Good News for Offshore Development, So Why Block Access?

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Today, the Department of Interior held a lease sale for the Central Gulf of Mexico. The sale garnered a great deal of enthusiasm from the industry, attracting 407 bids from 52 companies. The total bids for today’s sale exceeded $1.2 billion dollars—one of the highest sales since leasing began in 1983.

This huge amount of federal revenue begs the question: Why are legislators in Congress and the administration calling to raise taxes on the oil and natural gas industry when the industry is garnering a huge deal of revenue for the country? Repealing critical tax deductions would undoubtedly curtail this enthusiasm in the Gulf and onshore. It’s vital that Washington doesn’t mess with tax deductions and an investment plan that are clearly working.

The revenues are so great that states want in on more of the bounty. Today, Senators Mary Landrieu (D-LA) and Lisa Murkowski (R-AK) introduced legislation that enables states currently open for offshore production (Gulf states and Alaska) to keep more of the revenue generated by offshore energy development. The Fixing America’s Inequality with Revenues (FAIR) Act provides up to 37.5 percent of all revenues from offshore development to coastal states. Of this percentage, states would automatically receive 27.5 percent of these revenues, 25 percent of which would go to the coastal communities most impacted by offshore development. They’d also be eligible for additional 10 percent if they establish funds to support projects relating to clean energy or conservation.

 

Although the IPAA supports efforts to increase American offshore oil and natural gas production, we believe the real solution to increasing offshore production would be to increase access to areas in the Eastern Gulf of Mexico and the Atlantic.  Rather than limiting offshore exploration to a few areas across the nation, the federal government should allow the states along the eastern seaboard and elsewhere to begin the process of exploring for additional energy resources off their coasts. 

What independent producers – and states – really struggle with is access. We need to open up the eastern Gulf of Mexico – to explore for the resources that are undoubtedly lying beneath the waters there. When the federal government refuses to allow producers to explore for American energy, it not only hurts the industry, but it does the American people a disservice. More American energy means more American jobs, more revenue for depleting government budgets, and more growth for our economy.

The oil and natural gas industry supports efforts to remove these federal roadblocks to American development. So do many legislators in Congress. Today, more than 40 legislators sent a letter to President Obama, urging his administration to complete the long-delayed Environmental Impact Statement (EIS) for the conduct of a safe, environmentally protective seismic assessment of the oil and natural gas resources offshore the Atlantic outer continental shelf (OCS). As the letter expressed, it’s been more than two generations since the last seismic testing was done on the eastern seaboard. Clearly, the technology has advanced greatly since then. We didn’t even have 3-D seismic testing at that point. The letter expressed that this testing “represents a critical step toward making science-based decisions with regard to any future commercial or recreational activities in the federal waters off our Atlantic coastline that could provide the nation much needed energy, economic, and environmental benefits.”

 It’s time to let states that have been barred from offshore development explore this opportunity for jobs, economic growth, and energy security. It’s time to let industry get excited about developing the eastern seaboard and the Western Gulf of Mexico. The economic potential of this energy opportunity is so large that the industry, states, federal government, and the American people can all share in the bounty.

IPAA Winter Magazine Released

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wintermag The first 2013 issue of IPAA’s magazine was released this week. I encourage you check out the features, particularly the articles on the tax battles that IPAA fought in the 112th Congress and the update on IPAA’s Education Center, and IPAA’s work against the manipulated Endangered Species Act.

Check out the table of contents below:

President’s Message……………………………………………………8
Barry Russell

Petroleum Delivers on American Jobs…………………………10
Examining Development & the U.S. Workforce

Lining up for Change……………………………………………………18
U.S. Technology Revolutionizing Development

IPAA Education Center Update………………………………………26
A 2012 Recap

Over the Cliff…………………………………………………………………32
Tax Issues Remain in Play

Standing Tall…………………………………………………………………28
IPAA Pushes Back Against Abusive Use of the ESA

Also make sure you check out what IPAA members and staff have been up to, from Summer NAPE in Houston to OGIS in San Francisco to IPAA’s 83rd Annual Meeting in New Orleans. We’ve been quite a busy bunch!

 Peruse the online version of the magazine here.

 

New Year Brings Opportunities and Obstacles for Industry

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IPAA President & CEO Barry Russell’s reflects on the opportunities and challenges of the year ahead:

“As 2013 begins, IPAA is optimistic that the great benefits of natural gas and oil development are gaining traction with leaders in Washington. Despite political gridlock that Washington seems to be characterized by these days, leaders on both sides of the aisle are recognizing that energy development environmental protection can and do work together to the benefit of the American people. IPAA has had several productive meetings with Congressional leadership and the White House on how development of oil and natural gas resources, particularly from shale, is boosting jobs, government revenue, and economic growth all across the nation. Below are some of the issues that IPAA will be working with Congress and the administration on.

