Divisions form over oil, gas provisions in Obama budget
INTERESTING READ.
Divisions form over oil, gas provisions in Obama budget
Nick Snow
OGJ Washington Editor
WASHINGTON, DC, Feb. 27 -- Sharp divisions have formed over the Obama administration's budgetary proposals to eliminate "oil and gas company preferences" worth an estimated $31.48 billion over 10 years and raise other taxes on the industry.
A budget that would eliminate tax mechanisms crucial to capital formation for drilling, such as expensing of intangible drilling costs (IDC), drew immediate criticism as "a devastating blow to the American oil and gas industry" from Independent Petroleum Association of America Pres. and Chief Executive Officer Barry Russell (OGJ Online, Feb. 26, 2009).
President Barack Obama unveiled the $3.6 trillion budget for the fiscal year beginning Oct. 1 on Feb. 26.
In addition to eliminating IDC expensing, the budget would repeal the manufacturers' tax deduction for oil and gas companies and the percentage depletion allowance, which is important to small independent producers.
The budget also would repeal the enhanced oil recovery credit, the marginal well tax credit, the deduction for tertiary injectants, and the passive loss exception for working interests in oil and gas properties.
It also would impose an excise tax on Gulf of Mexico production and by reducing royalty relief beginning in 2011. It also would increase the geological and geophysical amortization period for independent producers from 5 to 7 years.
Separately from the section on tax "preferences," the budget would charge producers user fees for processing permits to drill on federal lands and reform royalties and adjust rates to increase revenue.
And it would reinstate the Superfund tax on refiners and petrochemical manufacturers, envisioning receipts beginning at $1.2 billion in 2011 and phasing up to $2.3 billion in 2019, totaling $17.2 billion in 2011-19.
Congress created the Superfund tax with the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) to fund cleanup of abandoned hazardous waste sites.
Superfund taxation authority expired in 1995. Since expiration in 2003 of a trust fund established by CERCLA and expanded by the Superfund Amendments and Reauthorization Act of 1986, Superfund activities have been funded by congressional appropriations from general revenues.
New responses
National Petrochemical and Refiners Association Pres. Charles T. Drevna criticized elements of budget including repeal of the manufacturers' tax deduction for oil and gas companies.
Congress created the deduction for all US manufacturers when it passed the American Jobs Creation Act of 2004. Drevna said denying its use to refiners "would only weaken, not strengthen, our nation's energy security by stifling both the well and ability to increase domestic oil and gas production."
The manufacturers' deduction encourages refinery capacity expansions, he said. "With demand for gasoline continuing to grow each year, US refining capacity is already significantly strained despite multibillion-dollar reinvestments by the industry to expand it. Under normal economic circumstances, most refineries operate at more than 90% capacity throughout the year (except during maintenance season), which is significantly higher than the normal industrial average of about 75-80% of capacity."
Because US refiners compete in a global market, the manufacturing tax deduction helps them compete internationally and bolster national energy security by reducing the need for oil product imports, he said.
Congressional energy leaders' responses to the budget's oil and gas tax provisions generally followed party lines.
US House Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.) essentially welcomed them. "The president's proposal places a major emphasis on ensuring that taxpayers receive a fair return for the extraction of oil and gas resources on public lands and presses wealthy oil companies to diligently develop the leases they already possess on the Outer Continental Shelf," he said.
"Last Congress, I introduced legislation to reform the royalty collection program, encourage the diligent development of federal oil and gas leases, and require energy companies to pay their fair share for the use of public resources. I am heartened that the president's budget includes all of these initiatives and also correctly identifies our public lands as an immense potential resource for the development and deployment of domestic alternative energy," Rahall said.
'Punitive provisions'
But US Sen. Lisa Murkowski (R-Alas.), the Energy and Commerce Committee's ranking minority member, expressed concern not only about the billions of dollars of additional taxes, fees, and other expenses for oil and gas producers but also about so-called "use it or lose it" requirements for federal lessees. "These punitive provisions will raise revenue for the federal government, but they won't increase the energy security of the United States," she said.
