Part 1: Since 1929, the Independent Petroleum Association of America (IPAA) has advocated for, protected and defended thousands of independent producers. As the association nears its 95th Annual Meeting in October, this first of two articles examines its initial 65 years.
KURT ABRAHAM, Editor-in-Chief
For 95 years, the IPAA has been on the front lines in its service to, and support of, America’s independent oil and natural gas producers. The association’s volunteer leaders, past and present, along with a highly skilled staff, have skillfully married business savvy with political skills to keep the independent producing industry alive through boom and bust, Fig. 1.
What two dozen determined independent producers started in the summer of 1929 has grown to an organization of thousands today. This first of two articles covers the initial 65 years of IPAA’s history, from 1929 through 1994.
Early days: 1929-1940
The independent producer of spring 1929 was in bad shape amid troubling times. No one was doing anything about the importation of foreign oil, even amid plenty of high-potential domestic production, Fig. 2. U.S. oil reserves were abundant, yet federal policymakers in Washington, D.C., were under the misconception that the country would soon run out of petroleum.
Accordingly, rather than exhaust domestic supplies, government officials encouraged mass imports. In addition, President Herbert Hoover announced that there would be no future leasing of government lands for oil and gas development.
In that vein, Hoover’s Interior Secretary, Lyman Wilbur, convened a government-sponsored oil conference, called the “Oil Conservation Conference.” It was held at the Broadmoor Hotel in Colorado Springs, Colo., on June 10, 1929, to form an organization of oil-producing states with the goal of “conserving” oil and natural gas while balancing supply with demand, Fig. 3.
Unfortunately, nowhere in the discussions on that day could the 24 independent producers in attendance identify any purpose except to restrict U.S. production. When they attempted to bring up the potential restriction of imports on the conference floor, they were told that imports were not on the agenda and could not be discussed. It became clear to them that restricting imports was out of the question.
In a fiery address during the conference, Wirt Franklin of Ardmore, Okla., told conferees that independents were fearful that in the name of conservation, a compact might be initiated that would vest absolute authority in a commission that could restrict domestic production to any level, and allow demand to be filled by foreign oil imports. “If this condition should be brought about,” declared Franklin, “it would mean the annihilation and destruction of the small producer of crude oil.”
The independents, outraged that they would be called upon to limit their production with no corresponding limitations on oil imports, banded together under Franklin’s leadership. On the night of June 10, they met in secrecy and planned to create a new association to represent independent producers.
The next day, June 11, at the Antlers Hotel in Colorado Springs, the new association was formed to defend the interests of non-importing companies. The producers chose the name, Independent Petroleum Association of America, and Franklin was named its first president, Fig. 4. As former IPAA Chairman Jack Allen (1977-1979) recounted 75 years later, “It was an effort, born of necessity, at a time when the independent producers of this country were faced with a crisis that threatened their very existence.” Membership dues were set at $25 per year.
When the IPAA’s founders returned to Ardmore following their historic meeting in Colorado Springs, their first priority was to find office space and hire a permanent staff. They decided one of the principal staff members should be someone who understood the oil-and-gas-producing industry, as well as one who knew law and governmental processes. Thus, they selected Russell B. Brown, who became IPAA’s first “executive manager” in 1930.
From the start, the “I.P.A. of A.” faced unusual difficulties. While the Great Depression was affecting all industries and businesses, oilmen were busy dealing with the East Texas discoveries. Fields were being developed recklessly, and the deepening price decline caused some operators to be desperate for even the smallest rate of return. Thus, IPAA argued for a tariff on imported oil, to bolster domestic output and prices. Indeed, nearly 1,000 producers and refiners met in Tulsa and approved sending a group of independents to Washington, to present their case for an oil tariff. However, this effort met with repeated rejections by Congress. No less than five votes were taken on imposing a tariff on imported oil. All were defeated.
In April 1930, the first issue of IPAA’s magazine, The Independent Association of America Monthly, was published, Fig. 5. Ardmore oil writer William Krohn was the first managing editor. Also, in October 1930, the association moved its headquarters and staff from Ardmore to Tulsa, Okla. Brown, as counsel and executive manager, and Elinor Huss (later Elinor Bond, who retired as office manager in 1967 after 37 years of service) were the only two to move to Tulsa. In addition, Charles E. Bowles was hired as a statistician and public relations specialist at IPAA’s three-room headquarters in the Thompson Building.
