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Economic Analysis

E c o n o m i c A n a l y s i s B y D a n O l d s , R y d e r S c o t t P e t r o l e u m

Domestic oil and natural gas production contin- ues year after year to contribute significantly to state and federal economies. From providing tax revenue to states to supplying valuable jobs to citizens across the country, these critical resources available on American soil truly are “fuel for eco- nomic growth.”

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    is report deals with the economic contribution

of marginal wells – admittedly a small portion of our national energy resource base, but a significant portion of our national oil and gas production base. ๎•e Energy Policy Act of 2005 (EPAct 2005) is 551 pages of initiatives that encompass all types of energy sources, conservation issues and research. However, the only reference to marginal wells is an incentive whereby royalties collected from marginal production on federal lands will be reduced if the average prices for oil and gas fall below $15 per barrel or $2 per MMBTU (Million British ๎•er- mal Units), for the period while prices stay below the thresholds.

Marginal production has a distinct advantage over many other types of energy sources proposed in EPAct 2005. ๎•e resource has already been located and quantified - it already exists. In fact, almost every existing onshore well in the United States

will be a marginal well at some point in its life cycle, so there’s going to be a steady supply in the future. Currently, 17.8 percent of the nation’s oil production and 8.8 percent of natural gas produc- tion comes from marginal wells. Does this mean that no incentives or other efforts are necessary? No, because the amount of production the country can expect from marginal wells is highly dependant on economics. Any price increases for oil or gas, or


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