"This represents an attempt to drive the oil industry overseas through a combination of breaching past agreements the government has made with oil and gas producers and making future production more difficult and expensive. Instead of declaring war on the domestic production of conventional energy, as I believe the president's budget does, we need to focus on how we can use our abundant domestic resources of oil, natural gas, and coal in the cleanest, most environmentally friendly way possible for the sake of our nation's economy, our nation's security, and the world's environment," Murkowski said.
Sen. Mary L. Landrieu (D-La.), who is on the Energy and Natural Resources Committee, called the budget proposal "an honest and balanced blueprint for America's future" that "emphasizes high-return investments and makes significant strides in restoring fiscal responsibility and deficit reduction."
But she expressed concern about changes it would make in the oil and gas tax regime.
"In these tough times, we must make sure that we do not disadvantage our domestic energy industry, which is critical to the nation's security, against foreign competitors. This industry provides good-paying jobs and plays a critical role in helping us reduce our dependence on foreign oil," Landrieu said.
After expressing his concerns about carbon cap-and-trade provisions of the president's proposed budget, Sen. James N. Inhofe (R-Okla.), the Environment and Public Works Committee's ranking minority member, said the budget's proposed oil and gas tax increases would potentially eliminate tens of thousands of domestic jobs in the industry, increase fuel costs for consumers, and make the nation even more dependent on foreign oil.
"In the United States, there are nearly 6 million Americans directly and indirectly employed as a result of the oil and gas industry. Tax increases of this magnitude will significantly curtail the operating budgets of all exploration and production companies, big and small. Every marginal well operator in the country should be gravely concerned that these proposals will force the premature plugging of low-production marginal wells. And, despite the rhetoric, America's oil companies are already paying taxes at the highest rates," he said.
Nonindustry responses
Nonindustry groups also responded to the proposals.
Thomas J. Pyle, president of the Institute for Energy Research, said they were not economic development but "a sure-fire way to send America's businesses either to bankruptcy or overseas."
He said, "It's alarming enough that the administration's plan to balance its books relies on funds it hopes to receive from a policy it hopes to someday enact. But what's truly appalling is that it's attempting to sneak this huge stealth tax into the budget at a time when so many Americans are facing unprecedented economic constraints."
David Holt, president of the Houston-based Consumers Energy Alliance, said that while Obama's proposed budget takes unprecedented steps to develop new alternative energy sources, it also takes unprecedented steps to make producing affordable energy from traditional sources more difficult and expensive. "The realization of an alternative energy future will not be achieved by making a reliable energy present impossible. My fear is that a number of the provisions in this budget would do precisely that at precisely the wrong time for struggling consumers and a flagging economy," he said.
Environmental organizations expressed the opposite view. "Today's budget announcement makes clear that the oil and gas industry will not continue to enjoy a taxpayer-funded feast at the expense of America's public lands and waters," Wilderness Society Pres. Bill Meadows said. "Following his strong statement on climate when he addressed Congress on Tuesday night, the president today offered further confirmation that it's not business-as-usual in Washington when it comes to fighting global warming pollution."
Erich Pica, domestic programs director for Friends of the Earth, said, "The days of Big Oil earning record profits while feeding at the taxpayer trough are coming to an end. President Obama's decision to put an end to these giveaways is a huge victory for taxpayers and the planet."
Divisions form over oil, gas provisions in Obama budget
Nick Snow
OGJ Washington Editor
WASHINGTON, DC, Feb. 27 -- Sharp divisions have formed over the Obama administration's budgetary proposals to eliminate "oil and gas company preferences" worth an estimated $31.48 billion over 10 years and raise other taxes on the industry.
