE PARTS..... $173,969
+UAE.............................. OIL SPARE PARTS..... $119,670
+UAE.............................. OIL SPARE PARTS..... $203,500
+Belgium.......................... OIL SPARE PARTS..... $347,605
+Jordan........................... OIL SPARE PARTS..... $1,450,000
+Jordan........................... OIL SPARE PARTS..... $166,491
+Turkey........................... PIPELINE EQUIPMENT & $160,000
+ SPARES (OIL).
+Russian Federation............... PIPELINE EQUIPMENT & $117,765
+ SPARES (OIL).
+Jordan........................... PIPELINE EQUIPMENT & $271,585
+ SPARES (OIL).
+Turkey........................... ELECTRICAL SPARE $336,951
+ PARTS FOR OIL
+ SECTOR.
+Egypt............................ PIPELINE EQUIPMENT & $97,834
+ SPARES (OIL).
+Egypt............................ OIL SPARE PARTS..... $186,192
+The United Kingdom............... PIPELINE EQUIPMENT & $413,991
+ SPARES (OIL).
+Cyprus........................... BATTERY/ACCESSORIES. $270,686
+Turkey........................... PIPELINE EQUIPMENT & $650,100
+ SPARES (OIL).
+China............................ PIPELINE EQUIPMENT & $158,243
+ SPARES (OIL).
+China............................ DRILL EQUIPMENT/ $189,872
+ SPARES.
+Turkey........................... PIPELINE EQUIPMENT & $2,115,000
+ SPARES (OIL).
+Turkey........................... PIPELINE EQUIPMENT & $173,000
+ SPARES (OIL).
+Turkey........................... CESSPIT EQUIPMENT... $95,230
+Belgium.......................... ROTATING MACHINE $261,902
+ SPARES.
+Italy............................ PIPELINE EQUIPMENT & $890,000
+ SPARES (OIL).
+Jordan........................... AIR COMPRESSOR PARTS $180,000
+Russian Federation............... PIPELINE EQUIPMENT & $418,806
+ SPARES (OIL).
+Russian Federation............... PIPELINE EQUIPMENT & $105,190
+ SPARES (OIL).
+The United Kingdom............... AIR COMPRESSOR PARTS $176,940
+The United Kingdom............... PIPELINE EQUIPMENT & $597,593
+ SPARES (OIL).
+Jordan........................... PIPELINE EQUIPMENT & $58,148
+ SPARES (OIL).
+France........................... OIL SPARES FOR WASTE $18,575
+ WATER TREATMENT.
+France........................... PUMP/PARTS.......... $41,385
+France........................... VALVES/PUMPS/PARTS $555,340
+ FOR UNDERGROUND
+ STORAGE.
+China............................ PIPELINE EQUIPMENT & $226,477
+ SPARES (OIL).
+China............................ PIPELINE EQUIPMENT & $12,024
+ SPARES (OIL).
+China............................ PIPELINE EQUIPMENT & $44,480
+ SPARES (OIL).
+China............................ PIPELINE EQUIPMENT & $1,441,686
+ SPARES (OIL).
+China............................ FERROCHROME $25,024
+ LIGNOSULFONATE.
+China............................ OIL SPARE PARTS..... $155,000
+France........................... OIL SPARE PARTS..... $178,132
+France........................... PIPELINE EQUIPMENT & $1,200,000
+ SPARES (OIL).
+Denmark.......................... PUMP/PARTS.......... $676,000
+The Netherlands.................. OIL SPARE PARTS..... $209,032
+The Netherlands.................. PUMP/PARTS.......... $177,264
+The Netherlands.................. PUMP/PARTS.......... $137,847
+UAE.............................. OIL SPARE PARTS..... $73,752
+Jordan........................... PIPELINE EQUIPMENT & $10,147
+ SPARES (OIL).
+UAE.............................. WASTE WATER $74,952
+ EQUIPMENT PARTS.
+Jordan........................... PIPELINE EQUIPMENT & $120,000
+ SPARES (OIL).
+France........................... OIL SPARE PARTS..... $273,176
+France........................... OIL SPARE PARTS..... $360,473
+Turkey........................... PIPELINE EQUIPMENT & $75,558
+ SPARES (OIL).
+Switzerland...................... PIPELINE EQUIPMENT & $230,192
+ SPARES (OIL).
