but having discovered that bill, at continental, we've been able to do that. today i'm going to talk to you on the perspective that seasoned petroleum geologist has been in this business for about 45 years. i first started speaking about two years ago. at the time it was being severely disparaged and people were trying to get market share. so i thought i would stand up for oil and start talking about that. it's a very important segment of our energy picture. nearly all transportation runs on it. there's hardly a jet plane anywhere that burns anything besides oil products. also here to talk about these federal tax provisions that will allow us to continue the job of the american dream of energy independence that we've begun.

these are very important for america. you know, there's 18,000 independent producers today that drill 95% of the wells in america. we produce 67% of the oil, 86% of the natural gas that's produced today. we typically invest all that we make, borrow about 30% more, and i'm afraid our company falls in that same lot as well. independents are in the exploration and production business. that's what we do. we have no refining operations, and i won't get into the tax consequences. senator nickles covered that very well, section 199 on tax credits can affect us a whole lot. but certainly the idcs do, and if we do away with those, we'll stop this march to energy independence that we've begun. these same tax provisions not only allowed us to survive the

terrible times, disastrous years of the '80s and '90s that eliminated about 50% of the independents within our ranks, but also allows one other important things, and that allows us to fail and try and try again. that's what it took with the bachen. we drilled about 18 commercial wells up there before breaking the code on producing this mighty oil field, that was somewhere over 24 billion barrels. without that ability, we wouldn't have been able to do that. and also talk about some other players. you know the barnette. george mitchell's quest down there. george worked 16 years, breaking the code on the barnett. this is the largest oil -- the largest natural bill today in texas. it took 16 years to break the code, to get that done. so try and try again, he's able

to do. i might just talk about a new era that we've entered, of american oil. you know, it's fair to say we're transcending from an era that was mobile. that oil moved. what we've entered into today is an immobile portion of the oil an earth. and this is estimated to be at least a third larger than the mobile portion was that we've produced in this world 160 years. we're now able to do that through one thing, and that is provision horizontal drilling. we're able to go down two miles, push right, go two miles, and hit that lapel pin, you know, with a drill bit. it's that precision that we've developed. the independents largely responsible for that development, myself and others. and we're able to do that precision drilling. and that's what i unlocked this

new era that we're into. and it's certainly a great era. you know, we've had tremendous success in these new resource plays across the country. somebody aptly described the new natural gas supplies that we've unlocked, some 100 years, i think it could be even greater than that. it's tremendous. and we've seen the imports go down as new productions come on, here in america. we've gone down to about 42% right now, from 60%. a high of 60%, we're down to 42% now. and it's estimated, marshall adkins, a renowned analyst with raymond james. he's estimated that will fall to 26% by 2015. that's just around the corner. and also, would cut our trade deficit by 82%, by 2020. so it's tremendous, where we're headed, and what it's done.

but most importantly, we're into a cheaper price regime at a discounted price regime for both oil and gas for the consumer. so lower costs to the consumers here in america. about $15 a barrel, right now, differs between us and brent's price, and we're talking $2 natural gas here and we're talking $12 natural gas in china today. so it's a tremendous difference. but what the impact this new production to america, it's better national security, drastically reduced deficit, and deficits. job creation, good-paying middle class jobs. we've seen that in oklahoma, texas, north dakota, kansas, montana. you know, wherever oil and gas is. so what we're doing is estimated by api, we could 1.2 million jobs to the 9.3 million jobs that's currently in our industry

today, by 2030. and in the american wealth creation, we're talking wealthy creation to our own federal government. $18 trillion value of oil and gas on federal lands. that's the estimate that's out there. we're not talking about creating other richer, we're talking about it at home. we're talking about 10 million right here. in the states, you know, north dakota doesn't have those deficit. montana doesn't have a deficit. the states doesn't have a deficit. but i think -- i think the big thing is psychological impact in america, the self-sufficient in america producing what we need right hear at home and saving american lives. so the unintended consequences, if we're not careful, but changing these rules could be devastating. we could stop this energy renaissance, we certainly do not

want to do that. thank you very much. >> thank you, gentleman, very much. a couple questions. first, first, as prompted a bit by congressman sharp's point, all your technologies unpredicted, natural gas unpredicted, prices unpredicted, and the basic question is the degree to which tax policies really matter. the fracking technology was developed, nuclear technology is being developed, lots of other energy and technology are being developed, partly because of the entrepreneurial spirit in america, people sell to make a buck, and the basic question swb how much do these tax incentives really matter, really? a side question there is which other countries do? do they matter? or are we just responding to

