Obama's proposed budget would repeal oil, gas tax breaks


Nick Snow OGJ Washington Editor

The Obama administration has proposed eliminating what it termed “oil and gas company preferences” as it released its proposed fiscal 2010 federal budget on Feb. 26. The move would raise nearly $31.48 billion of revenue by fiscal 2019, it said.

In the budget’s mandatory and receipts proposal table, it called for the repeal of the manufacturing tax deduction for oil and gas companies, which it said would raise an estimated $13.29 billion over 10 years, and the percentage depletion allowance, which it said would raise some $8.25 billion during that period.

It also recommended repealing the enhanced oil recovery credit, the marginal well tax credit, the expensing of tangible drilling costs, the deduction for tertiary injectants, and the passive loss exception for working interests in oil and gas properties.

The proposals also included placing an excise tax on Gulf of Mexico production, which the budget said would raise $5.28 billion, and increasing the geological and geophysical amortization period for independent producers to seven years from five to raise nearly $1.19 billion, essentially reversing a provision in the 2005 Energy Policy Act.

One major oil and gas group’s president responded immediately. Barry Russell of the Independent Petroleum Association of America called it “a devastating blow to the American oil and natural gas industry.” He noted that independent producers drill 90% of the oil and gas wells in the US, which means tax increases hurt these companies the most.

“Hurting American oil and natural gas production runs counter to the Obama administration’s interests. America’s clean-burning, abundant natural gas will be essential to any clean energy agenda for the administration, and America’s natural gas and oil are critical to decrease our reliance on foreign oil,” Russell said.

Royalties collected from the US oil and gas industry already account for the federal treasury’s second-largest income stream, he noted. Less domestic oil and gas production would also immediately reduce federal and state governments’ income, he said.

“These proposals make no sense during this economy when increased American energy could result in new jobs and more tax and royalty revenues. Coupled with his administration’s delay in implementing the new 5-year plan for offshore exploration, this is not welcome news to the majority of Americans who favor increased American oil and gas production, especially from the offshore,” Russell maintained.



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