+China............................ OIL SPARE PARTS..... $195,093
+China............................ FORKLIFT............ $188,000
+China............................ CEMENT.............. $52,137
+Russian Federation............... PIPELINE EQUIPMENT & $24,308
+ SPARES (OIL).
+France........................... OIL SPARE PARTS..... $123,625
+France........................... PIPELINE EQUIPMENT & $1,479,132
+ SPARES (OIL).
+UAE.............................. AIR CONDITIONER..... $44,250
+Russian Federation............... PASSENGER BOAT...... $2,650,000
+France........................... PUMPS AND SPARE $77,254
+ PARTS.
+France........................... OIL SPARE PARTS..... $85,758
+France........................... OIL SPARE PARTS..... $119,760
+France........................... OIL SPARE PARTS..... $135,468
+France........................... OIL SPARE PARTS..... $50,159
+China............................ OIL SPARE PARTS..... $25,130
+China............................ PIPELINE EQUIPMENT & $80,779
+ SPARES (OIL).
+China............................ OIL SPARE PARTS..... $23,272
+China............................ PIPELINE EQUIPMENT & $106,000
+ SPARES (OIL).
+China............................ PIPELINE EQUIPMENT & $68,000
+ SPARES (OIL).
+Bahrain.......................... ZINC SULPHATE....... $69,000
+UAE.............................. PIPELINE EQUIPMENT & $145,161
+ SPARES (OIL).
+UAE.............................. PIPELINE EQUIPMENT & $118,000
+ SPARES (OIL).
+UAE.............................. PIPELINE EQUIPMENT & $304,510
+ SPARES (OIL).
+Jordan........................... OIL SPARE PARTS..... $103,765
+Turkey........................... PIPELINE EQUIPMENT & $212,700
+ SPARES (OIL).
+UAE.............................. PIPELINE EQUIPMENT & $39,880
+ SPARES (OIL).
+Russian Federation............... OIL SPARE PARTS..... $162,723
+The United Kingdom............... OIL SPARE PARTS..... $41,987
+France........................... OIL SPARE PARTS..... $620,000
+Italy............................ OIL SPARE PARTS..... $75,960
+Finland.......................... OIL SPARE PARTS..... $123,643
+France........................... MOTOR............... $130,937
+Italy............................ MOTOR............... $376,100
+Italy............................ OIL SPARE PARTS..... $71,731
+Italy............................ OIL SPARE PARTS..... $61,436
+Germany.......................... OIL SPARE PARTS..... $750,319
+Jordan........................... OIL SPARE PARTS..... $32,634
+Belgium.......................... FIRE FIGHTING $119,150
+ CHEMICALS.
+Russian Federation............... TRANSFORMERS........ $195,400
+UK............................... LABORATORY SUPPLIES. $18,658
+Korea............................ FORKLIFTS........... $206,176
+Finland.......................... INSTRUMENTATION $25,884
+ SPARES.
+UAE.............................. GENERATOR SPARE $100,083
+ PARTS.
+Cyprus........................... CABLE/SPARE PARTS... $110,000
+Belgium.......................... FIRE FIGHTING $313,976
+ CHEMICALS.
+Belgium.......................... SAFETY & FIRE $29,494
+ FIGHTING EQUIPMENT.
+Belgium.......................... SAFETY & FIRE $11,332
+ FIGHTING EQUIPMENT.
+Belgium.......................... SAFETY & FIRE $60,479
+ FIGHTING EQUIPMENT.
+Belgium.......................... SAFETY & FIRE $45,593
+ FIGHTING EQUIPMENT.
+Belgium.......................... SAFETY & FIRE $150,952
+ FIGHTING EQUIPMENT.
+Belgium.......................... SAFETY & FIRE $90,082
+ FIGHTING EQUIPMENT.
+Belgium.......................... FIRE EXTINGUISHER... $173,938
+France........................... Seals............... $54,506
+Sweden........................... GAS TURBINE SPARE $123,743
+ PARTS.
+Ireland.......................... OIL SPARE PARTS..... $78,580
+Ireland.......................... OIL SPARE PARTS..... $251,772
+Ireland.......................... OIL SPARE PARTS..... $103,220
+Ireland.......................... OIL SPARE PARTS..... $119,729
+Ireland.......................... OIL SPARE PARTS..... $393,310
+UAE.............................. COMPRESSOR.......... $161,000
+UAE.............................. GENERATOR SPARE $50,142
+ PARTS.