political question, when, really, a lot of the results are the result of people figuring out how to do a better job? and actually a third question, if i can wrap them together is, as this committee works to do tax reform, the argument is, why don't we have a more technology-neutral credit, technology-neutral deduction. some standard to help boost energy production, so domestic energy production, but in a way we're not picking winners and losers. i know it's a complicated question, but if anybody wants to take a crack at it, those are some of the things in my mind. dr. jorgensen? >> the main point i would like to make, mr. chairman, is that the opportunities are not so much on reducing the tax expenditures that you just enumerated, that is an important issue. but this committee over the years has worked to limit these tax expenditures, the things

that we're talking about here in terms of expensing development and the percentage depletion and so on, i certainly agree with you, those should be reconsidered. the big issue, though, is on the side of the utilization of energy. in other words, a use of energy. and that's where energy taxes really have to play a role. we have an opportunity raise revenues equal to 1.5% of our gdp, and those are entirely on the side of using. we have nothing to do with technology, technology neutrality. that's another range of issues that i think is secondary, relative to energy utilization. >> do you focus more on -- what do you mean by energy utilization? >> i mean burning fossil fuels, senator. so i'm referring to combustion of coal and the generation of electricity. i'm referring to the combustion of oil products, as mr. hamm

reminded us, in transportation, and the use of natural gas. the tax for energy would be primarily -- you're the senator from montana, so you're well aware of this, on coal, it would be a modest tax on oil and a very modest tax on natural gas. that would lead to the substitution that is under way right now, away from coal, which is the most polluting energy source toward natural gas in the generation of electricity. that is the great environmental opportunity of our time. it just turns out that it produces a lot of revenue. >> so it's a cousin to a carbon tax? >> this is not a carbon tax. >> is it a cousin? >> yeah, it's a kissing cousin of the carbon tax, let's put it that way. this is a tax on the six criterion environmental

pollutants, which have been identified for years by the environmental protection agency going back to the clean air act of 1970 and enhanced by the clean air act amendments of 1990. and so it would focus specifically on the pollution that is associated with these criteria pollutants. so what are those? well, there are course particulates, smoke. there are fine particulates, also in smoke, but less visible. and the list goes on. you can fill out the rest of the list. we've got to have taxes that limit this pollution. this is conventional pollution. we're not talking about climate change here. we're not talking about saving the planet. we're talking about saving lives, reducing illness. that is what environmental protection is about and we have a job that is still undone, that turns out to be a potential source of revenue, equal to 1.5%

of the gdp on the side of utilization. >> mr. sharp, do you have any thoughts. >> very quickly, to pull out win sliver, when you were talking about new technologies. and i talking about them. well entrepreneurs are very important and imaginative work all around this country very important, the truth is, the government has been very important here too and the tax credit on research and development, which i'm sure you're more familiar with than i am, is to keep our private sector entities working, to keep our great research institutions, to keep our national laboratories, figuring ahead, because we don't know which ones of these will work. now, let's understand this extraordinary work by mr. hamm and others was facilitated by the federal government. i mean, seismic 3-d, which allowed the much greater visualization into the ground to advances was a major industry achievement, but it had federal backing to help figure out, how do you do that? swell some of these other technologies. and i think you have to be a little careful that if you just

rip all this out and think it's all going to be done out there without somebody who will see through this, because it wasn't worth anybody. there was no immediate return for a lot of these technologies, the return only happened after several decades. the same i would say, it's the same with the production of new kinds of energy sources like wind. i doubt we would have anything like the wind industry that we have today if the federal government had not engaged in research to bring down the costs and upgrade the efficiencies, not to take anything away from private sector activities, nor had you not adopted 1992, or whenever it was, in the energy policy act, the production tax credit. the issue is whether or not that is really still necessary for sustaining -- >> my time's expired. expired some time ago. senator hatch. >> thank you, i really enjoyed this panel. and this particular question is for the entire panel a number of tax policy experts believes the tax system should simply be used

to raise the revenue necessary to fund constitutionally limited federal government and not get involved in social zwrerg through the cove. now, these experts suggest that the energy policy should not be run through the tax code. now, as part of the tax reform exercise of lowering tax rates by broadening the tax base, in a revenue neutral manner, tennis one approach to deal with energy tax provisions. i would just like to have your thoughts on such an approach with energy tax reform. great to have you back and great to have all of you here today. >> senator hatch, a couple of comments. one, tax policy does make a difference, in partial response to your question and senator baucus' question, if you no longer allowed or intend drilling costs to be expensed, you would shut down the shell revolution, the oil revolution that's happening in the bachen and every major play. i'm on the board with a couple of companies.