TAXES.         

“Although major bills will likely be stymied in Congress, IPAA’s major area of legislative concern is taxes. Although comprehensive tax reform may not be undertaken immediately, tax policy will inevitably be in the spotlight. The call to end industry’s provisions of intangible drilling costs and percentage depletion and the passive loss exclusion will inevitably resurface. This is a dangerous political rallying cry that ignores the enormous risk that independent producers face in exploring for energy and threatens the continued investment in America’s vibrant and growing energy sector. IPAA continues to educate lawmakers and their staff on why these provisions are in the tax code. We will continue to warn against the unintended consequences that eliminating these provisions would have on future oil and natural gas production.

REGULATION.

“Due to the standstill in Congress, environmental issues will be addressed by regulations.  In fact, the legislative gridlock could embolden the Obama administration’s agencies to take major steps to federalize oil and natural gas regulation, with particular focus on hydraulic fracturing. Traditionally, the states have had jurisdiction of energy regulation and, time and time again, have proved themselves more than capable of doing so. From the EPA’s proposed national source performance standards to BLM’s drilling regulations to EPA’s regulatory guidance and studies on hydraulic fracturing rules, IPAA will be keeping a close watch on the administration’s actions in regard to oil and natural gas development.

ESA.

“In particular, the Endangered Species Act, which the anti-development activists use to try to shut down development of all kinds, is a top priority for IPAA in 2013. Specifically, IPAA will be pushing back against the listing of the Lesser Prairie Chicken. A listing could threaten oil and natural gas production in resource-rich states, states which have already made special conservation coalitions to protect this species.”

 

Taxes Targeted as Fiscal Cliff Looms

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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.

Cast Your Vote Where the Energy Is

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It’s game time.

Tomorrow is the day to put our money where our mouth is and VOTE.

If you are one of those dwindling batch of undecided voters, (“We hear a lot about our dependence on foreign oil, but just what is oil?”) here is a last-ditch effort to find out about the candidates’ policies on energy development:

Take a look at President Obama’s energy plan and Governor Romney’s energy plan. Here is IPAA’s reaction to Romney’s plan.

Read IPAA President and CEO Barry Russell’s op-ed, entitled “Obama’s Energy Strategy of Contradiction” featured in Roll Call this past April.

But under the public’s watchful eye, the president is continually contradicting himself inside the Beltway and on the campaign trail. Obama calls to expedite infrastructure projects, but in the wake of rejecting the Keystone XL pipeline. Obama claims increased oil and natural gas production on his watch, but then follows up with accusations that oil companies are profiting at the expense of the American people. Obama repeatedly calls for an “all of the above” energy strategy, but then singles out the oil and natural gas industry for new regulations and targeted tax attacks.

Something doesn’t add up. To discover Obama’s real feelings and policies toward American-made energy, we must look to areas that the administration actually has jurisdiction over: public lands, federal agencies and his own calls for legislative action…

…The public may be taking note of Obama’s energy policy contradictions. The 2012 election may rest upon the question: Can Obama have his energy cake and eat it, too?

And from National Journal Energy Experts blog:

Over the past three years, the Obama administration’s actions simply have not mirrored President Obama’s pro- oil and natural gas messages in last week’s State of the Union last week. In fact, the administration has done much to hamper development of America’s vast oil and natural gas reserves…

…Last fall, IPAA battled for the independent producers’ very livelihoods when Congress, at the behest of President Obama, tried to repeal these provisions. Thankfully, these elimination efforts fell flat and the business deductions that encourage crucial industry investment survived. However, there will certainly be more battles on taxes to come in 2012 as President Obama continues to misrepresent the productivity of the American oil and natural gas industry.

The presidential race is not the only important race this cycle. The House and Senate are up for grabs and the makeup of Congress will determine the laws (and level of gridlock) that will affect American energy for years to come.

IPAA endorsed more than 170 Members and candidates based on their pro-business agenda and their support for America’s independent oil and natural gas producers. Each Wildcatters selection was approved by the IPAA Wildcatters Fund Board member from that region and received final approval from the Congressional Candidate Review Committee (CCRC). Please visit our website to see the full list of Wildcatters Picks.

Not sure where to vote? Visit IPAA’s website and use the EZ Vote tool to find your polling location, get contact information for your state election offices.

 

Washington Avoids Default, and Tax Hikes on Industry—for now

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After months of contested debate that pushed the United States economy to the brink of default, President Obama signed the bill to raise the debt ceiling into law. The bill, crafted by House Speaker John Boehner, was passed by the House on Monday night with a bipartisan vote of 269-161 and passed by the Senate today with a bipartisan vote of 74-26.