Following the organization’s second annual meeting in Tulsa during April 1931, Brown became general counsel and was authorized to move to Washington, D.C., to set up an office. He stayed there until his 1959 retirement. C. E. Buchner was named executive manager of the Tulsa headquarters in October 1931, a position he held until 1954.
Back to the oil imports problem, IPAA’s determined efforts paid off in 1932, when Congress passed not a tariff, but a “tax”—for revenue—on imported oil. Signed by President Hoover, the bill became effective on June 21, 1932, and was to remain in effect until June 30, 1934.
In Washington, Brown kept watch on other industry issues. Although imports were curbed, there was still domestic overproduction. Accordingly, IPAA participated in formulating legislation to keep “hot oil” (oil produced in excess of state-mandated ceilings) off the market. The Connally Act (1935), which replaced the National Recovery Act (1933) invalidated by the Supreme Court, prohibited the sale of hot oil in interstate commerce. Also, during 1935, the Interstate Oil Compact Commission was established.
Reflecting the organization’s growing demands and duties, IPAA held its first Midyear Meeting in Tulsa during 1934. And then at the 1936 Annual Meeting, the Supply and Demand Committee became a permanent IPAA feature. In 1937, IPAA successfully supported extension of the Connally Act. During consideration of the 1938 Natural Gas Act, which would regulate interstate transmission of natural gas sales, IPAA presented no significant opposition. It was not until several years later that the wording of this legislation was twisted into a mandate for control of producer prices.
During October 1939, IPAA held its 10th Annual Meeting in Fort Worth. An important result of that event was Department of Interior action on public land leasing.
As the industry entered 1940, the ongoing war in Europe and Asia began to overtake all other concerns. Nevertheless, IPAA won several victories. These included a provision barring the Interior Department from funding radio programs to influence legislation affecting producers, as well as defeating an attempt to cut the Depletion Allowance in half.
War and Production Controls: 1941-1945
As the U.S. became involved in World War II, IPAA’s mission was to maintain independent producers’ identity while ensuring that wartime price controls would not remain beyond their need. The association successfully fought against creating a War Petroleum Corporation that would have brought direct government involvement in producing operations. IPAA also rebuffed efforts to bring the government into pipeline operations.
At its Annual Meeting in October 1941 in Tulsa, IPAA experienced the highest attendance of any of its meetings since forming in 1929. The association pledged cooperation with the Petroleum Commissioner for National Defense, Interior Secretary Harold Ickes. At that event, IPAA President Frank Buttram designated the Executive Committee to also function as a Committee for National Defense. Two months after this meeting, Japan attacked Pearl Harbor on Dec. 7, and Secretary Ickes created the Petroleum Industry War Council on Dec. 11.
In February 1942, that council adopted a report declaring that prices which consider overall costs are essential for exploration and for maintenance of small wells. In effect, this approved a stand that IPAA had taken some years earlier. At its Midyear Meeting in Fort Worth, the association entertained suggestions for saving steel to support the war effort. And at its 1942 Annual Meeting, IPAA created a nine-member Crude Oil War Requirements Committee.
As the war continued in 1943, sufficient crude price was on the minds of most IPAA members, who were concerned about availability of funds for wildcatting, leasing, purchase of materials, secondary recovery, and continued operation of stripper wells. Everything was affected by the high price of steel, with much of that commodity being diverted to the war effort. Operators and service/supply firms also had trouble keeping employees, as those exempt from the draft were being lured away by higher pay in other industries. And, at its 1943 Midyear Meeting, IPAA received a depressing report from the National Stripper Well Association that well abandonments in 1942 totaled 12,000, or 4,000 more than 1935’s figure.
Not surprisingly, at the 1943 Annual Meeting, members approved a declaration that oil imports should be considered a supplementary source of supply and should never endanger or injure the domestic industry. Another declaration stated that materials should not be allocated for foreign use to the detriment of domestic oil and gas.
As the calendar flipped to 1944, producers continued to be plagued by shortages of materials, manpower and income. The latter problem was due to the arbitrary, “frozen” price for oil imposed on producers by the federal government. Regarding materials, producers made do with what they had. Pipe and equipment from the poorest wells were salvaged for use in more productive wells. Despite IPAA’s consistent efforts, oil price controls remained in effect through the war.
