DEPA Statement on Energy Taxes

Online, July 20, 2011 (Newswire.com) - Congress and President Obama are currently considering several options dealing with tax provisions for the oil and gas industry as part of a deficit reduction plan.

We urge Congress to reject the president's proposal which would eliminate tax provisions currently in the tax code vital to domestic independent oil and gas producers' ability to raise the capital necessary to drill new wells in the United States.

President Obama has proposed raising $43 billion over a 10-year period by eliminating tax provisions which almost exclusively apply to domestic producers. These include such items as intangible drilling costs (IDCs) and percentage depletion. Independent producers drill 95 percent of the new oil and gas wells in the United States each year. The tax provisions targeted by the Obama Administration are only available on wells drilled domestically.

An alternative to the president's approach of raising energy taxes on both "big oil" and domestic independents has been voted on several times this year in both the House and Senate. This alternative approach would raise $21 billion over a 10-year period by changing tax provisions only affecting the Big 5 major integrated oil companies which drill most of their wells outside the United States. This approach would change favorable foreign tax treatment currently received by the major oil companies and would eliminate intangible drilling costs and the section 199 manufacturing tax deduction on the five percent of wells drilled in the U.S. by the major companies. The major oil companies have not been eligible for percentage depletion for more than 30 years.

Should energy taxes be a part of any deficit reduction package negotiated by Congress and the president, DEPA urges them to make sure the provisions that allow the capital that the thousands of U.S. domestic independents use to create high-paying jobs in America and lessen our dependence on foreign oil be left intact.

Eliminating the expensing of intangible drilling costs and the percentage depletion allowance for domestic independents would have the effect of increasing our reliance on imported oil and would jeopardize many of the four million U.S. jobs attributed to domestic independents' drilling activity. Eliminating these tax provisions for domestic oil and gas producers would reduce drilling activity by at least 30 percent.

Congress and the president face a clear choice. The American independent oil and gas producers who are drilling 95 percent of the wells in America have been reducing our dependency on foreign oil more each year for the last five years and are finding the natural gas that will power our nation far into the future. In considering the elimination of capital used by independent producers to drill for oil and gas right here at home, policy makers would be wise to follow the biblical admonition to "never muzzle the mouth of the oxen that is grinding the corn." We are winning the war for energy independence for the first time in decades and currently import less than 50 percent of oil used in the U.S. Now is not the time to retreat.

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