A budget that would eliminate tax mechanisms crucial to capital formation for drilling, such as expensing of intangible drilling costs (IDC), drew immediate criticism as "a devastating blow to the American oil and gas industry" from Independent Petroleum Association of America Pres. and Chief Executive Officer Barry Russell (OGJ Online, Feb. 26, 2009).
President Barack Obama unveiled the $3.6 trillion budget for the fiscal year beginning Oct. 1 on Feb. 26.
In addition to eliminating IDC expensing, the budget would repeal the manufacturers' tax deduction for oil and gas companies and the percentage depletion allowance, which is important to small independent producers.
The budget also would repeal the enhanced oil recovery credit, the marginal well tax credit, the deduction for tertiary injectants, and the passive loss exception for working interests in oil and gas properties.
It also would impose an excise tax on Gulf of Mexico production and by reducing royalty relief beginning in 2011. It also would increase the geological and geophysical amortization period for independent producers from 5 to 7 years.
Separately from the section on tax "preferences," the budget would charge producers user fees for processing permits to drill on federal lands and reform royalties and adjust rates to increase revenue.
And it would reinstate the Superfund tax on refiners and petrochemical manufacturers, envisioning receipts beginning at $1.2 billion in 2011 and phasing up to $2.3 billion in 2019, totaling $17.2 billion in 2011-19.
Congress created the Superfund tax with the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) to fund cleanup of abandoned hazardous waste sites.
Superfund taxation authority expired in 1995. Since expiration in 2003 of a trust fund established by CERCLA and expanded by the Superfund Amendments and Reauthorization Act of 1986, Superfund activities have been funded by congressional appropriations from general revenues.
New responses
National Petrochemical and Refiners Association Pres. Charles T. Drevna criticized elements of budget including repeal of the manufacturers' tax deduction for oil and gas companies.
Congress created the deduction for all US manufacturers when it passed the American Jobs Creation Act of 2004. Drevna said denying its use to refiners "would only weaken, not strengthen, our nation's energy security by stifling both the well and ability to increase domestic oil and gas production."
The manufacturers' deduction encourages refinery capacity expansions, he said. "With demand for gasoline continuing to grow each year, US refining capacity is already significantly strained despite multibillion-dollar reinvestments by the industry to expand it. Under normal economic circumstances, most refineries operate at more than 90% capacity throughout the year (except during maintenance season), which is significantly higher than the normal industrial average of about 75-80% of capacity."
Because US refiners compete in a global market, the manufacturing tax deduction helps them compete internationally and bolster national energy security by reducing the need for oil product imports, he said.
Congressional energy leaders' responses to the budget's oil and gas tax provisions generally followed party lines.
US House Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.) essentially welcomed them. "The president's proposal places a major emphasis on ensuring that taxpayers receive a fair return for the extraction of oil and gas resources on public lands and presses wealthy oil companies to diligently develop the leases they already possess on the Outer Continental Shelf," he said.
"Last Congress, I introduced legislation to reform the royalty collection program, encourage the diligent development of federal oil and gas leases, and require energy companies to pay their fair share for the use of public resources. I am heartened that the president's budget includes all of these initiatives and also correctly identifies our public lands as an immense potential resource for the development and deployment of domestic alternative energy," Rahall said.
'Punitive provisions'
But US Sen. Lisa Murkowski (R-Alas.), the Energy and Commerce Committee's ranking minority member, expressed concern not only about the billions of dollars of additional taxes, fees, and other expenses for oil and gas producers but also about so-called "use it or lose it" requirements for federal lessees. "These punitive provisions will raise revenue for the federal government, but they won't increase the energy security of the United States," she said.
"This represents an attempt to drive the oil industry overseas through a combination of breaching past agreements the government has made with oil and gas producers and making future production more difficult and expensive. Instead of declaring war on the domestic production of conventional energy, as I believe the president's budget does, we need to focus on how we can use our abundant domestic resources of oil, natural gas, and coal in the cleanest, most environmentally friendly way possible for the sake of our nation's economy, our nation's security, and the world's environment," Murkowski said.