+China............................ ELECTRIC MOTORS..... $1,650
+France........................... OIL SPARE PARTS..... $319,719
+France........................... PUMP/PARTS.......... $343,640
+France........................... OIL SPARE PARTS..... $71,115
+France........................... OIL SPARE PARTS..... $1,150,382
+France........................... WATER PUMPING $386,795
+ STATION PARTS.
+France........................... PUMPS AND SPARE $412,079
+ PARTS.
+France........................... OIL SPARE PARTS..... $54,768
+France........................... OIL SPARE PARTS..... $105,324
+France........................... INSTRUMENTATION $130,569
+ SPARES.
+France........................... VALVE/PARTS......... $325,096
+Jordan........................... OIL SPARE PARTS..... $526,649
+Jordan........................... AIR COMPRESSOR PARTS $655,563
+UAE.............................. VEHICLE/SPARE PARTS. $750,000
+UAE.............................. VEHICLE............. $1,404,000
+UAE.............................. AMBULANCE........... $54,000
+UAE.............................. OIL SPARE PARTS..... $619,788
+Jordan........................... OIL SPARE PARTS..... $91,855
+Jordan........................... INSTRUMENTATION $56,949
+ SPARES.
+Jordan........................... OIL SPARE PARTS..... $66,000
+Italy............................ PUMPS AND SPARE $53,524
+ PARTS.
+Italy............................ CENTRIFUGE/SPARE $115,989
+ PARTS.
+Italy............................ ROTATING MACHINES... $123,343
+Italy............................ INSTRUMENTATION $140,185
+ SPARES.
+Russian Federation............... SEALS............... $41,210
+Russian Federation............... GASKETS............. $281,129
+UAE.............................. OIL SPARE PARTS..... $163,000
+China............................ WORK VEHICLES....... $1,179,136
+France........................... VALVE/PARTS......... $42,713
+France........................... PUMPS AND SPARE $40,346
+ PARTS.
+France........................... AIR COMPRESSOR PARTS $24,908
+France........................... MOTOR............... $14,270
+Austria.......................... PUMP/PARTS.......... $221,459
+Italy............................ FIELD $163,242
+ INSTRUMENTATION/
+ SPARE PARTS.
+China............................ FORKLIFT............ $140,250
+France........................... OIL SPARE PARTS..... $31,206
+Germany.......................... OIL SPARE PARTS..... $508,011
+France........................... OIL SPARE PARTS..... $167,885
+UAE.............................. VEHICLE/SPARE PARTS. $1,180,000
+Belgium.......................... OIL SPARE PARTS..... $1,361,475
+Cyprus........................... OIL SPARE PARTS..... $25,000
+Italy............................ OIL SPARE PARTS..... $214,230
+Belgium.......................... OIL SPARE PARTS..... $330,000
+Belgium.......................... OIL SPARE PARTS..... $427,000
+Egypt............................ BOILER TUBES........ $98,000
+Switzerland...................... MOTOR............... $18,300
+France*.......................... PIPELINE EQUIPMENT & $331,320
+ SPARES (OIL).
+Turkey*.......................... OIL SPARE PARTS..... $7,260
+China*........................... PIPELINE EQUIPMENT & $43,716
+ SPARES (OIL).
+China*........................... PIPELINE EQUIPMENT & $25,115
+ SPARES (OIL).
+Jordan*.......................... PIPELINE EQUIPMENT & $61,666
+ SPARES (OIL).
+France*.......................... FORKLIFT/SPARES..... $2,000,000
+Jordan*.......................... OIL SPARE PARTS..... $74,602
+France*.......................... OIL SPARE PARTS..... $53,462
+Jordan*.......................... OIL SPARE PARTS..... $664,213
+Jordan*.......................... OIL SPARE PARTS..... $68,000
+France*.......................... VALVE/PARTS......... $755,650
+France*.......................... CHEMICALS........... $78,810
+France*.......................... GENERATING SETS AND $79,000
+ PARTS.
+France*.......................... SPARE PARTS FOR $138,252
+ COOLING TOWER.
+Italy*........................... CHEMICALS........... $122,033
+France*.......................... OIL SPARE PARTS..... $112,227
+China............................ OIL SPARE PARTS..... $1,180,000
+Jordan*.......................... CONTROL $99,363
+ INSTRUMENTATION.