Absent in the bill were any provisions which increased taxes on the oil and gas industry which would have resulted in a loss of industry investment—which inevitably means a loss of jobs, decreased government revenues, and diminished energy security.

IPAA President and CEO Barry Russell sent a letter to Congressional leadership asking them to oppose any provisions with tax increases on the industry. In it, he highlighted the role of independent producers as job creators and explained the adverse consequences of the tax increases:

“Two key issues that affect independent producers relate to drilling costs and percentage depletion. These are neither loopholes nor subsidies. They are mechanism—like depreciation that provide for capital recovery. Independent producers historically have reinvested as much as 150 percent of their American cash flow back into new American projects. Changes that limit this capital will affect the 4 million jobs associated with just America’s independent onshore investments.”

The resistance against any tax provisions on the industry was picked up by legislators like Democratic Rep. Gene Green (TX-9) and his colleagues, who sent a letter urging House leadership to oppose any bill which, through eliminating the “capital necessary to continue drilling new wells” would  “put thousands of these jobs in jeopardy, deepen our nation’s dependence on unstable regions of the world, and hamper our economic recovery.” Read IPAA’s economic analysis to learn how repeal of the historic tax structure would adversely affect the industry and devastate the economy.

Although the battle has been won, the administration’s war on oil continues. Part of the debt compromise includes the creation of a bipartisan commission, appointed by Congressional leadership. This commission will have to work together to make greater deficit reductions by late November. In his initial comments upon signing the debt compromise, President Obama spoke of a “balanced approach” in which “everything is on the table.” What the President meant by “everything,” was made very clear the next moment when he specified that the balanced approach must include “getting rid of taxpayer subsidies to oil and gas companies.” President Obama is still unabashedly intent on singling out of the oil and gas industry for tax hikes would continue—and he hopes the commission will be the perfect means to do so.

Jay Carney, the president’s press secretary, also made similar remarks in his press conference commenting that when finding 1.2 trillion more in deficit cuts as legislated through the deal, we must ask “oil and gas companies…[to] share in the sacrifice.”

The American economy scored a victory when tax increases on the industry were left out of the deficit bill. However, the administration’s rhetoric shows that the industry is not in the clear. Undoubtedly, Democratic legislators on the commission will seek to raise taxes on oil and gas companies as part of a larger assault on the industry. What America needs right now are jobs, energy supply, and energy security. What America doesn’t need is a tax hike on the industry—which would absolutely result in an increase on the debt through decreased revenues to government coffers.

Read IPAA’s Lips, “NO NEW TAXES” on Independents

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As politicians rail against oil “subsidies” and “loopholes,” there seems to be confusion in the debate about the purpose and structure of the national tax policy regarding oil and gas companies.

The truth is that the current tax structure ensures the competition and innovation of the American oil and gas industry. Revising this historic tax structure would increase the taxes on oil and natural gas companies. This will not only hurt the industry, but cost the country. IPAA, through its new Declaration of Independents initiative, decided it was time to get the facts straight:

FACT: Fossil fuels account for 78 percent of American energy production, and receive 13 percent of tax incentives.

FACT: Renewable energy sources account for 11 percent of American energy production, and receive 77 percent of tax incentives.

IPAA fleshed out the nuances:

Productivity: The oil and gas industry is productive – the industry is not being propped up by “so-called” subsidies that it receives.

Impact to Independents: Changing the tax structure will directly and negatively impact America’s independent producers – who drill 94 percent of the wells in the United States – and the overall productivity of the industry by reducing jobs and diminishing investments.

High Risk: The current tax policy reflects the high-risk activity of exploration and production and the producers’ challenge to find productive resources, as well as its capital intensity, i.e. intangible drilling costs.

Competitive: The current tax structure enables small, independent companies to compete, especially in marginal well activity, i.e. percentage depletion.

Clearly, the oil and gas industry is a productive industry which receives deductions for normal business expenses due to the high risk and expensive nature of exploration and drilling. Although people protest they just want to end the tax breaks to “Big Oil,” ending these deductions would actually diminish the smaller companies’ ability to compete with the larger oil companies. Click here for the entire in-depth analysis of the oil and gas industry tax structure.

On Monday, IPAA President & CEO Barry Russell sent a letter to Congressional leaders regarding the ongoing debt ceiling negotiations—explaining the impact repealing these normal business deductions on American oil and gas production would have on the nation. Because the independent oil and natural gas industry is vital to job creation, energy independence, investment, and infrastructure in our country, slamming the industry with increased taxes would undoubtedly damage the country. 