Sen. Mary L. Landrieu (D-La.), who is on the Energy and Natural Resources Committee, called the budget proposal "an honest and balanced blueprint for America's future" that "emphasizes high-return investments and makes significant strides in restoring fiscal responsibility and deficit reduction."
But she expressed concern about changes it would make in the oil and gas tax regime.
"In these tough times, we must make sure that we do not disadvantage our domestic energy industry, which is critical to the nation's security, against foreign competitors. This industry provides good-paying jobs and plays a critical role in helping us reduce our dependence on foreign oil," Landrieu said.
After expressing his concerns about carbon cap-and-trade provisions of the president's proposed budget, Sen. James N. Inhofe (R-Okla.), the Environment and Public Works Committee's ranking minority member, said the budget's proposed oil and gas tax increases would potentially eliminate tens of thousands of domestic jobs in the industry, increase fuel costs for consumers, and make the nation even more dependent on foreign oil.
"In the United States, there are nearly 6 million Americans directly and indirectly employed as a result of the oil and gas industry. Tax increases of this magnitude will significantly curtail the operating budgets of all exploration and production companies, big and small. Every marginal well operator in the country should be gravely concerned that these proposals will force the premature plugging of low-production marginal wells. And, despite the rhetoric, America's oil companies are already paying taxes at the highest rates," he said.
Nonindustry responses
Nonindustry groups also responded to the proposals.
Thomas J. Pyle, president of the Institute for Energy Research, said they were not economic development but "a sure-fire way to send America's businesses either to bankruptcy or overseas."
He said, "It's alarming enough that the administration's plan to balance its books relies on funds it hopes to receive from a policy it hopes to someday enact. But what's truly appalling is that it's attempting to sneak this huge stealth tax into the budget at a time when so many Americans are facing unprecedented economic constraints."
David Holt, president of the Houston-based Consumers Energy Alliance, said that while Obama's proposed budget takes unprecedented steps to develop new alternative energy sources, it also takes unprecedented steps to make producing affordable energy from traditional sources more difficult and expensive. "The realization of an alternative energy future will not be achieved by making a reliable energy present impossible. My fear is that a number of the provisions in this budget would do precisely that at precisely the wrong time for struggling consumers and a flagging economy," he said.
Environmental organizations expressed the opposite view. "Today's budget announcement makes clear that the oil and gas industry will not continue to enjoy a taxpayer-funded feast at the expense of America's public lands and waters," Wilderness Society Pres. Bill Meadows said. "Following his strong statement on climate when he addressed Congress on Tuesday night, the president today offered further confirmation that it's not business-as-usual in Washington when it comes to fighting global warming pollution."
Erich Pica, domestic programs director for Friends of the Earth, said, "The days of Big Oil earning record profits while feeding at the taxpayer trough are coming to an end. President Obama's decision to put an end to these giveaways is a huge victory for taxpayers and the planet."
Views: 94
Replies to This Discussion
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Permalink Reply by Todd M. Baker on
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intrepid:
You must not have ever made a "mistake". When humans are involved, bad things can sometimes happen. WHENEVER you invest money in drilling a 10" hole down in the ground, you have RISK. If you don't think so, round up a bunch of your buddies and go do it and see if your bh don't begin to pucker at every rotation. Yes there is risk. With shale you hope to be able control those risks.
TMB
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Permalink Reply by Pipeliner on -
Obama is trying to turn the U.S. into another Sweden. Some say Socialist Sweden works.
But does it really work?
http://www.namyth.com/SocialismWORKS!/index.php?sw=Sweden
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Permalink Reply by Pipeliner on
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Please try this link. The above one is broken.
http://www.namyth.com/SocialismWORKS!/index.php?sw=Sweden
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Permalink Reply by Pipeliner on
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Here is the messagel
"Socialism has worked for the world - and now it can work for you!"
