our environment and to give a positive thrust to the growth of our long, ailing economy. thank you very much. >> thank you, doctor. in time, too. dr. hamm. mr. hamm. we'll call you doctor for now. mr. hamm. >> thank you. thanks, mr. baucus, it's an honor and privilege for me to be here today. i'll be speaking on my own behalf and not as representative of continental resources or not here on behalf of the romney campaign for which i serve as an energy adviser. it's been 20 years since i was here speaking before this committee, senator david born at that time was cochairing the committee, i believe, and i spoke to him about a couple of things that were mostly unknown and unconventional at the time and the other was the aspect of

drilling into the trucks themselves and the shales that would produce a vast amount of natural gas and talking about a temporary trigger, tax trigger to advance that theory. well, that wasn't given. we didn't get a tax trigger and over the last 20 years, we've seen those technologies develop and thank god we've come a long way since then. continental is the top ten producer where 75% of all of last year's production we focus on since it started in montana and that's where we started with coolly field and we sealed the deep end with the senator conrad's state over north dakota and one of the players. i will say that only here in america can a 13th child of a share cropper, of a one-man

operation and one-truck operation to one of the largest oil companies and having discovered that field, at continental we've been able to do that. today i'll talk to you on perspective that has been in this business for about 45 years. i first started speaking on it about two years ago. at the time it's been severely disparaged and people are trying to get a share. i thought i'd start talking about that. it's a very important segment of our energy picture and nearly all transportation runs on it and there's hardly a jet plane that doesn't run on oil products. also here to talk about the federal tax preventions that allow us to continue the job of the american dream of energy

dependence. there are 18,000 producers today that drill 95% of the wells in america and we produce 67% of the well and 86% of the natural gas has produced today. we typically invest all that we make or about 30% more, and i'm afraid our companies follow in it as well. independents are in the expiration and production business. that's when we do. we have no refining operations and i don't get into the tax consequences and the senator covered that very well in section 199 of the foreign tax credit and it will affect us a whole lot. certainly, the idcs do and 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 and disastrous years of the '80s and '90s that eliminated 50% of the independents within our ranks and it also allows one of the really important things and it allows us to try and fail and try again and certainly, that's what it took. we built 18 commercial wells up there before breaking the code before producing this oilfield that was over 24 million barrels. before that, we wouldn't have been able to do that, and with barnett and the george mitchell quest down there. george worked 16 years, breaking a code on to barnett. this is the largest natural gas fill in texas and it took 16 years to get the code to get that done so try and try again

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

precision drilling and that's what with unlocked this new era that we're into and there's certainly a greater -- we've had tremendous success in these new resource players across the country. some might aptly describe the new gas supplies that we've unlocked. in some hundred years i think it could be greater than that as tremendous and the imports go down as new productions come on here in america, they've gone down to about 42% right now from 60%. down to 42% now. and it's estimated marshall at kens and analyst with raymond james and he's estimated they filed 26% by 2015 and that's just around the corner. and also would cut the 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 as a discounted price regime for both oil and gas for the consumer so lower cost to the consumers here in america. that's $15 a barrel right now is the difference and we're talking $2 natural gas here and we're talking $2 natural gas in china today so it's a tremendous difference. what the impact of the new production to america is, better national security, drastically reduced deficit and budget deficits, jobs creation, good pay and better class jobs and we've seen that in oklahoma, texas, montana, and wherever the gas is and what we've done is estimated by api and we could add 1.2 million jobs to the 1.3

million jobs that's currently in the industry today by 2030 and then in the american wealth creation and we're talking wealth creation to our own federal government, 18 trillion dollars valued of oil and gas on federal lands and that's the estimate out there. we're not talking about creating others, we're talking about at home. we're talking about 10 million right here and the states in what is a deficit. montana doesn't have a deficit. these stages that they don't have deficit and and the big thing is the psychological impact in america. it's what we need right here to save american lives. so the unintended consequences if we're not careful, but changing these rules could be

devastati devastating. we certainly don't want to do that. thank you very much. >> a couple of questions. first, as prompted a bit by congressman sharp's point, natural gas is unpredicted and crisis is unpredicted and the agreed to which tax policies really matter. the fracing particular tech was developed and nuclear technology has been developed and the basic question is how much do these tax incentives really matter, really aside from questions is what do they other do? do they matter?

