A Second Stimulus Package: At What Cost

The oil & gas industry is faced with a hostile economic and political environment unlike any other in its long and arduous history. At every corner, politicians and bureaucrats in Washington are finding new and innovative ways to bring the industry to its knees. At a time when you think things can’t get any worse, it does.

Since his election in November 2008, President Obama has made it clear that he wishes to do away with vital tax incentives for our nation’s oil & gas industry.

Originally, the elimination of $37 billion in tax incentives for the oil and gas industry was a part of the Administration’s FY2010 budget proposal. Although this measure did not pass in the budget for the 111th Congress, once again Obama placed this initiative in his FY2011 budget proposal. The original intent of eliminating these incentives was to fund and subsidize renewable sources of energy, like wind and solar.

This past week President Obama announced a second stimulus package to “stimulate” our ailing economy by directing funds to infrastructure projects and cutting taxes for individuals making less than $250,000 a year. This initiative would serve as a long-term investment in America’s roads, railways and airports and would cost at least $50 billion. Sounds like a great plan. Who would not want to support such a package? Unfortunately, like any endeavor in Washington, questions must be asked. Like who will pay for yet another big government spending project?

Jason Furman, the President’s Deputy Assistant for economic policy, said in a conference call with reporters late Wednesday, “Big oil companies actually pay lower tax rates on their profits than do most other corporations.” Furman went further by adding, “Get rid of those tax breaks so the big oil companies are being treated just the same as every other corporations when it comes to taxes.”

What the President and his wise economic advisers fail to realize is that it is not “Big Oil” companies that rely heavily on these incentives, it is our independent oil and gas operators across the entire nation. America’s independent natural gas and oil producers develop 90% of US wells, produce 82% of US natural gas and produce 68% of US oil. Independent producers reinvest over 100% of American oil and natural gas cash flow back into new American production. According to IPAA, “The Obama Administration’s budget request would strip essential capital from new American natural gas and oil investment by radically raising taxes on American production.”

The loss of incentives such as the depletion allowance and the write off of intangible drilling costs would effectively shut down future drilling for the majority of wells drilled in the U.S and stifle exploration and development in our state. Repealing these incentives will result in the destruction of thousands of good paying jobs in our local area and around the country. These measures will not only increase costs to oil and gas businesses of all sizes, but will potentially cripple a crucial industry and employer in our local communities.

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



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