Sweden:
"The Highest Standard of Living Anywhere"
The beautiful nation of Sweden has the highest standard of living in the world. Its blossoming industry ranks far higher than the United States in most measurements. Life in Socialist Sweden is free of homeless, reckless, crazy people. In spite of the 55% income tax, Sweden has a history of strong family values, the most progressive education system in the world and extremely low unemployment.
Sweden boasts a new Third Way between Capitalism and Socialism, making it a great example of new age Collectivism. It's superior unionization and strong economy will ensure that it will be a Socialistic success story for years to come.
If you say Sweden, I say "Socialism WORKS!"
But does it really work?
the highest standard of living:
Sweden's most affront claim, that it has the world's highest standard of living, is often based on the measure of equality in wealth redistribution, and not on the status of the national economy, the buying power of the Swedish crown (Krona), the amount of people working for productive aims or creating innovations, nor it's Gross National Product. Claims based on these other properties of the Swedish economy, in support of their "highest standard of living" claim, are mysteriously non-existent.
blossoming industry:
Sweden is a great place to start a new business - if you don't plan on being successful. A more lax economic policy in the '90s has increased new startups by 25%, but the economic attitude towards business hasn't changed much since the '70s, where entrepreneurs were treated like pariahs. Ikea founder Ingvar Kamprad told Forbes magazine that the Swedish tax bureaucrats would frequently accuse him of using people and "only wanting profits".
ranks far higher than the United States in most measurements:
The Swedish Institute of Trade reported in 2002 that "the median household income in Sweden at the end of the 1990s was the equivalent of $26,800, compared with a median of $39,400 for U.S. households". If Sweden were introduced to the U.S. as a new state, it would rank as the poorest according to these standards. This is in light of the fact that these numbers are gross values - before taxes - and Sweden has the highest taxes in the world. The same report also shows that Swedes fare lower than the lowest American socio-economic class, working-class black males.
free of homeless, reckless, crazy people:
The unfortunate in Sweden often don't roam the streets aimlessly, in fact, few are often found. That's because the state subsidizes them to live in optimal conditions and to provide little work - and if they are put into labor, it's in a public enterprise run by the government, to help reduce the official share of unemployed people. Workers can earn up to 570 paid days off a year (that's no typo - we know there are only 365 days a year - Swedes can earn more paid days off than days they actually work). So where are the poor, crazy, reckless people of Sweden? Living off Swedish tax money and taking up their inequitable residence in Swedish neighborhoods, and growing in numbers since the financial prosperity of the cradle-to-grave system doesn't discourage their lacklazy habits. They are often joined by productive Swedish citizens who simply take time off, after "earning" years of unemployment benefits. These categories, since they are subsidized, are not officially considered "unemployed" in most Swedish statistics, even though both demographics do no actual work. After making the observation that loons don't wander the streets of Sweden, P.J. O'Rourke commented in his book "Eat the Rich" - "The last time I walked through Gamla Stan, I didn't wonder where the crazy people were. In Sweden the craziness is redistributed fairly. They're all a little crazy."
55% income tax:
This income tax, 55% of the Gross National Product, the highest income tax in the world, is also coupled with sales taxes, property taxes, and other excise taxes and tariffs. The Swedish sales tax, a "value added tax", ranges to 22.5% of items sold, on various goods including most foods. The total ownership of public goods by the Swedish government is roughly 64%, closing in on 70%, once you include all these other forms of taxation. That is not including government-owned means of production, which control about a full quarter of Swedish productivity.
history of strong family values:
The history of Swedish domestic relations is chock full of civil rights abuses. 62,000 Swedes were forcibly sterilized by the Swedish government over a 40 year period, until 1974, by government researchers who judged families as being "racially inferior". These sterilizations included both the parents and their children. During this time period, a Swedish Television documentary revealed that Sweden lobotomized at least 500 "undesirables", in some cases without the consent of their families, and that lobotomizations may have numbered up to 4,500 people. These practices predated and surpassed the era of Nazi Germany.