we respond to political pressure when a lot of the results are a result of people that are figuring out what to do a better job, and i have a third question if you wrap them together and that is as this committee works to pursue tax reform is why don't we have a more technology neutral credit and technology to boost energy production and domestic energy production, but in a way so 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 minds, just dr. jorgenson? >> the main point i'd 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 and the things that we're talking about here in terms of expensing development and the percentage depletion and so on and i certainly agree with you, those should be reconsidered and 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. you have an opportunity to raise revenues equal to 1.5% of gdp and those are entirely on the side of using. they have nothing to do with technology and i think it's secondary to energy utilization and energy utilization and i'm referring to combustion of coal in the generation of electricity and 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 your senator from montana so you're aware of this. on coal, it would be a modest tax on natural gas and that would lead to the substitution that is under way right now away from coal which is the most pollute, and that is the great environmental opportunity of our time. it produces a lot of revenue. >> so that's a carbon tax? >> this is not a carbon tax? >> a cousin? >> 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 criterion pollutants and what with are those? well, there are course particularates, smoke. there are fine particularats in smoke and the list go on and 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. >> mr. sharp, do you have your thoughts? one sliver when you talked about new technologies and i talked about them and entrepreneurs are very important and imaginative work around this country is 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 is more familiar than i am is to keefe keep the private entities important, and keep the national laboratories figuring ak head because we don't know which ones of these will work and let's understand why mr. hamm and others which facilitated and the federal government and they allowed a much greater visualization into the ground to advances was a major industry achievement you, but if it had federal backing to figure out how do you do that as well as some of these other technologies

and we have to be careful if i just rip all of this out and think that 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 and the return only happened several decades. the second thing i would say is it's the same with the production of new kinds of energy sources like wind. i doubt that bee have anythiwe like the wind issue we have today is it would upgrade the efficiencies and not to take away from private sector activities and nor if you had not adopted in 1992 and whenever it was in the energy policy act, the production tax credit. the issue is whether that is still necessary to sustain this. my time expired some time ago. senator hatch. >> i enjoyed this panel. this particular question is for the entire panel. a number of tax policy experts

believe the tax systems should simply be used to fund the constitutionally limited federal government, and these experts suggest that it should not run through the tax codes as part of the tax code in the revenue-neutral manner, this is one approach to dealing with energy tax provisions and i would just like to have your thoughts on such an approach with regard to energy tax reform and great to have you back and grateful to have you here today. >> just a couple of comments and tax policy does make a difference. in partial response to your questions or to baucus question, is you are no longer to be expensed and you would shut down the energy revolution to make it

in every major play and i'm on the board of a couple of companies and they've had expensing and for the independents, and since 1913. and absolutely. senator hatch, in response to your question on energy tax policy and lower rate and competitive internationally, this committee hasn't done a lot on the international tax front and we've always talked about it and it's really about time, and i think a greater consensus in moving toward territorial system makes sense. we're becoming a small world in international competition and, frankly, we shouldn't be giving and we want more u.s.-based companies to be successful in internationally and lastly, senator hatch, in relation to

your comment overall, the tax rates you want to have to be as earns efficient and raise as much money as they can without doing harm. when we reduce capital gains and corporate dividends to 15%, we actually raised more money for the federal government. i'm very concerned about the cliff that's coming on cap gain, the rate in january 1 if the committee doesn't do something and congress doesn't do something it will go from 15 to 25. and on corporate dividends it goes from 15 to 44. 15 to 44. ordinary, 49.3 and 3.8 for the president's obama care and maybe another 1.2 on elimination of pep. so you go from 15 to 44.6 and that's tripling the rate on corporate dividends for individuals and corporations paid 35% and so this committee really needs to do some work and

from your vantage point and from trying to raise money and if it actually raised money, it took capital gains to go from 15 to 25, i'm afraid the government will not raise money. i'm afraid it will raise money and it will hurt real estate and banks known for real estate. >> you are talking to the panel that brought rates down to begin with. >> just a comment i was around not in the committee of 1986 when it was very popular for not using the coat for social engineering. i think it's a good one if we can all subscribe to it and i don't know any faction in america that believes enough to act on it, i can't imagine this committee cannot be inundated with anybody, and we heard one appeal to why some critical provision is necessary in the code. we are certainly a lot better off economically if we can get this simpler and if we can get the rates down and if we can get rid of the tax preferences and

ooh a pipe dream of some outsiders in this complex economist that any business organization let alone the u.s. congress can follow that. >> sir? >> senator, nobody is talking about 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 it. >> 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, you know, without the idcs. >> well, thank you all. >> thank you, 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 would be 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 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 that, 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. you know, we have provisions right now that encourage us to invest, and we need to invest heavily in the backen. for instance, right now we

estimate there's 900 billion barrels of oil in place, in this whole petroleum system. >> 900 billion barrels. >> 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 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. 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 incentives for alternative energy have 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 th