+UAE.............................. PUMP/PARTS.......... $41,152
+Italy............................ OIL SPARE PARTS..... $297,035
+UK............................... OIL SPARE PARTS..... $93,642
+UK............................... OIL SPARE PARTS..... $8,387
+UK............................... SPARE PARTS FOR $184,494
+ GLYCOL PUMPS.
+Malaysia......................... PIPELINE EQUIPMENT & $10,299,000
+ SPARES (OIL.
+Malaysia......................... OIL SPARE PARTS..... $5,406,000
+France........................... ELECTRIC MOTORS..... $65,190
+Russian Federation*.............. COMPRESSOR/PARTS.... $383,944
+France*.......................... OIL SPARES/PARTS FOR $191,104
+ LPG FILLING PLANT.
+Russian Federation*.............. OIL SPARE PARTS..... $298,000
+Russian Federation*.............. PIPELINE EQUIPMENT & $596,000
+ SPARES (OIL).
+France*.......................... PIPELINE EQUIPMENT & $245,911
+ SPARES (OIL).
+UAE*............................. PIPELINE EQUIPMENT & $74,355
+ SPARES (OIL).
+France*.......................... OIL SPARE PARTS..... $626,742
+France*.......................... CENTRIFUGAL PUMPING $235,460
+ SYSTEM.
+France*.......................... PIPELINE EQUIPMENT & $25,549
+ SPARES (OIL).
+Jordan*.......................... PUMPS AND SPARE $605,010
+ PARTS.
+Jordan*.......................... PUMPS AND SPARE $188,782
+ PARTS.
+Jordan*.......................... COMPRESSOR/ $253,516
+ ACCESSORIES.
+Egypt*........................... TRANSFORMERS........ $42,500
+Jordan*.......................... OIL SPARE PARTS..... $212,105
+Belgium*......................... BEARING UNITS....... $58,463
+Italy*........................... OIL SPARE PARTS..... $8,845
+France*.......................... PIPELINE EQUIPMENT & $284,200
+ SPARES (OIL).
+France*.......................... PUMP/PARTS.......... $128,420
+Italy*........................... OIL SPARE PARTS..... $312,500
+Italy*........................... ROTATING MACHINES... $41,877
+Belgium*......................... BEARINGS............ $56,633
+France*.......................... PUMP/PARTS.......... $252,868
+France*.......................... COMPRESSOR/PARTS; $1,295,895
+ TURBINE SPARE PARTS.
+France*.......................... CENTRIFUGAL PUMPING $138,850
+ SYSTEM.
+France*.......................... EXCAVATORS & SPARE $408,160
+ PARTS.
+France*.......................... OIL SPARE PARTS..... $29,419
+Turkey*.......................... OIL SPARE PARTS..... $223,150
+Italy*........................... OIL SPARE PARTS..... $457,485
+France*.......................... PIPELINE EQUIPMENT & $561,127
+ SPARES (OIL).
+Turkey*.......................... PIPELINE EQUIPMENT & $110,640
+ SPARES (OIL).
+Turkey*.......................... VEHICLE/SPARE PARTS. $65,983
+UAE*............................. VALVE/PARTS......... $88,400
+France*.......................... ROTATING MACHINE $69,345
+ SPARES.
+France*.......................... PUMP/PARTS.......... $111,600
+France........................... ELECTRIC MOTORS..... $65,190
+Italy............................ PIPELINE EQUIPMENT & $49,792
+ SPARES (OIL).
+France........................... OIL SPARE PARTS..... $146,560
+France........................... OIL SPARE PARTS..... $228,760
+France........................... ROTATING MACHINES... $109,431
+France........................... VALVES & PIPE $65,087
+ FITTINGS.
+France........................... VALVE/PARTS......... $357,138
+Italy............................ CHEMICALS........... $656,370
+France........................... FLOW CONTROL VALVES. $654,301
+France........................... OIL SPARE PARTS..... $350,065
+Italy............................ CHEMICALS........... $24,000
+Russian Federation............... GAS TURBINE SPARE $2,909,000
+ PARTS.
+France*.......................... CENTRIFUGAL PUMPING $1,454,600
+ SYSTEM.
+Italy*........................... OIL SPARE PARTS..... $2,492,260
+France*.......................... CABLE............... $18,000
+Italy*........................... GAS TURBINE SPARE $165,932
+ PARTS.
