EDITOR’S NOTE: The Texas Alliance of Energy Producers celebrated its 75th anniversary in 2005. The history of the Texas Alliance of Energy Producers is taken from official letters, documents and minutes of meetings of the the North Texas Oil & Gas Association and West Central Texas Oil & Gas Association since 1930.
1930 – 1937
On January 18, 1930, a group of about 50 independents met at the Wichita Club in Wichita Falls to protest “the recent drastic price cut in crude oil, inaugurated by some of the major purchasing companies.”
One week later, on January 25, the group of independents formally organized the North Texas Oil and Gas Association (NTOGA). Mr. P.B. Flynn was elected the first President. A Board of Directors was selected, bylaws were adopted, and a dues structure was established ($100 for largest producers to $10 for producers of small quantities of crude oil).
NTOGA’s agenda quickly expanded to include support of a tariff on imported oil, prorationing, property taxes, common carrier status of crude oil pipelines, oil field thefts and membership.
The industry’s disappointment over the ability of the Railroad Commission to enfoce prorationing laws led to an effort in 1933 to abolish the elected terms of the commissioners and to have the Governor appoint a single head of a new oil and gas agency. Legislation was drafted and a group of NTOGA members, headed by President J.S. Bridwell, traveled to Austin to lobby for the Appointive Commission Bill. They were met with strong opposition, and the bill failed to pass.
Also in 1933, the industry faced a major effort by some members of Congress to place federal controls on the industry, especially oil that was transported across state lines. Disagreement within the organization surfaced. Some members argued against federal controls on oil production, while others said that all other means of regulating production had failed. NTOGA voted in favor of a federal prorationg system.
President Bridwell traveled to Washington to offer language to a bill that would give the Secretary of Interior the ability to establish regulations controlling oil production for two years.
The Texas Legislature adopted a resolution opposing federal controls. It never passed, but the battle convinced the leadership of NTOGA that it had become a force in energy policy.
The effectiveness of the organization took another step forward on March 13, 1934 when the Board approved hiring Fred Sehmann as its first full-time employee with a salary of $3,000 per year. It also authorized hiring a full-time assistant and renting office space.
Legislation was passed in 1933 to control the “hot oil” situation in East Texas, and the mood of leaders began to change from one of disgust at the inability of the RRC to stop “hot oil” production to one of encouragement that the situation may be under control.
During the next Legislative session (1935), the Board opposed a bill that required second hand oil field equipment dealers pay a $100 license fee, and supported a bill making as pipelines common carriers.
On May 6, 1935, Sehmann resigned as Secretary, and J. Ed Erwin assumed his duties. Edwin’s title changed to Executive Vice President in December 1936.
Discussion of a possible tax on crude oil production and a sales tax became necessary in October 1935 because of a special session of the Texas Legislature that was held to find a new revenue source. A year later, the Legislature was in special session again faced with a $10 million revenue shortage. C.P. McGaha warned members, “This is strictly and oil session” and urged members to become active. The gross production tax on oil amounted to about $8 million annually, McGaha said, and another 1 percent would add another $4 million. The tax fight spilled over into the regular session in 1937. The industry was able to delay any additional taxes.
In 1936 and 1937, the association tackled spacing rules that were being developed at the RRC, and oil field theft. NTOGA paid $100 to anyone that provided information about oil field thefts and even went so far as to hire a special prosecutor to try cases involving oil field theft.
1938 – 1941
The years leading up to World War II were active for independents in Texas. Banquet tickets at the 1939 Annual Meeting cost $2, and the association’s budget was $16,000. D. G. Gray replaced J. Ed Erwin as Executive Vice President in 1939.
J.S. Bridwell reported to the Board of the North Texas Oil and Gas Association on January 3, 1938 that he had just returned from Washington and “that the work being carried on for the retention of the depletion allowance was moving along in fine style,” but the Board needed to continue working to pass the legislation because “without it none of us could stay in business for long..
Oil field theft continued to concern the association. Its Special Investigator, J.T. Bentley , reported that more than $5,000 in stolen equipment had been recovered in his first year. The association continued its policy of giving a $100 reward for the arrest and conviction of anyone stealing oil field equipment. A year later, Bentley died (the minutes didn’t state the cause of death), and he was replaced by W.C. Cave.
Bentley also carried out the association’s anti-pollution program, which involved investigating pollution complaints and correcting the problem before they were reported to authorities and fines assessed.