the most progressive education system in the world:
Education is universally free in Sweden, and like other free government-sponsored systems, it's on the verge of financial collapse and decay. Per student Sweden pays an average of $7,000 a year, while the 9 years of elementary schooling is required, high school and further education is not. Students receive financial benefits for continuing to high school, in the form of about $100 a month, although by college most people have got weaned on the Swedish unemployment system. Some High School students teach Elementary school, while Colleges teach what Swedish High Schools did 15 years ago, showing the recent decline in the quality of Swedish education. To solve unemployment figures, many unemployed people are forced into menial courses to change their status from "unemployed" to "student", illustrating the general sense of misuse of the Swedish education system.
extremely low unemployment:
Sweden, like other Socialist nations, use methods to "hide" unemployment figures from staticians, reflecting a "strong economy". Most people on the government dole are changed in status to not be considered "unemployed", for instance, out of work citizens are often considered "on paid leave", or given a menial class and considered "students", or simply conscripted into public works programs funded by the government and given menial labor there. The government's ability to fund the unemployed hides unemployment numbers, giving Sweden years of having unemployment numbers like 2%. This, like other Socialist nations of it's ilk, does not reflect the real life numbers of regularly working people.
Third Way:
Swedes often argue that their system is not Socialism, since only a fourth of the Swedish main lines of production are owned by the government. However, this is in light of the government owning 70% of the Swedish Gross National Product, and controlling the direction of industry through heavy regulation. By mandating who can provide what products and services, and controlling media, education and public utilities, Sweden definitely has found a "Third Way" between Capitalism and Socialism - that way, of course, being to fake Capitalism, where the Socialist goals of redistribution of wealth and products are realized without calling most industry "publicly owned". This same trick of a "Mixed Economy" is used by Socialist economists all around the world to help give government progressive control over trade.
The lesson of the Third Way? Free trade is not free just because someone calls it "free".
superior unionization:
Unions in Sweden have become hyper organized, and government involvement is obscure and questionable. Super-union organizations like the LO have official affiliations with the Social Democratic Party, and work closely with the authorities to push domestic reform provisions they feel are "in the interest of the workers".
strong economy:
While the government spent 70% of the Swedish Gross National Product in the '90s, for 4 years the national debt doubled and for 3 years the nation experienced negative financial growth.
Socialistic success story:
Whether the massive welfare state of Sweden with it's cradle-to-grave public aid, ultra-high taxation, and dishonest economic policies is considered a success is something we'll leave entirely up to the reader.
« Go back to Socialism WORKS!
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Permalink Reply by intrepid on
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Jim, I have always respected your opinions and I'm glad you joind in on this discussion. You definately bring out some good points.
I've never agreed with Bush on the bailouts he initiated at the end of his term. And, I can't see how Bush doing it makes it good for Obama to continue and expand and increase them.
Sounds like Bush started off on the wrong road and Obama is pushing farther and faster.
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Permalink Reply by Grillin' - MmmMmm on
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P.G.: watch out or someone will call you a racist!! ;-)
I prefer "Obama's plan really blows" but you know, does it matter? The fool's got us heading down the road with a shear cliff at the end! Oh well, at least we'll have crappy health care like those in England! Guess there won't be universal dental care like in England!!
If you are a 20-year old looking at going in to several years of very expensive medical school, do you really want to do that? Just to get out and go to work in a government run healthcare system where some board of govenors decides what treatment is allowed for a patient? And that board might be appointed by the likes of Obama?? Nah, don't think so! Not worth the investment. Just decide to become a "community organizer" and learn to speak with a teleprompter!