During the remainder of World War II, IPAA was never busier, Fig. 6. The association lobbied for affirmative action on the needs of independents. It also fended off regulatory moves that were intended to help wartime oil production but would be detrimental to producers.
Meanwhile, Interior Secretary Ickes announced in 1944 that the U.S. government would involve itself in building a pipeline across Saudi Arabia to the Mediterranean. IPAA President Ralph Zook of Pennsylvania said that Ickes’ plan “carries more threat to the future of the domestic oil industry that all other problems facing it.” At the Mid-year Meeting, Zook presented results of an IPAA cost survey of Middle Eastern oil. It showed that even at the low crude price prevailing in the U.S. at the time, Middle Eastern oil could be delivered to New York Harbor at a cost advantage over East Texas oil. However, the proposal to build the pipeline was shelved for a while.
In early 1945, a court decision invalidated the Intangible Drilling and Development costs option, which had been a basic element of the industry’s tax base for years. The decision immediately became a primary IPAA issue. The war was still ongoing, and this would certainly reduce drilling while there was a need for heightened oil production.
Simultaneously, independents feared that a flood of imported oil would hit the U.S. At an Executive Committee meeting in May 1945, IPAA adopted the following statement: “To maintain the domestic industry….only such imports of petroleum as are necessary to supplement the domestically produced supply for government and civilian requirements should be permitted to enter the United States.” Also in May 1945, IPAA created a Natural Gas Policy Committee to monitor attempts by the Federal Power Commission to gain authority over production.
At the association’s Annual Meeting during the fall of 1945, with the war now over, producers urged removal of wartime price controls; reaffirmed a priority of domestic production over imports; urged that crude oil output be held to actual demand; called for the need for proper spacing of wells; and warned against potential attempts to control natural gas usage.
Postwar period: 1946-1955
Growing import levels again concerned IPAA after the war. Arguments about projected oil shortages were made, and the huge wartime buildup in foreign reserves generated an almost unstoppable flow.
The National Petroleum Council was created as an industry advisory group and appointed in June 1946, with Walter S. Hallanan as chairman. At its 1946 Annual Meeting, IPAA made the Anglo-American Petroleum Agreement a matter of top importance. Members also expressed opposition to global cartels participated in by the U.S. or its citizens.
At both the Mid-year and Annual meetings of 1947, the shortage of steel for oil field use was a major topic. The shortage was increasing in severity, and IPAA used every remedy possible to get relief for producers. In addition, the need for legislation to address the status of natural gas became apparent. A Supreme Court decision had muddled the situation by apparently giving the Federal Power Commission authority to control the production of natural gas that entered interstate commerce.
Going into 1948, the steel situation was hardly improving. However, as was noted at the Mid-year Meeting, IPAA’s efforts did convince the steel industry to allocate a greater share of material to making tubulars. At that meeting, producers also recommended legislation that eventually was passed into law, extending the time of certain options on public lands, to compensate for operators’ inability to fulfill requirements, due to shortages and weather.
The year 1949 saw the steel industry increasing production of casing, tubing and drill pipe by 8% over 1948’s level. At the Mid-year Meeting, opposition was expressed to using U.S. funds to build up a petroleum industry in Europe or, for that matter, building up resources abroad anywhere. Oil imports and natural gas regulation remained hot-button items for IPAA.
On Oct. 2-4, 1949, the largest IPAA Annual Meeting in history was held in Fort Worth. As a growing organization, IPAA changed offices in Tulsa once more during 1949 before construction plans for a brand-new, modern office building were developed in 1953, Fig. 7. The association operated out of two offices—one in Tulsa, the other in Washington, D.C.—until 1971, when they were consolidated in Washington.
Following World War II, U.S. drilling progressed at an unprecedented rate. More than 20,000 wells and 75 million ft of hole were drilled during the first six months of 1950. By year-end, the industry was drilling at the rate of 165 million ft/year—a rate that produced more than 41,000 wells.