The Board also wrestled with proration of oil and special allowables that were being given by the Railroad Commission. At a meeting on May 9, 1938, the Board approved a motion that NTOGA approach associations in Kansas, Oklahoma, New Mexico, Arkansas and Louisiana to form a special committee to seek a remedy to the oversupply of crude oil.
The association endorsed a position by the Independent Petroleum Association of America that it opposed a movement in Washington to divorcement of the marketing of crude oil and products from other segments of the petroleum industry.
On May 13, 1940, leaders from the independent oil and gas industry throughout Texas met in Wichita Falls to establish a committee of Texas independent oil producers composed of three members from each association. The purpose of the committee was to enforce prorationing across Texas.
The Board voted on November 4, 1940, to relieve the Railroad Commission of the duty of enforcing oil and gas laws, and that a new commission be created with an appointed head take over as the oil and gas regulatory agency.
Members of the association expressed concern on September 17, 1941, about the discrepancy in price between sweet North Texas crude, Oklahoma crude and East Texas crude, and the oil pipelines charging discriminatory and unequal rates.
Following the bombing of Pearl Harbor by Japan on December 7, 1941, the association and the oil industry was thrown into chaos. P.F. Gwynn, Chairman of the Budget Committee, wrote a memo to the Board on January 26, 1942 stating: “It is impossible to anticipate all the unusual expenses that may be incurred during the coming year. We are faced with a grave national emergency…The oil industry is ready and willing to make any and all proper sacrifices that will be helpful to the common cause…”.
1941 – 1945
From the beginning to the end of World War II, independent oil producers struggled to produce adequate supplies of crude oil while under price controls and dealing with shortages of steel, rubber and workers.
Independent oilmen such as Jerry Vinson and Ed Kadane, both of Wichita Falls, stepped forward to serve when needed. Vinson lead in the scrap metal drive, and Kadane served as Chairman of the Gasoline Rationing Board. Vinson also was instrumental in getting one of 12 material depots in the U.S. located in Wichita Falls.
Others included J.A. McCarty, C.P. McGaha, J.S. Bridwell and Roy B. Jones who devoted their time, effort and money to represent the interests of the industry in Washington and Austin.
At the beginning of the war, the issues involved solving the problems of getting the oil from the oil patch to refineries and collecting all the scrap metal possible to be used in the war effort. The railroads importance in transporting crude expanded in 1942, and by May 28, 1942, 26 million pounds of scrap had been collected.
Bridwell attended a meeting of the Petroleum Industry War Council (PIWC) in Washington in March 1943 and reported back to the NTOGA Board that the Petroleum Administrator of War “insisted that the number (of wildcats drilled) be raised to 4,500 during 1943” from 2,000 in 1942.
“The Council then discussed at length how the wells were to be drilled in view of the scarcity of man power, materials and diminishing returns from production (the federal government had imposed price controls on crude oil), but the results of the discussion were not satisfactory,” according to NTOGA Board minutes.
Mr. Bridwell noted that 75% of the workforce in the oil patch was in the military.
He also traveled many times to Washington to represent the industry on a variety of issues. One of the hottest issues was price controls. The industry argued that they could not raise enough capital to drill the number of wells desired by Washington. “With respect to crude price…$0.35 would only put us where we were 12 or 18 months ago, and wouldn’t get the job done; that it would require at least $2 oil to stimulate drilling to obtain results to meet government demands,” the July 16, 1943 NTOGA board minutes stated.
In September 1943, NTOGA President J. A. McCarty and W. A. “Monty” Moncrief of Fort Worth traveled to Washington with other oilmen from around the nation to lobby for passage of a bill that would increase the price of oil. McCarty wrote a detailed account (four pages on legal paper and single spaced) of his efforts. “The politics we ran into caused Moncrief to remark a few days later that it was just like sitting in a duck blind in Louisiana and having a bunch of Teal ducks coming at you from every direction at once,” McCarty wrote. The frustration McCarty wrote about is evident today when oilmen talk about dealing with the federal government.
Drilling contractors were issued special gasoline coupons that were distributed to their crews who used their cars to drive to work.
The association continued to grow during the war years. The association reported 190 members paying $15,753 in dues in 1943.
1946 – 1950
“The official information concerning the victory of the Allies over Japan is occasion for much rejoicing,” Fred Sehmann, Executive Vice President of the North Texas Oil and Gas Association, wrote in a letter to NTOGA members on August 16, 1945. “We should be indebted not only to the splendid work performed by every branch of our armed forces, but industry itself, and particularly petroleum has a right to be proud of its record since our country became involved in the war just brought to a close. In saying this we are not unmindful of the independent operators who produced and sold all the oil they could under distressed price conditions..
