Oil companies say Obama tax plans will cost Texas $2 bln
- Source: Xinhua
- [14:45 September 15 2009]
- Comments
Oil and natural gas production tax revenues in Texas would drop 2.1 billion dollars over the next three years if US Congress adopts the Obama administration's proposed oil and gas tax changes, according to a study released on Monday.
The study, conducted by the Texas Alliance of Energy Producers (TAEP), has been submitted to the US Senate Finance Committee's Energy, Natural Resources and Infrastructure Subcommittee, which is reviewing White House proposals to repeal percentage depletion, intangible drilling costs, and six other significant federal tax provisions.
A part of the tax code since 1926, percentage depletion has been used as a tax deduction calculated by applying the allowable percentage to the gross income from a property. For oil and natural gas, the allowable percentage is 15 percent at present.
Meanwhile, intangible drilling costs (IDC) are specific and real drilling cost outlays associated with oil and gas operations. Examples of IDCs range from the clearing of ground, draining, and surveying work to prepare for the drilling of wells to wages, fuel, repairs, supplies, drilling muds, chemicals and cement incident to and necessary in the drilling and preparation of wells for the production of oil and gas.
The TAEP said percentage depletion and IDCs were important tax laws that had been around since the 1920s and allowed independent oil and gas producers, who drilled 96 percent of the wells in Texas last year, to finance the drilling of wildcat wells.
"If Congress adopted the proposals (by the administration), the US oil and gas industry would quickly collapse," the TAEP predicted.
The study noted that Texas would lose about 70,000 oil patch workers, because drilling activity would decline to record lows in a matter of months. In the year to July, the state's oil and gas sector has shed more than 32,000 jobs through.
At the same time, the study estimates US crude oil imports would increase and an additional 551 billion dollars would be spent on imported oil.
The Senate subcommittee is discussing the proposed oil and gas tax provisions in President Obama's 2010 budget. Reports say the administration also seeks implementation of a new federal excise tax on oil and gas production from federal waters in the Gulf of Mexico.
It is the most serious threat to the industry since the price controls and "windfall profits" tax in the 1970s and 1980s, according to the study, saying oil and natural gas production tax revenues in Texas alone would drop 2.1 billion dollars over the next three years.
Additionally, the Permanent School Fund and the Permanent University Fund would lose an estimated 125 million dollars in royalties, lease bonuses and other income related to oil and gas activities, the study said.