that is a big deal. if you don't allow people to expense, and they've had expensing -- independents have had it, frankly, since 1913 or something. >> well, like 18 dry holes in bachen. >> absolutely. senator hatch, in response to your question on overall tax policy, absolutely, getting a lower rate, more competitive rate, competitive ily internationally, this committee hasn't done a lot on the international tax front. we've always talked about it, but it's really about time. and i think a greater consensus in moving towards the territorial system makes sense. we are becoming a smaller world in international competition, and frankly, we shouldn't be giving advantages to our international competitors over our u.s.-based companies. we want more u.s.-based companies to be successful internationally. and finally, senator hatch, kind of in relation to your comment and overall, the tax rates, you want to have, and to some

extent, to be as efficient and maybe raise as much money as they can, without doing harm. when we reduce capital gains, and corporate dividends to 15%, we actually raise more money for the federal government. i'm very concerned about the cliff that's coming on cap gains, the rate in january 1, if the committee doesn't do something, the congress doesn't do something. it's going to go from 15 to 25. and on corporate dividends, it goes from 15 to 44. 15 to 44. the ordinary rate, 39.6, 3.8 on top of that for the president's obama care, and then maybe another 1.2 on elimination. so you go from 15 to 44.6. that's tripling the rate on corporate dividends for individuals. corporations already paid 35%. so this committee really needs to do some work. and from your vantage point and from trying to raise money, if

lower capital gains rate actually raised money, if you take the capital gains from 15 to 25 or corporate rates and triple them, i'm afraid the government is not going to raise money, i'm afraid you're going to lose money and it's going to hurt real estate, it's going to hurt banks that loan for real estate. >> you're talking to the choir here. it was the lieberman bill that brought rates down to begin with. >> senator? >> i was around and not on the relevant committee in 1986 when this theory was very popular about just not using the code for any social engineering. i think it's a good one if we can all subscribe to it. i just don't know any faction in america that really believes it enough to act on it. i can imagine this committee will be able to not be inundated with everybody. we already heard one appeal to why some critical provision is necessary in the code. we're certainly a lot better off economically if we can get this similar, if we can get the rates down, if we can get rid of some of the tax preferences. but i think it's a pipe dream of

some outsiders who think that this business organization, let alone, the u.s. congress can follow that -- >> professor -- >> senator, nobody is talking about eliminating things like percentage depletion or the deductibility of expiration and development. what we're talking about is bringing those tax provisions into line with fundamental economics. that is what the concept of tax expenditures is all about. so we're not talking about getting rid of incentives. we're talking about making them neutral, which is your point, as i understand, mr. ranking member. secondly, as i emphasized in my written testimony and in my oral remarks, 19% of the gdp is the revenue contribution to the federal budget seems to me to be a reasonable target. we're below that level now.

we are at 17% or below. as i said, 17% is the number for the last real data we have. the congressional budget office has projected that for this year, this calendar year, that is, the number is going to be lower. so we need to have some kind of consensus. i'm talking about unanimity. i would like to see everybody subscribe to this, around a number like 19% is a starting point for our debate. but i agree with you entirely that we should have a neutral tax code. that is the purpose of comprehensive reform, as i see. >> thank you, mr. hamm. the last one. >> i mentioned unintended consequences, you know, and the government's quest to raise more money, and equalize things. i just want to caution that this tax could be one that vaporizes, you know, if idcs are taken away, that we stop the

renaissance and still don't raise a lot of money. there's $4 billion, you know, drilling ceases or slows down considerably. you know, we've examined our company and, you know, absolutely a third less drilling would take place without drilli without the idcs. >> thank you all. >> senator conrad. >> thank you, mr. chairman. thank you for holding this hearing. thanks for the excellence of this panel. i remember very fondly serving with senator nickles. we've led the budget committee together for a number of years. one thing i learned about senator nickles is his word is absolutely gold, even when it's hard to keep his word, he did, which i always admired. congressman sharp, always good to serve with you, you're a thoughtful member. dr. jorgenson, wise man. fortunate to have somebody of your quality and character before the committee. mr. hamm, thank you for what you've done for the country. thank you for what you've done for our state. i just want to point out what's

happened to dependence on foreign energy. since 2005 we have gone down from 60% dependant to 45% dependant last year. we believe we'll be 42% dependant this year, so we have seen a dramatic reduction in our dependence on foreign energy. still, we are spending $1 billion a day to foreign sources, and it's incredibly important to the economics of the country we make further progress. let's go to the next slide and show what's happened to domestic production, and, again, i thank mr. hamm. thank you for making the investment. thank you for taking the risk. thank you for having faith that what you and your people saw as an opportunity was worth pursuing because you've helped turn around our domestic production in a very dramatic way. and i believe it's entirely in