Continued import problems dominated IPAA’s attention during the first half of 1950. In January 1950, President Harry Truman called for a reduction in the Depletion Allowance. In February, the Treasury Department recommended to the House Ways and Means Committee that the rate be reduced from 27.5% to 15%. IPAA and other industry groups lobbied the committee to keep the higher rate for a variety of operating reasons. Thankfully, after a few weeks, the committee voted to keep the higher rate.
Also in 1950, Aramco finally constructed the pipeline project that the U.S government first envisioned in 1944. The U.S. company, Bechtel, built a 1,000-mile pipeline directly from the Saudi oil fields across Jordan and the Golan Heights to Sidon in Lebanon. Saudi King Abdul Aziz had authorized the project in 1949.
By the early 1950s, as they experienced relative prosperity, independents had drilled more wells, found more oil, produced more oil, and sold more oil than ever before. The years 1951 and 1952 were relatively quiet, save for Congress passing the Oil and Gas Conservation Act.
Another noteworthy item occurred on Aug. 7, 1953, when Congress passed the Outer Continental Shelf Leasing Act, to help the federal government lease its offshore mineral and energy resources in an orderly manner. And in 1954, despite being much maligned by some members of Congress and career bureaucrats, Intangible Drilling and Development costs became part of the IRS Code. The Annual Meeting of 1954 celebrated IPAA’s 25th anniversary.
Perhaps the most influential legal action in IPAA’s history was the 1954 Phillips decision, in which the Supreme Court ruled that the Natural Gas Act of 1938 allowed the Federal Power Commission to regulate interstate natural gas prices at the wellhead. The decision greatly affected IPAA. Membership, which had grown to over 13,000 in 1956, began to decline, as some producers left the business under the weight of the regulation. IPAA quickly challenged the commission’s bureaucratic regulatory practices.
In June 1955, an amendment to the Trade Agreement Act (Defense Amendment)—long advocated by IPAA—was passed, authorizing President Dwight D Eisenhower to adjust imports when they threatened national security. At its 1955 Annual Meeting, IPAA adopted a five-point program to balance supply with demand, including definitively limiting petroleum imports. The association also pledged its support for the Interstate Oil Compact, which it had long supported.
From prosperity to decline: 1956-1972
Controlled gas prices, along with control of domestic oil prices via regulation of import levels, resulted in a significant slide in industry fortunes between 1956 and 1973. While oil production peaked in 1970, exploratory activity was weak. By 1971, the number of active rigs was down to 975, the lowest figure in decades. Throughout this period, IPAA fought for a rational import policy. But with prices depressed and drilling declining, greater imports were necessary to meet demand. Nevertheless, IPAA beat back attempts in Washington, D.C., to reduce or eliminate Percentage Depletion.
In 1956, IPAA supported a bill to limit U.S. petroleum imports to 4.5% of consumptive demand. However, Congress failed to pass it. During June 1957, President Eisenhower established a Special Cabinet Committee to study whether imports hurt national security. Concern over the imported oil issue continued to grow, as imports reached more than 2.6 MMbpd. Accordingly, on March 10, 1959, President Eisenhower implemented the Mandatory Oil Import Program to keep imports in check.
As the 1960s began, IPAA again entered a relatively quiet period, although not problem-free. In 1962, the association’s first president, Wirt Franklin (1929-1935), declared in an interview with Independent Petroleum Monthly that oil supplies during World War II were sufficient, only because of the tremendous domestic activity during the 1929-1941 period. But, of course, imports in the current period continued to threaten domestic supplies. In the midst of this, OPEC was formed on Nov. 14, 1962.
Early on in 1960, some IPAA leaders believed that to meet increasing demands and to provide a reserves cushion against future emergencies, U.S. producers needed to find significant new reserves of oil. Association leaders also warned Congress about an immediate threat of natural gas shortages and increasing concern about adequate oil supplies.
In 1965, the first hydrocarbons were discovered beneath the North Sea, posing yet another threat to U.S. domestic production. Two years later, on June 6, 1967, the second day of the Six-Day War in the Middle East, Arab nations announced the 1967 Oil Embargo to pressure Western countries into forcing Israel to withdraw from the territories it had seized. The embargo involved cutting oil production 25% and banning exports to the U.S., the UK, and West Germany. The embargo was an attempt to deter countries from supporting Israel militarily.
Led by OPEC, the embargo was unsuccessful, because the oil market ran a surplus at the time, and the U.S. was able to surge 1 MMbpd of extra production capacity in response. By September, the embargo was lifted.