+Italy*........................... ROTATING MACHINES... $210,059
+UAE*............................. VALVE/PARTS......... $31,580
+Russian Federation*.............. OIL SPARE PARTS..... $1,368,712
+Italy*........................... PUMP/PARTS.......... $304,500
+Italy*........................... OIL SPARE PARTS..... $98,660
+Korea*........................... EXCAVATORS & SPARE $294,000
+ PARTS.
+France*.......................... OIL SPARE PARTS..... $568,578
+UAE*............................. DRILL EQUIPMENT/ $867,082
+ SPARES.
+France*.......................... OIL SPARE PARTS..... $284,372
+UAE*............................. VEHICLE/SPARE PARTS$ $880,112
+France*.......................... OIL SPARE PARTS..... $6,725,937
+Turkey*.......................... REHABILITATION SPARE $2118,000
+ PARTS FOR IT.
+China............................ CHEMICALS........... $16,618
+Austria.......................... OIL SPARE PARTS..... $52,122
+Austria.......................... OIL SPARE PARTS..... $53,510
+Austria.......................... PUMP/PARTS.......... $11,562
+Austria.......................... OIL SPARE PARTS..... $14,499
+Jordan........................... BATTERY CHARGER..... $10,824
+Jordan........................... UPS................. $42,509
+Jordan........................... ELECTRICAL EQUIPMENT $223,968
+Italy............................ ELECTRICAL EQUIPMENT $166,682
+Lebanon.......................... TURBINE............. $1,353,767
+Italy*........................... OIL SPARE PARTS..... $253,000
+Italy*........................... PUMP/PARTS.......... $818,900
+Italy*........................... OIL SPARE PARTS..... $238,298
+Italy*........................... SWITCH GEAR......... $66,060
+Italy*........................... OIL SPARE PARTS..... $38,770
+Jordan*.......................... PIPELINE EQUIPMENT & $139,425
+ SPARES (OIL).
+Turkey*.......................... REHABILITATION SPARE $5,880,656
+ PARTS FOR IT2.
+Italy*........................... OIL SPARE PARTS..... $122,400
+Italy*........................... SPARES FOR FUEL PUMP $21,155
+ DISPENSERS.
+France*.......................... VEHICLE/SPARE PARTS. $576,278
+France*.......................... VEHICLES/CREW-CAB... $257,244
+France*.......................... PICK-UP TRUCKS & $153,915
+ PARTS.
+France*.......................... PICK-UP TRUCKS & $407,518
+ PARTS.
+China*........................... TRANSFORMERS........ $25,000
+France*.......................... FORKLIFT/SPARES..... $227,748
+Korea*........................... STREET LIGHTING $364,400
+ BULBS.
+The Netherlands*................. PIPELINE EQUIPMENT & $55,126
+ SPARES (OIL).
+The Netherlands*................. PIPELINE EQUIPMENT & $46,300
+ SPARES (OIL).
+France*.......................... PIPELINE EQUIPMENT & $303,361
+ SPARES (OIL).
+France........................... PIPELINE EQUIPMENT & $3,645,424
+ SPARES (OIL).
+Italy*........................... PIPELINE EQUIPMENT & $3,800,999
+ SPARES (OIL).
+Greece*.......................... OIL SPARES/NOZZLES $16,446
+ FOR FUEL DISPENSERS.
+France*.......................... OIL SPARES/LIGHTING $12,315
+ FIXTURES.
+Turkey*.......................... OIL SPARE PARTS..... $50,050
+Italy*........................... OIL SPARE PARTS..... $694,300
+France........................... PIPE FITTINGS....... $514,115
+France........................... PARTS FOR LOADING $422,966
+ ARMS.
+Germany.......................... OIL SPARE PARTS..... $309,393
+France........................... VEHICLE/SPARE PARTS. $839,183
+France........................... SAFETY RELIEF VALVES $58,761
+Ireland.......................... OIL SPARE PARTS..... $362,981
+Jordan........................... MAINTENANCE......... $130,119
+France........................... CHEMICALS........... $437,210
+France........................... PIPE, CARBON STEEL.. $521,693
+Sweden........................... GAS TURBINE SPARE $25,163
+ PARTS.
+France........................... COMPLETE PUMPS WITH $198,748
+ MOTORS.
