Escopeta Oil President Danny Davis Calls on Congress and the President to Reinstate Domestic Drilling Incentives

Business Wire, July 9, 2008

"The Escopeta Plan" proposes that independent drillers can help solve America's energy crisis

HOUSTON -- Houston oilman Danny S. Davis, president and CEO of Escopeta Oil, is convinced that those seeking a solution to America's current oil crisis are looking in the wrong direction. Instead of looking forward, they should be looking back - to the 1960's and 1981. Davis has more than 30 years of experience in all aspects of leasing, drilling and operating in the energy arena. Presently Escopeta is the third largest leaseholder in the Cook Inlet Basin, Alaska with 130,000 acres under lease.

Twenty-seven years ago, 4,500 of the total 6,200 drilling rigs operating worldwide were drilling in the United States and domestic oil and natural gas production was at an all-time high. Today, the number of drilling rigs drilling daily on the domestic front is down 60 percent to just 1,900. Of those, only 300 are actively engaged in exploratory oil drilling activities.

Consumers already are feeling the pain of high gas prices at the pump. What most consumers are not aware of, according to Davis, is that there also is a shortage of natural gas and utility bills will skyrocket in coming months.

Congress passed new tax laws in 1982 that reduced the tax write-off available to oil companies and investors for initial drilling investment expenses from 100 percent to just 65 percent. They also chopped the tax credits known as depletion allowances from 27.5 percent to a cap of 15 percent. Davis said that, as a result, large oil and gas companies moved their drilling operations to foreign soils and since that time have capitalized on subsidies provided by our own government.

"This legislation effectively eliminated incentives for companies to invest in exploratory drilling in the United States," said Davis. "U.S. policies were driven by opportunities to import cheap oil from overseas. While the small independents, who handle the majority of drilling in the U.S., were being taxed out of business, the majors were reaping the benefits of foreign subsidies. Today there is no such luxury as 'cheap oil' and everyone is looking for a solution."

Davis explained that several factors are contributing to demand outpacing supply. China and India are experiencing explosive growth among people driving. The exploration environment is riskier, and more expensive, than in past decades. It costs four times more to drill a well today as it did just four years ago.

"Lawmakers need to revisit the incentives that made domestic drilling an attractive investment proposition to oil and gas companies," said Davis. "Alternative energy solutions are an essential element in our eventual move toward energy independence, but they are years away from fulfilling the massive, and growing immediate needs of the United States. Drilling in Alaska's Arctic National Wildlife Refuge (ANWR) alone also is not enough."

Davis' "Escopeta Plan" calls on Congress to immediately establish an energy policy that encourages, rather than punishes, oil companies to drill in the U.S. It also asks Congress and the President to reinstate 100 percent write-offs of all exploratory drilling, completion, acreage and operational expenses for the year drilled, and return the depletion allowance to 40 percent.

"Thousands of independent oil companies stand ready to help the country drill our way out of this mess," Davis said. "The result would be the most massive stimulus to the U.S. economy in over 30 years."

According to Davis, the average 14,000-foot drilling rig requires a $20 million investment to build, support, staff, and operate. Two thousand more rigs in operation represents the equivalent of a $40 billion injection into the economy from the drilling contractors alone. Another $300 billion will be spent over the next few years in the U.S. by the oil companies actively drilling for oil and natural gas and creating thousands of jobs.

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