After World War II, the industry faced many readjustments. The oil industry faced a 10% decline in demand to 4.8 million barrels per day. Industry concerns were that the transition from a war economy to peacetime would cause an oversupply of oil and drive down price.
The industry had been operating under price controls during the war years, but stripper wells received a “premium payment” of an additional $0.20 a barrel. The first price increase – $0.10 on November 15, 1946 – raised prices to $1.70 per barrel. The next year there were five price increases totaling $1.35.
The association held many untraditional roles following the war. It helped the industry make application for tires and gasoline for drilling rigs, and helping with manpower problems, including finding employment for the men coming home after the war. The average wage in North Texas was $1.03 per hour.
Association leaders began discussion of secondary recovery techniques and held seminars in 1946 and 1947 on the latest successes.
Association leaders viewed imported oil as a threat to the economic and national security of the U.S. The association fought against a grant and export license authorizing Aramco to export enough steel pipe to begin construction of its pipeline in the Middle East, but it became apparent that the federal government was “committed to a policy of encouraging the development of American concession in the Middle East.”.
Natural gas production had some growing pains. The Federal Power Commission gradually increased its regulation of gas to a point where producers were treated similar to a public utility. The FPC limited the return on gas sales to 6.5% on the depreciated cost of gas properties. The association fought the FPC’s regulations saying that ” the discovery of production of natural gas is an extremely hazardous undertaking” and no one would risk venture capital if the rate of return is limited to 6.5% on the original depreciated cost of successful ventures.
“The obvious and inevitable result of continuous encroachments by the Federal Power Commission is thus to enmesh gas production in the confusion of bureaucratic red tape and to cause the continued flaring of oil well or casinghead gas,” Sehmann, who was elected President of the National Stripper Well Association in 1948, wrote in the associations bulletin.
The Texas Legislature in 1947 tried to tax crude oil on a graduated schedule, but a group of association leaders went to Austin and were successful in killing the tax provision. The association supported a voluntary pooling bill, but opposed a forced pooling legislation. Both pooling bills died.
1951 – 1960
As the U.S. economy expanded following World War II, the U.S. oil and gas industry struggled with crude oil imports, low oil prices, oil prorationing, federal regulation of natural gas, steel shortages and attempts in Washington to repeal percentage depletion.
Independent oil and gas producers across Texas organized to educate the Congress, the Texas Legislature and the public about their issues. The association made a film about the need for percentage depletion and its primary audience was service clubs. The association also made a rubber stamp that stated “FOREIGN OIL DID NOT MAKE THIS PURCHASE POSSIBLE.” It was mailed to all members with the instruction to stamp it on all purchase orders and checks.
Meetings after meetings were held in Washington to address the tubular goods shortage and the oil import problem.
In 1952, the association lobbied the federal government to increase crude oil prices, but federal officials did not agree. So, the association began an effort to lobby Congress to deregulate oil prices.
Crude oil imports increased 21.6% in 1952 from the same period in 1951 to about 1 million barrels per day. “If this continues, we can expect the Texas Railroad Commission to consider further cuts in our state’s allowable production for the month of August,” wrote Executive Vice President Fred Sehmann in a Bulletin to members.
By 1955, the association had joined forces with the Independent Petroleum Association of America and other oil and gas associations in a strong push to get Congress to restrict oil imports. They lobbied for an amendment to the Reciprocal Trade Act that would restrict oil imports to 10% of domestic demand, but it was narrowly defeated in the House.
On July 29, 1957, a special report to the Department of Interior recommended that imports be limited to 12% of domestic production and restrictions were implemented in 1959.
“During January, February, and March of this year (1959), before the mandatory control program, total imports averaged a little more than 2 million barrels per day,” Executive Vice President George W. Anderson wrote on Nov. 4, 1959. “The program went into effect in April, and since that time, total imports have averaged close to the goal of 1.5 million b/d. Without this program, we were faced with a projected rise in total imports which could be averaging 2.5 million b/d now..
Natural gas issues began creeping into the minutes of the association in 1952. One mention noted that the association had received many calls because Lone Star Gas Company had increased fees substantially.
The Phillips Petroleum case in 1953 gave the federal government the ability to regulate natural gas prices in interstate commerce all the way to the wellhead. The association began a lobbying effort to pass a law that overturned the Phillips case.