our nation's interest, in the national security interest, in the national economic interest, and we've got to pursue it. that takes us to the question of incentives. mr. hamm, you have focused on intangible drilling costs. can you just tell us again why in your view that is so critical? you've testified here that if that were taken away in your company alone, you believe there job a one-third reduction in drilling. is that -- is that what your people have concluded? >> it is. i'm not a tax accountant. you know, i'm an oil founder, but we do have a lot of tax accountants that work for us, that are on staff, and we've done a study on it, and that's been our consensus, that -- that in our company it eliminates about 34%, 35% of our drilling activity right off the bat. takes about seven years for us

to get back to normal, some normal type operation. >> if that were taken away. >> yes. let me just say, you know, i've served on the bowles/simpson commission, group of six, tried to be part of efforts to get us back on track because when you're borrowing 40 cents of every dollar, that cannot continue much longer, and we have got to get ahold of it. part of our issue clearly, almost every bipartisan group that has looked at this has said that tax expenditures have got to be part of the solution because it's now $1.2 trillion a year. that's more being spent through the tax code than all of the appropriated accounts. so i personally believe we're going to have to reduce tax expenditures, broaden the base. i personally believe we should lower rates in conjunction with that to help america be more

competitive. we need to lower the corporate rate to be more competitive, but we also need to generate some more revenue to help with the deficit. on top of reforming entitlements, on top of cutting spending in the discretionary accounts, all of which is going to have to be done, none of which is very popular. but we've got to be careful we don't throw the baby out with the bath water. and what i hear you saying, mr. hamm, is that as you move towards these reform steps, first of all, don't throw out intangible drilling because that would have unintended consequences. is that what you're trying to tell us here? >> that's correct. again, i'm not a tax accountant, but, you know, we've done our study. we have provisions right now that encourage us to invest, and we need to invest heavily. for instance, right now we estimate there's 900 billion barrels of oil in place, in this

whole petroleum system. >> 900 billion. >> 900 billion. right now we think we can get 2% to 3% of that, 2.5% maybe, or something like that. if we could move that needle up to 5%, everybody here can do the math. i mean, we're talking doubling, you know, our reserves in america so it's that significant, so, you know, we've got a job to do and a very significant one, and we need the ability to do it. this gives -- this encourages us to do it. >> just the last statement, if i could, mr. chairman. i've just been up with secretary salazar on several of the wells being drilled in north dakota, and i'll tell you it's extremely impressive. it's being carefully done. it's being professionally done. it's being done in an environmentally sensitive way. it's being done with extraordinary technology, and so we thank you for that as well.

it's being done in -- i'll tell you, i don't think any one of us would go there and not come away and be impressed with the professionalism of how it's being conducted. >> thank you, senator. i agree. in fact, a guy took me up one of the rigs in montana, the same person that took you and secretary salazar up to the rigging in north dakota. if you can answer in one sentence, what does it take to move that needle up to 5%? what's a one-sentence answer of what it takes to move the needle up to 5%? >> i think it can be done over time. you know, there's a lot of things. we have to figure out the next step of enhanced oil recovery. that will play a big factor. with that co2, you know, just normal secondary water flooding or whatever it is, i mean, we've got to do that. >> okay. >> that's going to move the needle. >> thanks a lot. senator grassley. >> as we begin to consider what comprehensive tax reform would look like, it's important to discuss goals, objectives other than revenue collection, what the tax code should accomplish.

we had testimony before our committee december 2011 from -- on incentives for alternative energy. miss sherlock of crs notes, quote, the income tax code has long been used as a policy tool for promoting u.s. energy priorities, end of quote, so it makes sense to consider whether or not our tax code of the future should further energy priorities. those who want to isolate federal tax incentives for alternative energy and put them on a chopping block need to remember that the oil and gas industries have received massive permanent tax breaks for 100 years, an contrast tax insennives for alternative energy that existed only a few decades, and have always been temporary. these incentives first appeared in the 70s in direct response to oil crisis, and they helped to level the playing field tore renewable resources. these incentives reduce the cost of capital investment for these

fledgling industries that are not yet able to raise capital. any argument made for eliminating renewable energy tax incentives is intellectually dishonest if it doesn't include a review of all energy tax intentives. those opposed to incentives for alternative energy often fail to consider that a key reason to support renewable energy resources should be energy independence. the united states spends more than $400 billion each year importing oil. now more than ever the united states needs to ramp up domestic production of traditional energy, including oil and natural gas, coal and expand alternative fuels

and will make more competitive, us more competitive in the global economy. however, there is a long history using the tax code to promote energy policy starting with intangible drilling costs and percentage depletion provisions that are almost 100 years old. experts in favor of these provisions argue that these provisions are not tax expenditures because they just represent ordinary business expenses and are similar to research and development. yet, the expensing of research and development costs and intangible drilling costs are exceptions to the rule that such expenses should be capitalized and deducted over years. it seems the primary benefit of the intangible drilling costs provisions is that it provides more cash for additional drilling e