As the nation headed to the 1968 presidential election, longstanding approaches to managing the U.S. oil market remained largely the same. The federal government and state regulatory agencies helped maintain oil prices nationally by controlling foreign imports and managing domestic production. This methodology kept oil prices from going too high or too low and established both political and economic equilibrium.
This tidy arrangement was upset quickly on Jan. 28, 1969, when an oil well on a Union Oil Company platform blew out 5 mi offshore the coast of Santa Barbara, Calif. This incident spurred formation of the modern environmental and anti-oil movement, something that IPAA has had to deal with in the 55 years since. Yet, just two months later, some good news came from an announcement by ARCO and Humble Oil of the discovery of the massive Prudhoe Bay field in Alaska.
In 1970, even as IPAA launched a drive for a comprehensive import program to ensure adequate oil supplies, few could have known that this would be the year of peak U.S. oil production. In December 1970, the U.S. federal government established the Environmental Protection Agency, a perpetual thorn in the industry’s side and the target of many IPAA activities in the years since.
On Nov. 5, 1972, incumbent President Richard Nixon handily defeated Democratic Sen. George McGovern in that year’s presidential election. Little did Mr. Nixon know what awaited him on the oil and gas front in the next year.
Rebound and regulation: 1973-1979
From 1973 forward, the 1970s were highly dramatic for energy, requiring much of IPAA’s attention. Perhaps the greatest disruption to the global oil market came in October 1973, when Arab oil-producing nations imposed a total ban on oil exports to the U.S. after the outbreak of the Arab-Israeli war (Oct. 6-25). Ironically, in April 1973, President Nixon had ended the oil import quota program begun by President Eisenhower in 1959. In the midst of this energy emergency, C. John Miller was elected as IPAA’s 20th president. On Dec. 31, 1973, President Nixon announced a stand-by gasoline rationing plan.
One of IPAA’s longest-serving executives was Lloyd Unsell, who served the association for nearly 40 years. He joined the IPAA staff in 1948 and was put in charge of information programs. He was named vice president for public affairs in 1949, and then became executive vice president in 1976, leading the entire IPAA operation. Unsell continued that role as president from 1985 until retiring in 1987, Fig. 8.
Former IPAA President Barry Russell (president from 2000 to 2022) recalls that Unsell said this of Miller: “John Miller was unfortunate to have been elected chairman in the very week of the 1973 Israeli-Arab conflict, which led to the Arab embargoes on oil shipments. This led the late Sen. ‘Scoop’ Jackson (D-Wash.) to begin a seemingly endless tirade against the domestic oil industry, holding severely critical hearings for days, weeks and months on end. John (Fig. 9) was the only industry spokesman who stood up to him and refuted his disastrously phony and misguided statements, emerging as an industry leader appreciated not only by independents, but also the leaders of the major oil companies.”
After announcing his gasoline rationing plan, Nixon then signed a 55-mph speed limit bill on Jan. 2, 1974. Fortunately, the Arabic nations’ ban on oil exports to the U.S. was lifted on March 16, 1974, after OPEC members earned $100 billion from the increased global oil prices. Owing to OPEC’s actions in 1973, IPAA faced numerous problems.
Meanwhile, domestic drilling took off after the Arab Oil Embargo. Wells drilled in the U.S. jumped 20% higher in 1974, and 19% higher in 1975. The nearly 41,000 wells drilled in 1975 were the highest number since 1964.
In November 1976, Democrat Gov. Jimmy Carter (Dem. – Ga.) defeated incumbent President Gerald Ford (Rep. – Mich.). Upon taking office in January 1977, President Carter began promoting a culture of conservation. Not coincidently, Congress in late 1977 passed the Clean Water Act, giving the industry and IPAA another headache to deal with.
The year, 1977, is also notable for opening the Trans-Alaska oil pipeline on June 20. In addition, on June 21, the first shipment of oil arrived at the National Strategic Petroleum Reserve. Another landmark item occurred on Aug. 4, when President Carter signed an act creating the new, cabinet-level U.S. Department of Energy. Thus, IPAA had yet another new level of federal bureaucracy to deal with. Before the year was done, Jack M. Allen of Texas was elected as IPAA’s 22nd president. According to Barry Russell, Allen often was called upon to address Congressional committees and agency hearings about unbelievable regulatory complexity and producer uncertainty.