The association lobbied the House and Senate in 1955-1956 a bill that constituted a congressional declaration that the federal government shall not regulate production and price of natural gas.
The association also endorsed ratable take at the RRC, stating that the RRC has the power and authority to enforce ratable take of natural gas by pipelines.
Surface and subsurface damage issues came to light in 1953. The RRC required 60 feet of surface pipe on all new wells drilled to protect subsurface waters.
The Texas Legislature passed in 1955 a statute for the prevention of the pollution of ground water and subsurface streams. The RRC was given the authority to require a $5,000 bond for one well or $10,000 for more than one well upon the condition that the operator will, at the proper time, plug an abandoned well in accordance with the statutes and rules of the RRC.
Other issues included workers compensation, spacing rules and property taxes.
A barrel of crude oil sold for $3.01 in May 1960, and the three Railroad Commissioners made $10,600 in 1955.
NTOGA continued to grow reaching 500 members by 1960. Dues were $25 and the association’s budget was $52,000. Its annual meeting on March 29, 1952 drew 1,803. The largest event was the banquet, which had 1,140 in attendance.
Fred Sehmann, who had served as Executive Vice President of NTOGA since 1942, stepped down in 1953. S. Leslie King, a former member of the Texas Legislature from Vernon, served in 1954, and George W. Anderson was hired in 1955.
1960 – 1980
Survivors Enter Period Of Prosperity
The oil and gas industry was transformed from one where prices seldom changed to where they changed frequently, and the regulatory climate in Washington turned nasty – real nasty.
Politicians called the oil industry “crooks” and claimed it made “obscene profits.
Gasoline lines in 1973 and again in 1979 had the public madder than a wet hen and wanting to punish someone for their misery.
Issues in the 1960s included new spacing rules, well deviation and inclination survey regulations, permits to dispose of oil field wastes, well plugging, signs on properties, change allowable method and salt water disposal.
An over supply of crude oil depressed prices. Oil allowables were reduced in Texas, Oklahoma and Kansas, but imports continued to increase. Independents protested to Washington in a meeting with Secretary of Interior Udall on May 25, 1964. They asked for substantial reduction in imports, but “Mr. Udall has not been impressed,” wrote Executive Vice President George W. Anderson, Jr.
Persistence pays, however. The Treasury Department issued reports in 1975 and 1979 that stated that oil imports threaten and impair the national security.
As crude oil prices rose so did oil field theft. Equipment and crude oil were the key targets. The association formed an anti-theft division and offered rewards to people that turned in thieves.
The association also became tired of being sued by so-called environmental groups. It and the other five oil and gas associations in Texas came together to form the Texas Independent Producers Legal Action Association.
The cut in the percentage depletion rate from 27 ½% to 22% on October 9, 1969 was the first of many set backs for the industy during the next decade. A wave of new environmental and safety laws and regulations erupted from the nation’s capitol. One such bill was a new, comprehensive occupational safety act, which required many new safety standards in the oil patch. Other new laws involved air standards that prohibited such things as burning of basic sediment in pits, and new spill prevention protection control (SPCC) regulations.
President Bill Thacker wrote in the December 2, 1971 Bulletin : “As you can see from this report, our problems are no longer those concerned with allowables and Railroad Commission rules so much as with federal legislation and regulation..
If only Mr. Thacker and the industry could have foreseen what was to come.
Because of inflation and other economic conditions, President Nixon placed price controls on just about everything, including crude oil with many different categories. The ceiling price for old oil (North Texas) was $5.16, but new, released and stripper oil sold for $10 in December 1975.
As discussion of lifting price controls on crude oil picked up steam, so did discussion of a “windfall profit tax,” which was formally suggested on December 19, 1973.
In 1975, Congress repealed percentage depletion, except for independents and royalty owners who had a phased rate reduction from 22% in 1975 to 15% in 1984 and thereafter.
Other significant events included.
– General price controls lifted (April 30, 1974) but continuation on crude oil and natural gas price controls;
– Oil prices rolled back $1.50 for new crude oil (February 1, 1976);
– Tax Reform Act of 1976 retroactively imposed tax on intangible drilling costs (IDCs);
– Price freeze on all domestic crude oil (July 1, 1976);
– Rollback of $0.20 for new domestic crude oil and continuation of price freeze on old crude oil (December 31, 1976);
– Doubling of rental fees on most offshore federal leases (February 1, 1977);
– Rollback of $0.45 on new oil (March 1, 1977);
– IRS Ruling 77-176 reversing long-standing tax policy on farm outs;
– Continuation of oil price freeze (August 1, 1977);
– Resumption of oil price increase but less than allowed by law (September 1, 1977); and
– The Natural Gas Policy Act, which “decontrolled” natural gas in stages, created a multitude of categories for natural gas and even more questions about the law and regulations.