Vision: Obama is at the dinner table with his 2 girls and wife. His wife asks, "how was your day?" Obama waits until his teleprompter is set up and then proceeds to read from prepared remarks on how his day went!!! LMAO. The dude had to have a teleprompter when he announced his selection of one of the cabinet positions!!
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Permalink Reply by Jay Murrell on
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Jim:
Guess you are talking about the bailout money. Conservative would almost all agree with you on that.
Best,
JM
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Permalink Reply by P.G. on
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Yes!
Banks don't have to loan any money and Car companies don't have to make any cars to survive.
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Permalink Reply by RAZORBACK on
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MORE FUEL FOR THE DISCUSSION:
Fears grow for natural gas in Obama tax squeeze
Independents fear loss of drilling cost deduction
By Braden Reddall And Joshua Schneyer, ReutersMarch 4, 2009
Oil and gas executives and experts fear that U. S. President Barack Obama's push for renewables could shrink U. S. output and drive drillers away from vast reserves of relatively clean-burning natural gas.
Obama's budget proposal would remove tax breaks for oil and gas production and institute new fees in the Gulf of Mexico, moves that could unintentionally hurt the mid-sized companies focused heavily on the U. S. and push the largest companies to shift their investments to other countries.
Of particular concern is the loss of intangible drilling cost (IDC) tax deductions, which leading U. S. natural gas producer Devon Energy Corp., said represents a quarter of its exploration budget.
"The elimination of the ability to expense drilling costs is just huge," said Bill Whitsitt, vice-president for public affairs at Devon, one of the top U. S. independents along with Apache Corp., XTO Energy and Anadarko.
Obama has the political wind at his back in targeting energy companies, even though that was the wrong policy at this time, according to Bill O'Grady, chief markets strategist at Confluence Investment Management in St Louis.
"If you're going to stick it to someone, the only guys more hated than the oil industry these days are bankers,"O'Grady said. "These (budget measures) would have hardly been noticed with oil at $150 a barrel, but doing them now is not helpful."
Public ire at energy producers has not abated after last year's jump to record U. S. retail gasoline prices, but analysts said tax policy inspired by Big Oil's eye-popping 2008 profits would be out of date as energy prices have plummeted since July and companies are slashing spending on projects in response.
"With ExxonMobil and Chevron reporting 2008 profits that exceeded the gross domestic product of many nations, public sentiment at the moment probably resembles that of a plundering mob," Wachovia analysts wrote Monday.
"So we're not surprised that the oil and gas industry is being targeted to foot some of the bill."
But Wachovia's analysts said yanking IDC deductions could "kill the nascent re-emergence of natural gas at a time that the country needs it most" since most gas is produced by independents, not the majors.
This year, because of weak energy prices, Devon might spend only half the $7 billion it spent last year on drilling and field development.
U. S. natural gas production rose about six per cent in 2008 as high prices prompted producers to ramp up output from fields that were once too difficult or expensive to tap. Prices have since collapsed about 70 per cent from July due to that glut of production, coupled with shrinking industrial demand.
IDC reform could not only lead to more natural gas imports, but also drive utilities to rely on even more power generated by coal --another abundant, if far dirtier, U. S. resource.
Drillers have worried about losing IDC deductions for some time. Devon president John Richels told an industry conference in San Francisco in October, before Obama's election, that its elimination would cost it $750 million US in the first year.
This would have a real impact on a company like Devon, which made a 2008 loss of more than $2 billion after a $7.1-billion charge to write down the value of oil and gas assets.
"We view these as business expenses and that's how it's been (treated) in the tax code since 1913,"Whitsitt said.
IDCs are "anything but intangible," including labour, drilling contractors and fuel, and making up a quarter of its exploration and development budget, he said.
Edward Jones analyst Brian Youngberg fears that the tax measures will push investment abroad at a time when energy independence is a goal and more U. S. jobs are needed--a concern echoed by Mark Kibbe, a tax expert at the American Petroleum Institute.
