Obama Budget An Attack on Domestic Oil And Gas Industry

Nearly this time a year ago, President Obama unveiled his FY2010 budget.  If you recall, that budget proposal topped nearly $3.5 trillion and created $12 trillion in new debt over the course of the next decade.  Within the President’s budget was a repeal of nearly all of the tax incentives for the oil & gas industry.  The loss of incentives such as the depletion allowance and the write off of intangible drilling costs would effectively cripple future drilling for the majority of wells drilled in the continental U.S and eliminate thousands of good paying jobs around the country.

Fast-forward to today, we still face tough economic challenges and find national unemployment near10%.   As the President’s approval rating continues to plummet and his policies continue to negatively impact the economic recovery, it would only make sense for President Obama to reassess his plan.  Unfortunately, the President continues to move forward with his agenda by maintaining the repeal of these incentives in his FY2011 budget proposal.

The President’s budget stands to eliminate more than $37 billion in tax incentives for oil & gas businesses.  The Administration claims that the majority of this $37 billion will be carried by the large multi-national, “Big Oil” companies. It’s important to remember that the vast majority of our industry is made up of small businesses.

Independent and small producers drill more than 90% of the wells in the United States.  These independent operators hire tens of thousands of American workers, and produce 82% of our domestic natural gas and 68% of US oil.  Independents, according to IPAA, reinvest 100% of American Oil and natural gas cash flow back into new American production.  Inevitably, this budget proposal will strip independent operators of the capital they need to explore and produce oil in the US.  Shockingly, operators claim that this will reduce their drilling activities by as much as 40%.

It’s important to understand why repealing these incentives is such a priority for this Administration.  Regardless of waning support and shifting of national political opinion, this Administration is bound to a certain initiative and is desperate for a source of revenue to pay for it.  That initiative the “Green Economy.”

We have heard President Obama continuously speak about relieving our dependence on foreign oil.  A question to ask is, “Why would the President propose a budget that stands to do the exact opposite?”  Raising taxes on the oil & gas industry will result in massive job losses, higher fuel and energy costs, and increased dependency on foreign oil.  These outcomes are what this Administration would like to see.

In order for the “Green Economy” to flourish, there must be a market.  Solar and wind energy supply less than 1% of America’s energy needs.  The reason they make up such a small percentage of our consumption is simple: the cost.  Even with billions of dollars in incentives, alternative sources of energy like solar and wind are considerably more expensive.  The only way they can become competitive in the marketplace is to increase the cost of fossil fuels through raising taxes.

Raising taxes on fossil fuels will not bring about President Obama’s “Green Economy.  If anything it creates a whole new series of problems.  In his recent State of the Union Address, the President vowed that the economy and job creation was his top priority.  If that is the case, retracting his job-killing tax increases on our industry would be a good start.

Don Briggs is the President of the Louisiana Oil & Gas Association.



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