US oil and gas producers warn Congress on Obama taxes

10 September 2009 21:35  [Source: ICIS news]

WASHINGTON (ICIS news)--President Barack Obama’s fiscal year 2010 budget proposal would unfairly target oil and gas producers with tax increases that would inhibit US energy production, industry officials and consultants warned Congress on Thursday.

Oil and gas producers told a panel of the US Senate Finance Committee that the White House budget plan for fiscal 2010 (1 October 2009 to 30 September 2010) “includes a host of massive tax increases, including many that directly target America’s producers of natural gas and oil”.

Buddy Kleemeier, chairman of the Independent Petroleum Association of America (IPAA), told the Subcommittee on Energy, Natural Resources and Infrastructure that “The Obama administration’s budget request would strip essential capital from new American natural gas and oil investment by radically raising taxes on American production”.

“American natural gas and oil production would be reduced,” Kleemeier said in his testimony.  “It runs counter to the administration’s clean energy and energy security objectives.”

IPAA represents companies that develop most of the nation’s oil and gas wells.

The subcommittee was hearing testimony on the likely revenue and energy consequences of the White House budget’s proposed tax changes. 

Among the 10 proposed changes is a surtax on oil and gas production in US waters of the Gulf of Mexico, a repeal of tax deductions for intangible drilling costs - what the industry regards as its research and development (R&D) expenses - and repeal of a manufacturers’ tax deduction as it applies to energy production.

Testifying for the administration, Treasury Department Assistant Secretary Alan Krueger said the White House budget seeks tax increases or the elimination of tax incentives in oil and gas production in part to support the administration's policy to "address the negative externalities associated with GHG [greenhouse gases] production" due to the use of oil and natural gas.

"To the extent that removing the current tax subsidies for oil and gas production increases energy prices, the administration's proposals would move prices closer to appropriately reflecting the negative externalities associated with oil and gas production," Krueger said.

But Larry Nichols, chairman of the American Petroleum Institute (API), charged that the Obama budget proposal tax provisions “are anti-jobs, anti-consumer and anti-energy”.

“History has shown that increasing taxes on the oil and natural gas industry negatively affects consumers, businesses and the economy,” Nichols said. “They will depress investment in new domestic oil and natural gas projects, weaken the nation’s energy security and make it more difficult to achieve economic recovery.”

The US petrochemicals industry is heavily dependent on natural gas as a feedstock and energy fuel.

Nichols argued that the additional taxes or elimination of tax deductions would cost US oil and gas producers $80bn (€55bn) over the next ten years.

Energy sector analyst Kevin Book told the subcommittee that the administration’s planned 13% surtax on central Gulf of Mexico leases “could lead to negative energy security consequences without substantially improving gross receipts to the US Treasury” because the surtax would discourage further high-cost drilling in those deepwater fields.

Book, head of research at ClearView Energy Partners in Washington, DC, also cautioned that eliminating R&D tax deductions for oil and gas producers “could have the effect of diminishing the working capital available to fund new and continuing domestic investment in oil and gas production”.

Congress is expected to vote on an adjusted fiscal year 2010 budget before the end of this year.

($1 = €0.69)

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By: Joe Kamalick
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