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	TBP SPEECH AMARILLO PRODUCTION CREDIT ASSOCIATION ANNUAL STOCKHOLDERS MEETING HILTON INN AMARILLO, TEXAS FEBRUARY 27, 1982

SATURDAY, 3:00 P.M.

I. WANT TO THANK JAMES VAN PELT FOR THIS OPPORTUNITY TO SPEND A FEW MINUTES WITH YOU TODAY. I WOULD LIKE TO GIVE YOU A BRIEF READING OR UPDATE ON THE NATURAL GAS INDUSTRY—A BUSINESS THAT HAS A MAJOR IMPACT ON YOUR BUSINESS; THEN LEAVE-YOU WITH SOME IDEAS TO CONSIDER FOR YOUR FUTURE PLANNING.

A. NATURAL GAS PRODUCERS CURRENTLY ARE FACING A PRICE-COST SQUEEZE.

1. UNDER PRICING PROVISIONS OF THE NATURAL GAS POLICY ACT OF 1978, THE INDUSTRY AVERAGE WELLHEAD PRICE FOR GAS, APPROXIMATELY $2 PER MCF, IS BELOW AVERAGE INDUSTRY FINDING COSTS.

B. OUR INDUSTRY HAS BEEN ADVERSELY AFFECTED BY GOVERNMENT INTERFERENCE AND REGULATION. THE PETROLEUM INDUSTRY IS THE ONLY INDUSTRY IN THE EVER TO BE SUBJECTED TO A "WINDFALL PROFITS TAX" (WHICH IS NOT A TAX AT ALL BUT RATHER A GROSS OVERRIDING ROYALTY).

1. MANY OF YOU ARE ROYALTY OWNERS, AND I AM SURE YOU RECALL WHAT EFFECT THE TAX HAD ON YOUR ROYALTY INCOME AFTER BEING TOLD IT WOULD ONLY AFFECT THE OIL COMPANIES.

2. DON'T EVER FORGET—IF SUCH A TAX CAN BE PLACED ON OIL, WHAT IS TO PREVENT IT FROM BEING PLACED ON AGRICULTURAL PRODUCTION OR ANY OTHER COMMODITY?

C. THE PETROLEUM INDUSTRY IS ALSO PROHIBITED FROM OPERATING IN A FREE-MARKET SYSTEM AS NATURAL GAS PRICES CONTINUE TO BE REGULATED BY THE GOVERNMENT.

1. THE REGULATED AVERAGE WELLHEAD PRICE FOR NATURAL GASIS APPROXIMATELY $2 PER MCF, YET WE ARE IMPORTING 2 TRILLION CUBIC FEET OF GAS [HANDWRITTEN ADDITION: ANNUALLY] FROM CANADA AND MEXICO AT $4.94 PER MCF.

2. GOVERNMENT CONTROLS ON PRICES ARE RESPONSIBLE FOR THE GREAT DISPARITY BETWEEN THE PRICES RECEIVED FOR OIL AND GAS ON A BTU EQUIVALENT BASIS.
A. THE $2 PER MCF PRICE FOR GAS EQUALS APPROXIMATELY $2 PER MILLION BTU, WHICH COMPARES TO A DEREGULATED PRICE FOR OIL OF APPROXIMATELY $34 PER BARREL, OR $5.86 PER MILLION BTU.
B. UNDER A FREE MARKET, THIS DISPARITY WOULD NOT EXIST, BECAUSE NATURAL GAS IS A SUPERIOR FUEL. REMEMBER, LOW PRICES ENCOURAGE WASTE.

3. A MAJOR REASON FOR DECONTROLLING NATURAL GAS PRICES IS BECAUSE OF THE UNNECESSARY REGULATORY COSTS BEING BORNE BY PRODUCERS AND CONSUMERS.