"Just intuitively, if you increase the cost of doing something here in the U. S., at some point it's going to make foreign projects look more attractive," Kibbe said.
He worried about missing out on vast potential gas reserves in U. S. shale formations--which are more expensive to drill and complete because they require cutting-edge technology to develop --as well as ultra-deepwater Gulf of Mexico areas.
Obama's plan, which Congress must approve, would levy excise tax on flows from the Gulf of Mexico, the source of 23 per cent of U. S. crude oil and 11 per cent of U. S. natural gas production. The U. S. tax policy for the Gulf has long been seen as one of the most attractive on the globe.
Confluence's O'Grady said Obama's taxes on producers would only end up being paid by consumers anyway. "He should consider a tax on carbon output," he added. "Unfortunately, what's economically efficient is politically suicidal.
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Permalink Reply by Jay Murrell on
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Razorback:
I got a call last week from a landman I trained four years ago that was recently let go by Devon. Laura had been working in the Barnett for the past 2 1/2 years and reported that they had cut back 80% of the field force in the Barnett. This lady is one of those peeps that any company would die for, as she is knowledgeable, efficient and completely trustworthy.
Devon told them that it would be 14 months before they could see any rebound for them in the Barnett.
I submit that based on the Devon quotes above that the 14-month number could be extended significantly if Obama's FY2010 budget is passed as he has proposed it.
There are hundreds of Laura's out there who have lost their incomes because of this price crunch. So now, Obama wants to further depress investment with his tax increase on oil and gas. I thought his big priority was to "save or create 3.5 million jobs." Wasn't that the most prominent part of his pitch in selling the Stimulus Bill?
I think he is a liar. I think he is more interested in creating a control economy than in creating, or saving jobs in the private sector for sure!
When you tax something there is less of it. Period. John Kennedy was a Democrat that understood this fact.
I am pretty sure that those of us that espouse capitalism will never convince everybody that it is the solution to the problem. I am profoundly amazed that there seems to be a stubborn resistance to the argument, which holds that if you let individuals or corporations keep more of their money they will do a better job of investing it than will Barack Obama. I am sad because I believe their notion is based in large part on class envy, which ought to be a sin, if it isn’t already. It is certainly corrosive.
The evidence of this is in the responses of the people that favor big government in this thread and on this site. They are presented with facts and proofs and personal experience of people who are in the business and they choose to completely discount these opinions and facts.
I suppose that has something to do with the liberal view of truth being a relative thing. "You have your reality, and I have mine." A really good example of this comes from a person who claims to be active in the E&P business and who insists that doing away with IDC's and depletion, a secondary recovery credits, etc. will have absolutely no effect whatsoever. He persists in this line in the face of 99 to 1 disagreement from others in the industry. People that are active and drill wells and raise capital for exploration, ya di da di da di....
The biggest threat to our country is from people like this, folks who have the intellect to know better, but who will not accept objective reality and truth because it does not fit their political agenda. Then there are those -- who were the vast majority of the swing vote that pulled the lever for Obama -- who just don't have a clue...there seemed to have been more of this sort around this election cycle.
I blame the media and our public education system for most of the latter group. The former types are just hopeless.
The good news is that Laura found work last week. Its pretty far from home, but, hey, that what us landmen do when we gotta.
Best,
Jay
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Permalink Reply by jlarry on
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KB,
The very bottom line of this discussion is quite simple. If you increase costs to the O&G companies by eliminating tax credits or increasing taxes you and me will pay for their taxes through higher product costs. That is simple accounting 101. The IDC that Jim is making an issue of is one of the minor issues in the budget bill. Without the secondary recovery and tertiary tax credits oil production in the lower 48 will decline at a rate that would lead to the 1970's gas lines again. For Jim to say that the tax credit is no longer justified is very disingenuous.
Name calling aside, if we stop pouring good money after bad into any company that needs to go belly up. We would not need to have this discussion.
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