I can speak from experience about the history of Section 29, since I have been in the business of producing hard-to-get natural gas since 1982, soon after the Section 29 tax credit was created in the wake of the widespread energy shortages and deep concern about American dependence on imported oil. My company, PDC, operates 2050 oil and gas wells in seven states - in the Appalachian Basin, Michigan and the Rocky Mountain region -- and most of our production is non-conventional.

When Congress created Section 29 in 1980, the goal was to encourage U. S. production from deposits that are unusually difficult and expensive to develop and produce, like the Devonian shale and tight formation wells that PDC drilled and now operates. An important feature is that the credit applies only to actual production - the consumer's tax dollar is spent only after the producer has taken the risk and achieved success.

I know from my years of experience in non-conventional resource development that Section 29 did indeed result in a significant expansion of production from difficult sources, and it helped to drive new advances in production technology. Today, however, the credit applies only to production from wells completed before Dec. 31, 1992, and even for these qualifying wells it is scheduled to expire on Dec. 31, 2002. I know, too, what it will mean for PDC if Section 29 is not extended. Some wells will be shut in, and we will not be doing any further drilling in the Appalachian Basin because the economic return on wells in that region is too uncertain.

Study says that Section 29 could save gas consumers $100 Billion

I am not asking you to rely on my experience of Section 29, and its impact on natural gas supply, and, of course, on consumer gas prices. Rather, I would like to draw your attention to a recent study undertaken by the Gas Technology Institute, which has been analyzing issues related to non-conventional production for 20 years, and Energy and Environmental Analysis, Inc., which was the lead contractor in the landmark 1999 study of natural gas supply undertaken by the National Petroleum Council.

The GTI/EEA Study, a summary of which is attached to my remarks, makes it clear that an extension of Section 29 could have a significant impact on consumer prices by quickly increasing supply. Using NPC research as the base case, the Study examined the impact of the Section 29 credit on the U.S. gas market, and concluded that:

• Passage of Section 29 in 1980 made it possible for production of non-conventional gas to more than double, and led to innovation in drilling and completion technology.

• Production of non-conventional gas must double, once again, if the U.S. is to meet growing demand. The U.S. now imports 56% of its oil, and that figure is projected to rise to 65% within 15 years.

• Extension of Section 29 to wells drilled through 2010 could increase U.S. gas supply by about 2 trillion cubic feet (Tcf) annually, for a total of more than 15 Tcf by 2015. This increase in supply would translate into lower gas prices, and consumer savings of more that $100 billion in the next 15 years. (And consumers will continue to benefit from expanded supply and technological innovation even after the term projected by the study.)

• Extending the credit will have a significant near-term impact on prices, since Section 29 gas can reach the market more quickly than other major incremental supplies.

There's no single energy supply solution, but Section 29 could play a key role

According to the Study, extension of the Section 29 credit offers these important benefits:

• Reduced natural gas costs for consumers, and timely increases in consumer gas supplies.

• Less dependence on imported energy.

• A cleaner environment.

• Technological innovation, at a time when natural gas R&D is otherwise slowing.

• A positive impact on the U.S. economy, including new jobs and demand for $15 billion in materials and services resulting from reliance on U.S. production. And

• Increased state and local severance taxes in 19 states.

The U.S. has large natural gas reserves, but the Section 29 credit is needed to unlock supplies of gas that are currently too expensive or uncertain to develop. While we all know that gas prices are high today, producers -- and our bankers and investors -- have learned the hard way about price volatility. Without the protection provided by Section 29, we simply cannot make the massive investments needed to produce gas from difficult sources. An extension of Section 29 will play a vital role in encouraging domestic supply, and assuring the availability of natural gas for home heating, high quality power generation, and a growing list of other consumer needs.

I appreciate the opportunity to comment today about the Section 29 tax credit for actual production from challenging formations, and about the importance of Section 29 to the nation's supply of natural gas.

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