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Hearst Energy: Obama budget bad news for oil, gas

by Houston Chronicle
Midland Reporter-Telegram
Published: Tuesday, February 2, 2010 3:13 PM CST

WASHINGTON -- President Obama took direct aim at the U.S. energy industry Monday, saying his newly released 2011 budget proposal seeks to end "costly" incentives for oil, natural gas and coal producers because "we just can't afford it."

The president made the remarks as part of his formal unveiling of a $3.8 trillion budget with the largest projected deficit in U.S. history.

For energy producers, the Obama proposals mark the second consecutive year in which the president tried to eliminate tax breaks for energy exploration and add new fees on energy producers. The administration says that the changes would reduce the federal deficit by $40 billion over 10 years.

Obama said that the tax breaks -- created as incentives for domestic drilling -- had "outlived their usefulness."

The administration's targets for elimination include deductions for intangible drilling costs such as hauling supplies and preparing sites, domestic manufacturing deductions by oil and natural gas companies and the percentage depletion claimed for extracted oil and gas. Industry leaders say the initiatives are essential to trim the cost of doing business and soften some of the high capital costs of drilling and refining.

The White House also has proposed a new federal excise tax on oil and gas produced in the Gulf of Mexico and asked Congress to end a research and development program aimed at offsetting some steep costs of producing in ultra-deepwater fields.

Energy producers immediately announced their opposition to the plan.

"With America still recovering from recession and one in ten Americans out of work, now is not the time to impose new taxes on the nation's oil and natural gas industry," said American Petroleum Institute President Jack Gerard. "New taxes would mean fewer American jobs and less revenue at a time when we desperately need both. A robust U.S. oil and gas industry is essential to the recovery of the nation's economy."

Barry Russell, president of the Independent Petroleum Association of America, called the taxes "punitive."

The tax hikes "would reduce investment in new U.S. production by 20 to 40 percent," he said. "And it could drive down U.S. oil production by 20 percent and natural gas production by 12 percent, potentially killing thousands of jobs."

Russell added: "If the president is sincere in his efforts to encourage responsible American energy production" and promote job growth, "these damaging tax hikes must be taken off the table."

A study released Monday by the Texas Alliance of Energy Producers estimated that approximately 71,000 of the 209,900 Texans working in oil and gas businesses will lose their jobs if the tax provisions become law.

About 1.1 billion barrels of crude oil would be prematurely plugged in the U.S., the study predicted, resulting in more than $79 billion going to foreign countries to pay for additional petroleum imports. The state of Texas would lose more than $3 billion in sales, property and severance taxes, the alliance stated.

While the regional economy could get a jolt from the energy proposals, it also could get a boost from the administration's wide-ranging increases in research and development spending. Texas is a leader in alternative-energy research, which would receive a $6 billion increase if the administration's plans are adopted.

The proposal represents the administration's second attempt to do away with more than a half dozen tax provisions used by the industry. The president's first set of energy tax proposals received a cool reception on Capitol Hill last year. Although some Democratic lawmakers tried to advance legislation that would impose new fees on leases to produce oil and gas from public lands and waters, the only significant action on the tax changes was a Senate Finance subcommittee hearing in September.

But Obama insisted that "we're not simply photocopying last year's budget."


Read more: http://www.mywesttexas.com/articles/2010/02/02/news/top_stories/hearst_obama_budget_oil_gas.txt#ixzz0fBbFWpOe