Taxes Targeted as Fiscal Cliff Looms

Not much is certain in a post-election world, but two facts exist: President Obama will receive a second-term in the White House and the politics are far from dead inside the Beltway. Before we move on (because move on we must), here are IPAA Chairman Gigi Lazenby’s comments on the re-election of President Obama.

“IPAA appreciates President Obama’s affirmation of natural gas as an abundant and affordable energy source that will supply the United States for more than 100 years. However, IPAA has serious concerns about energy policies the Obama administration has implemented over the past four years, which taken together, demonstrate a fundamental misunderstanding of the natural gas and oil industry in the United States. America’s independent producers, which supply 54 percent of U.S. oil and 85 percent of U.S. natural gas, encourage President Obama to take a renewed, more positive approach to oil and natural gas development in the United States…

“President Obama has repeated his commitment to energy development in powering our economy and has promised to put Americans back to work. IPAA is committed to working with the President to deliver on this promise in his second term. We encourage the Obama administration to empower the states and implement a framework that allows independent producers to do what they do best – safely and responsibly find and develop American energy. If allowed to do so, oil and natural gas development will increase our nation’s energy security, create much-needed jobs, and give the American people the standard of life that petroleum creates.”

Click here to read the full press release. IPAA’s position was featured in Reuters, Houston Chronicle, Oil & Gas Journal, and other national media outlets.

Gigi’s comments give a good picture of where the oil and natural gas industry is at, and this was reflected at IPAA’s 83rd Annual Meeting, held in New Orleans last week – the day after the election. Essentially, IPAA is very cautious that the administration’s regulatory avalanche on oil and natural gas development will not only continue, but may even ramp up. However, we are also optimistic – optimistic because of our industry’s own great successes in creating jobs and supplying American energy.  

Just this week, the International Energy Agency released a new report that projected the United States will surpass Saudi Arabia to become the world’s number one producer of oil by 2020. By just 2015, the United States will be the number one producer of natural gas. Yesterday, the New York Times reported that the “prime mover [in sudden shift of world's energy supply] is a resurgence of oil and gas production in the United States, particularly the unlocking of new reserves of oil and gas found in shale rock. The widespread adoption of techniques like hydraulic fracturing and horizontal drilling has made those reserves much more accessible, and in the case of natural gas, resulted in a vast glut that has sent prices plunging.” The Wall Street Journal highlighted that the result would be “a continued fall in U.S. oil imports to the extent that North America becomes a net oil exporter around 2030.”

The  politics in DC are far from slowing down – in fact, with Congress back in town on Tuesday and the administration reinvigorated after the election, the politics may be just beginning. In just 6-8 weeks, the U.S. has the possibility of running right over the dreaded fiscal cliff.

What is the fiscal cliff, you ask?

It’s a combination of different policies, cuts, and programs that all come together to form one deadline – the end of the year. Three main policy areas must be dealt with by the end of 2012: 1) the vast array of tax cuts that have been put in place over the years are set to expire; 2) the bundle of domestic and defense cuts known as sequestration are about to set in, and 3) the debt limit is setting in – resurfacing the question of whether or not to raise the debt ceiling. Lawmakers and their staff on the Hill, the administration, and K Street may be wildly busy up until the wee hours of Christmas Eve even trying to negotiate and pass a package.

An often easy (and unfair) political target, the issue of the industry’s tax provisions is in the spotlight once again. The important provisions of intangible drilling costs and percentage depletion – which President Obama claims will raise billions in revenues each year – may be on the chopping block. IPAA’s number one priority is preserving these provisions. They are vital to reinvestment in new energy projects and critical to the health of the U.S. E&P industry — and thus, the recovery of the American economy. In fact, eliminating these provisions in the long run will actually end up reducing revenues to federal, state and local governments.

It’s important to remember, America’s oil and natural gas industry pays $86 million in taxes to the government every single day. And, our effective tax rate is higher than any other industry. Oil and natural gas companies pay an effective tax rate of 44%, while other industries on average pay 26%. We are certainly paying our fair share – and it’s the smaller, independent companies with limited resources that are going to pay the price if taxes are increased on them. Not to mention, the American consumer, the American job-seeker, and the American pension holder will undoubtedly suffer.