On Nov. 9, 1978, Carter signed into law the National Energy Act, a package of five statutes passed by Congress, including the Natural Gas Policy Act. It was the first step toward breaking down the regulatory system in natural gas markets. Meanwhile, U.S. drilling continued its upward climb, up 4% in 1976, rising 11% in 1977, and gaining 9% in 1978. The latter year’s well total was more than 51,600. And yet, the federal government’s quest for an answer to the growing U.S. dependence on imported oil seemed to have no answer.
Then, on Dec. 25, 1978, the Iranian Revolution began, and the panic on global oil markets pushed prices 150% higher. The Iranian Revolution brought a 3.9-MMbpd drop in Iranian oil production from 1978 to 1981. Accordingly, OPEC again raised oil prices, with the average per-barrel rate 50% higher than a year earlier.
As one way to combat dependence on foreign oil, President Carter, on July 15, 1979, signed a massive six-point bill that included measures for conservation of oil, as well as the development of shale oil.
Mergers and retrenchment: 1980-1989
As 1980 began, the period of upset brought by the Iranian Revolution remained unchecked. Oil prices were historically high, the supply gap caused by the drop in Iranian production remained relatively unfilled, and U.S. producers, including many IPAA members, were ramping up their drilling. In fact, U.S. drilling jumped 35% higher in 1980, tallying a then-record 71,795 wells.
The 1980s also were the “Decade of Commercialization.” New and emerging technologies were beginning to change upstream operations. Although they were expensive and most independents couldn’t afford them, the technologies developed during the 1980s eventually made many IPAA members and other independents more competitive.
During 1980, more than 1,600 members came to Dallas for IPAA’s 51st Annual Meeting. It was the second-largest turnout for a meeting in the association’s history. In addition, Republican candidate Ronald Reagan was about to defeat incumbent Jimmy Carter and be elected the 40th President of the U.S. Accordingly, Reagan sent a telegram to IPAA members at the Dallas meeting, which said, “The Reagan Administration will fight for true deregulation of natural gas, without onerous taxes, which would defeat the purpose of the legislation,” Fig. 10.
As the Carter Administration began to flounder during 1980, the first 5-year Outer Continental Shelf leasing program began, to cover offshore activity in federal waters for the years through 1985. Any sales previous to 1980 were done on a case-by-case basis.
In early 1981, President Reagan ended price controls on oil and refined products. But on the negative side of the ledger, Congress passed its first OCS leasing moratorium for certain tracts in specific offshore regions. During 1981, duPont acquired Conoco.
The Minerals Management Service was created as an agency in January 1982, to manage the nation’s oil, gas, and other mineral resources on the OCS. And in the back half of 1982, Congress passed the Federal Oil & Gas Royalty Management Act, to handle royalties on federal and Native American lands. Meanwhile, U.S. drilling, after jumping 29% higher to a record 92,333 wells in 1981, declined 7.5% in 1982, to a little over 85,400 wells. Also, during 1982, U.S. Steel took over Marathon Oil.
In March 1983, OPEC cut the price of oil, reflecting declining worldwide demand. That move had an immediate effect on drilling around the world, including in the U.S. Many producers, including IPAA members, cut back drilling. Consequently, U.S. drilling in 1983 fell 10%, to a shade over 76,800 wells.
According to federal figures, U.S. producers discovered 1.14 Bbbl of crude during 1984, the highest since 1981. However, over a 30-year period, U.S. oil reserves fell from 15.0 Bbbl in 1954 to just 7.6 Bbbl in 1984, while oil prices averaged $29/bbl. Several significant mergers took place during 1984, including Standard Oil of California’s (Chevron’s) acquisition of Gulf Oil; Texaco’s takeover of Getty Oil, and Mobil’s acquisition of Superior Oil Co.
As hints of oversupply on the market began to appear during 1985, independent producers cut back on their U.S. drilling, as did the majors. Drilling during 1985 fell 17%, to roughly 71,100 wells. But this was nothing, compared to the following year.
