Sheila McNulty Small oil objects to big tax clawbacks

The small oil and gas companies that drill most of the wells in the US are reeling from the White House’s 2010 budget, which attempts to raise funds by cutting back tax breaks – by $26bn over the next decade – that the industry contends have helped to grow domestic resources.

Barry Russell, president and chief executive of the Independent Petroleum Association of America, says the budget measures will make it more difficult to develop American energy:

We can’t tax our way to energy independence.

Mr Russell notes that 90 per cent of America’s natural gas and oil wells are developed by 5,000 independent, small businesses, with an average of 12 employees.

These businesses would be crippled by these new taxes, and we project that up to 20 per cent of our nation’s oil and 13 per cent of natural gas production could be wiped out if the president’s proposal is enacted. And, new production investment will be dramatically curtailed.

The budget calls for repealing existing tax provisions that encourage US production, new excise taxes on offshore production, and new user fees at a time the industry is already under pressure from plunging commodity prices and the economic downturn. The budget also would repeal expense allowances on intangible drilling costs, similiar to those given to other manufacturing and production industries. And it would repeal the Enhanced Oil Recovery Credit, which allows industry to get more energy from wells that are depleted, instead of drilling new ones.

Marc Smith, executive director of the Independent Petroleum Association of Mountain States, where a key portion of US natural gas is produced, noted that natural gas – the clean fossil fuel – is needed to increase US energy security, make renewable energy sources viable, and address climate change.

These tax proposals are contrary to the president’s stated energy goals and will deepen our recession by endangering American jobs.

Of course that is the exact opposite of what the Obama Administration is aiming for.

The Obama Administration says it is trying to put the oil and gas industry on equal footing with other industries because the tax loopholes do not reduce energy prices or result in more production.

Only time will tell if the administration is right.