+Turkey*.......................... OIL SPARE PARTS..... $54,940
+Russian Federation*.............. PIPELINE EQUIPMENT & $330,900
+ SPARES (OIL).
+Belgium*......................... PIPELINE EQUIPMENT & $38,000
+ SPARES (OIL).
+Jordan*.......................... SPARE PARTS FOR $737,671
+ DRILLING EQUIPMENT.
+Austria*......................... SAFETY & FIRE $118,779
+ FIGHTING EQUIPMENT.
+France*.......................... GAS TURBINE SPARE $15,083,472
+ PARTS.
+France*.......................... PUMP/PARTS......... 230,511.52
+UK............................... OIL SPARE PARTS..... $38,613
+Germany.......................... GENERATING SETS AND $1,343,042
+ PARTS.
+France*.......................... PIPELINE EQUIPMENT & $68,850
+ SPARES (OIL).
+France*.......................... WATER TREATMENT/ $68,952
+ SPARE PARTS.
+France........................... EQUIPMENT & $6,105,691
+ MATERIALS-WET CRUDE
+ PRODUCTION.
+UK............................... PIPELINE EQUIPMENT & $45,961
+ SPARES (OIL).
+UK............................... OIL SPARE PARTS..... $90,323
+Italy............................ OIL SPARE PARTS..... $163,204
+India*........................... CHEMICALS........... $119,017
+Germany.......................... STEAM BOILER/PARTS.. $582,840
+Jordan........................... SPARE PARTS FOR $198,054
+ ENGINES.
+Italy............................ MEASURING & CONTROL $107,345
+ INSTALLATION &
+ SPARE PARTS.
+UK............................... PUMPS AND SPARE $359,616
+ PARTS.
+China*........................... PUMPS AND SPARE $83,678
+ PARTS.
+Finland*......................... OIL SPARE PARTS..... $60,075
+France........................... PUMP/PARTS.......... $277,575
+Jordan........................... SPARE PARTS FOR AIR $22,422
+ COMPRESSOR.
+France........................... ELECTRIC MOTOR...... $57,621
+France........................... ELECTRIC MOTOR...... $33,508
+Portugal......................... DESLUDING EQIPMENT.. $329,664
+France........................... VALVE/PARTS......... $143,199
+Russian Federation............... OIL SPARE PARTS..... $23,005
+Jordan........................... CRANE............... $594,000
+Russian Federation............... PIPE FITTINGS....... $125,173
+Turkey*.......................... TRANSFORMERS........ $104,000
+Turkey........................... FIRE FIGHTING TRUCKS/ $356,705
+ SPARES.
+Belgium.......................... SOLAR GAS TURBINE... $926,852
+Russian Federation*.............. SPARE PARTS FOR $500,020
+ EXCITER.
+France........................... OIL SPARE PARTS..... $181,750
+Cyprus........................... BATTERY CHARGER..... $47,000
+Russian Federation............... INSTRUMENTATION..... $217,298
+Russian Federation............... OIL SPARE PARTS..... $432,000
+Jordan........................... PUMPS,COMPRESSORS $297,598
+ AND ROTARY MACHINES.
+Turkey........................... AIR COMPRESSORS..... $301,148
+China*........................... FILTERS............. $44,748
+Turkey........................... OIL SPARE PARTS..... $27,075
+France........................... COMPRESSOR/PARTS.... $559,386
+Russian Federation............... FIRE FIGHTING $66,500
+ EQUIPMENT.
+Italy............................ HEAT EXCHANGERS AND $2,270,780
+ PARTS.
+Turkey........................... CABLE TERMINATIONS.. $195,000
+Syria............................ CABLE............... $312,700
+France........................... ELECTRIC MOTORS..... $15,803
+Cyprus........................... OIL SPARE PARTS..... $383,825
+France........................... PUMP/PARTS.......... $92,065
+France........................... ELECTRICAL AND $62,821
+ CONTROL INSTRUMENTS.
+France........................... ROTORK ACTUATORS & $215,323
+ SPARES.
+France........................... OIL SPARE PARTS..... $293,280
+Jordan........................... PUMPS AND SPARE $889,681
+ PARTS.
+Cyprus........................... BATTERIES........... $302,475
+Portugal......................... OIL................. $223,750
+------------------------------------------------------------------------
+*Released from hold
+
+
+