4. ANOTHER REASON FOR DEREGULATION IS TO ENSURE ADEQUATE NATURAL GAS SUPPLIES, PARTICULARLY IN PRODUCING STATES SUCH AS TEXAS.
A. THIS MAY NOT SEEM REALISTIC IN VIEW OF THE PRESENT GAS OVERSUPPLY. BUT, REMEMBER, THE CURRENT EXCESS IS TEMPORARY—1-2 YEARS—THE NATION'S GAS RESERVES ARE, IN FACT, DECREASING.

5. THE CURRENT OVERSUPPLY, WHICH HAS RESULTED FROM CONSERVATION FOLLOWING INCREASED PRICES UNDER THE NGPA I PROVIDES AN IDEAL ENVIRONMENT FOR DEREGULATION AS IT WOULD PREVENT IMMEDIATE EXCESSIVE PRICE INCREASES TO CONSUMERS, OLD CONTRACTS WOULD NOT DECONTROL.
A. IF DEREGULATED NOW, THE PRICE WOULD NOT GO TO $8-$9 PER MCF (CURRENT PRICE OF DEEP DEREGULATED GAS) BUT PROBABLY TO $5-$6 PER MCF.
B. UNDER A "PHASED" DECONTROL OF OIL PRICES. THERE WAS NO ABRUPT INCREASE TO CONSUMERS. EVEN THOUGH OIL PRICES WERE COMPLETELY DECONTROLLED, PRICES HAVE ACTUALLY DECREASED.
C. DECONTROL OF ALL GAS WOULD INCREASE REVENUES TO THE FEDERAL GOVERNMENT FROM TAXES, ROYALTIES, ETC, BY AN ESTIMATED $28 BILLION PER YEAR. THIS COULD BE USED TO HELP OFFSET DEFICIT SPENDING.
D. UNDER A FREE MARKET, THE BASIC PRINCIPLES OF SUPPLY AND DEMAND TAKE OVER. (1) AS PRICES INCREASE, CONSERVATION BECOMES IMPORTANT WHICH IN TURN RESULTS IN GREATER SUPPLY AND LOWER PRICES. (2) INCREASED PRICES FOR NATURAL GAS [UNREADABLE STRICKEN TEXT] [HANDWRITTEN ADDITION: SHOULD] PROMPT MORE AGRICULTURAL RESEARCH INTO SUCH AREAS AS REDUCING CROP RELIANCE ON COMMERCIAL FERTILIZER.

D. THERE IS NO DOUBT THAT NATURAL GAS IS GOING TO COST THE FARMERS, AND EVERYONE ELSE, MORE IN THE FUTURE.

1. CERTAINLY, I AM SYMPATHETIC TO THAT, BUT THE REASON IS SIMPLE—PRICES HAVE LONG BEEN HELD ARTIFICIALLY LOW THROUGH GOVERNMENT REGULATION.
A. I DO NOT BELIEVE TOTAL DEREGULATION WILL OCCUR IN 1982—POSSIBLY IN 1983—IF AT ALL.
B. BUT, NATURAL GAS-PRICES WILL STILL GO UP.

2. ALTHOUGH OPEC HAS A MAJOR IMPACT ON PRICING, WE AS BUSINESSMEN WANT THE HIGHEST PRICE POSSIBLE FOR OUR PRODUCT (HOUSE ANALOGY). [HANDWRITTEN ADDITION: $4 CORN]

3. IF GOVERNMENT REGULATION OF NATURAL GAS IS ENDED AND THE FREE MARKET IS ALLOWED TO FUNCTION, THIS WILL GIVE BUSINESSMEN A REALISTIC METHOD FOR MAKING SOUND BUSINESS DECISIONS.

I. IN CONCLUSION, I WOULD LEAVE WITH YOU AN IDEA TO CONSIDER IN YOUR LONG-RANGE BUSINESS PLANNING.

A. HEDGE NATURAL GAS PRICES BY PURCHASING GAS AT TODAY'S PRICE. (MTR)