– On July 20, 1979, President Robert E. Vinson wrote: “Our industry has just come through one of the darkest, most discouraging periods. The domestic petroleum industry as a whole has been wrongfully blamed for the gasoline shortages which have angered and frustrated such a large number of people.
– Vinson called President Carter’s “decontrol” proposal a “hoax.”
– The association celebrated its 50th Annual Meeting on March 19-20, 1980. The keynote speaker was U.S. Senator Lloyd Bentsen of Texas.
1990 – Present Day
Low crude oil prices in the 1990s forced many independent producers out of the business, and it even forced the merger of the North Texas Oil and Gas Association and the West Central Texas Oil and Gas Association into the Texas Alliance of Energy Producers.
By 1994, prices had dropped to $13 per barrel and the association took its message to Washington and Austin. If something wasn’t done, more and more producers would leave, fewer wells would be drilled, new reserves would not be found to replace current production, low-volume and high-cost wells would be plugged prematurely.
Initially, Washington failed to act even though crude oil imports soared to more than 10 million barrels per day, which exceeded 50% of domestic needs. Oil production fell by more than 700,000 barrels per day from just 10 years ago. Approximately 500,000 jobs were lost.
The industry made many trips to Washington to push for solutions to the issues of oil imports, marginal wells preservation and encourage new drilling.
Eight association members testified before a U.S. Commerce Department hearing on the threat of crude oil imports to national security under Section 232 of the Trade Expansion Act. NTOGA President Don Hupp noted that in 1989 under another Section 232 filing, the DOC found that the level of import (then 47%) was a threat to national security and oil imports had grown to 50% in 1994. DOC again found the threat to national security, but President Clinton did nothing that would change the trend.
Crude oil price volatility plagued the industry throughout the 1990s, reaching a low of $8 posted price in December 1998. President Mike Elyea organized a petition drive. More than 12,000 people signed the petitions asking Washington to help. Also, the associations formed an organization, Save Domestic Oil, to file an anti-trust lawsuit against several foreign producers. We did not win the lawsuit, but it got the Clinton Administration’s attention.
George W. Bush won election and one of his first proposals was to establish a national energy policy that focused on increasing domestic energy production and decreasing consumption. The Congress, however, has not been able to pass a bill.
The deregulation of interstate pipelines by FERC Order 636 in the early 1990s led to the development of a task force of the Railroad Commission to study the impact on gathering lines in Texas . FERC’s action unbundled services and allowed producers to ship their gas to a market for a fair and reasonable fee, but left the regulation of gathering systems to the state. Part of the RRC’s study would include transportation rates and access at peak delivery times. Commissioner Barry Williamson proposed a code of conduct for pipelines and gatherers and their affiliates that would allow for market pricing transparency so producers could compete in the natural gas marketing arena. Alleged violations would be sorted out by the RRC once a complaint was filed. The Code’s key components – market transparency and penalties for violations – were stricken and the RRC adopted the weaker version.
Environmental problems increased. The association hired Rich Munn in 1994 to keep members informed about the mountain of environmental and safety laws and regulations at the federal, state and local level.
The battle spilled over from the legislative and regulatory arenas into the courthouse. Environmental groups sued the oil industry over hydraulic fracing techniques, and the industry filed lawsuits against EPA over expansion of regulations.
The association worked on a number of important regulations dealing with naturally occurring radioactive materials, pits, inactive wells and bonding. The association won a temporary restraining order against the RRC regarding its bonding regulations.
Public education reached new heights as the association as it implemented the National Energy Education Development (NEED) program into some 30 public school science curriculums.
When the industry celebrated its 70th anniversary in 2000, it implemented its Legends Merit Award program honoring members that had made a long-time contribution to the betterment of the industry, community and country.
Six months later, NTOGA and WeCTOGA merged to form the Texas Alliance of Energy Producers with 1,621 members. As of June 2007, the Alliance had grown to 3,051 members throughout the state and the nation.
It has three offices (Austin, Houston and Wichita Falls), and remains focused on serving the needs of its members.