Also, during 1985, IPAA changed Lloyd Unsell’s title as the head of the staff from executive vice president to president. Accordingly, the lead elected position was changed from president to chairman. Per the new titles, Raymond H. Hefner, Jr., was elected IPAA’s 26th chairman in late 1985.
To regain market share, OPEC decided in 1986 to introduce a new pricing system and raised its production quota. Accordingly, Saudi Arabia (and other countries), eager to regain market share, opened the spigots and flooded the market with crude.
The flood of crude resulted in a four-month oil price plunge of about 67% that left prices barely above $10/bbl. OPEC on Feb. 18, 1986, announced that oil prices had dropped below 15/bbl for the first time in many years. Ironically, the Strategic Petroleum Reserve, built to ensure supply during shortages, reached a fill of 500 MMbbl of oil, enroute to a planned capacity of 750 MMbbl.
The plunge in oil prices had a devastating effect on U.S. producers. Although oil prices eventually recovered to $18/bbl later in 1986, the damage was done. The number of U.S. petroleum producers decreased from 11,370 in 1985 to 5,231 in 1989. Many of the casualties were independent operators, including a number of IPAA members.
Drilling in the U.S. fell 45% during 1986, alone. Drilling then proceeded to fall an average 3,000 wells per year until bottoming out at just over 28,000 wells in 1989.
During 1987, oil prices improved moderately, but by the fourth quarter, the OPEC agreement holding it all together began to fall apart. A significant merger occurred in 1987, when BP acquired Standard Oil of Ohio.
Also, during 1987, IPAA President Lloyd Unsell retired. A former newspaperman, Unsell used his communicative skills in preparing hundreds of position papers, articles and speeches on U.S. energy policy. At the time, former chairman C. John Miller said of Unsell, “He is a very hard-working and committed person with a warm heart and a genuine concern for individuals. Lloyd is a big man in many ways and certainly the biggest part of the man is his heart.”
As the upstream industry struggled to improve during 1988, Congress proved to be less-than-helpful, when it passed the first-ever OCS drilling ban as part of an FY1989 DOI Appropriations bill.
In March 1989, another landmark event occurred when Exxon’s Valdez oil tanker hit a reef in Alaska’s Prince William Sound, spilling 240,000 bbl of oil from a cargo of 1.26 MMbbl. This incident caused long-running environmental and lobbying problems for all oil and gas companies and associations, including IPAA. During late 1989, C. Paul Hilliard was elected as IPAA’s 28th chairman. Barry Russell noted that Hilliard saw the impact on U.S. independents of Canadian natural gas imports and pipeline rate design long before anyone else.
Persian Gulf War I and great tumult: 1990-1994
The first half of the 1990s was a period of many challenges and changes in the industry. In 1990, independents actively participated in the development of a National Energy Strategy. For the first time, IPAA and state and regional cooperating associations worked together to support an independent producer agenda as part of the national energy strategy debate.
Meanwhile, it also was a time when independents faced serious tax and environmental challenges. In addition, the U.S. economy was in a recession. While lower drilling costs did help producers, they were also hurt by unstable oil prices. New capital for domestic E&P was nearly non-existent. Several things happened on the federal front during 1990. Congress passed amendments to the Clean Air Act and also passed the Oil Pollution Act of 1990. U.S. President George H. W. Bush withdrew certain federal areas for leasing, and then Iraq invaded Kuwait on Aug. 2, causing world oil prices to jump.
However, in 1991, the U.S. was mostly helpless to prevent another domestic oil production decline, despite the recent oil price run-up and looming supply crisis. This was the case, because the industry was decimated by the aftermath of the 1986 oil price collapse and could not summon the capital, equipment and personnel to make a significant difference.
During 1992, Secretary of the Interior Manuel Lujan, Jr., delegated authority for the Oil Pollution Act of 1990 to the MMS. And then, in 1993, President Bill Clinton proposed a BTU Energy Tax. It was targeted to impact most heavily on fossil fuels. Needless to say, IPAA, along with other independent producers, major oil companies and associations, fought the proposal vigorously. The joint effort paid off, and the tax was not enacted. Also, during 1993, George A. Alcorn of Texas was elected as IPAA’s 30th chairman, Fig. 11. According to Barry Russell, Alcorn founded the Natural Gas Council (1992) and shaped natural gas policy for the IPAA. WO
Editor’s note: The second article in this special report will run in the September issue.