Every time the talking heads in Washington complain about oil “subsidies” and “loopholes,” they demonstrate their ignorance on wellheads—and the issues facing the industry. Policymakers need to educate themselves on the purpose of this tax policy before our country gets hurt by legislative overhaul of this historic tax structure.

THE HILL: Oil and gas industry tax hikes off the table in deficit talks with Biden

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From The Hill‘s Energy and Environment blog:

Senate Minority Leader Mitch McConnell (R-Ky.) said Sunday that Republicans won’t discuss nixing tax breaks for major oil companies as part of fiscal reform talks with Vice President Joe Biden. 

“That’s not the kind of thing we’re going to be dealing with here in connection with the serious talks that are going on with the Vice President’s group,” McConnell said on CNN’s “State of the Union.”

Biden and a bipartisan group of Capitol Hill lawmakers are in talks aimed at striking a deal on deficit reduction. The discussions come ahead of a looming deadline this summer for an agreement between the Obama administration and Congress to raise the nation’s debt ceiling.

America’s Independent Oil and Natural Gas Producers Targeted (again) in President’s Budget

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Tax Increase Will Reduce Jobs and Government Revenues While Threatening Energy Security

Documents released by the White House yesterday suggest that President Obama will attempt to resurrect a series of punitive tax hikes on U.S. producers of oil and natural gas in his budget plan for 2012 – tax increases that were proposed the last two years, but were soundly rejected by Congress. On the heels of today’s announcement, Barry Russell, president and CEO of the Independent Petroleum Association of America (IPAA), released the following statement:

“Contrary to the president’s belief, his budget proposal does not target so-called “Big Oil”, but instead goes after the thousands of small businesses, America’s independent oil and natural gas producers, who on average employ only 11 workers. These small business producers are dedicated to finding and producing America’s energy resources, creating jobs, generating revenues and supplying reliable and affordable energy all across the United States. American production activities are dominated by independent producers who produce 90 percent of the U.S. wells, produce 72 percent of U.S. natural gas and 44 percent of U.S. oil.

“Despite what you’ll read in today’s budget plan, here are the facts: Virtually no industry in the United States pays more in taxes, royalties and revenues than America’s natural gas and oil producers. The industry pays federal taxes at a rate of 48 percent, as well as substantial state and local taxes to drive those local communities. For example, the Louisiana Department of Education reported that some school districts located near the Haynesville Shale now have the highest paid teachers. According to the department, the increase in salaries is a direct result of the share of increased sales and property taxes received by the school districts from the Haynesville Shale production activity. Simply put, lost capital investment due to increased taxes will reduce these tax payments over time, not increase them.

“The production industry alone employs nearly half a million workers and pays almost 50 percent higher than manufacturing jobs, according to the 2008 Bureau of Labor Statistics. Very few industries have the potential to create as many better than average paying jobs as quickly and effectively as we do. Look no further than North Dakota, where unemployment has fallen to the lowest level in the nation, 3.8 percent, less than half the national rate of 9 percent, which is due in large part to the huge increase in energy production in the Bakken formation.

“Historically, independent producers reinvest as much as 150 percent of their American cash flow back into new American production. Increasing taxes on independent producers will reduce capital investment in the industry, and it will result in fewer jobs, less revenue to American governments, hurt American retirees, whose mutual funds, pension plans and Individual Retirement Accounts are invested in publicly traded oil and gas companies, and harm American energy security.

“In repudiating the president’s attempt last year to impose prohibitive tax policies on those who find and produce energy in America, Congress rightly recognized the important role that small, independent energy producers can play in fueling the short-term recovery and long-term revitalization of our struggling economy. Unfortunately, in the president’s search for ‘easy’ revenue, he appears once again to be endorsing a series of tax changes that will result in fewer American jobs, less government revenue, and a tightening of our already dangerous dependence on foreign, unstable energy. Just like last year, IPAA will continue to take its case directly to those in Congress – both Democrats and Republicans – who recognize the value that small, independent American energy producers can deliver if given the opportunity to do it.”

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Ahead of Obama budget proposal, Landrieu calls for $ to speed up oil and gas permitting, blasts industry tax hikes

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And see, over here is an entirely different budget proposal...

...and see? over here, an entirely different budget proposal...

Earlier this week, Sen. Mary Landrieu (D-LA) called for an increase to the agency overseeing offshore oil and gas production in the Gulf of Mexico. Landrieu suggested a 30 percent raise to the Department of Interior’s 2012 budget in order to expedite processing of oil and gas exploration permits. Next week, President Obama will present an initial 2012 fiscal year budget proposal.

“The office needs to be scaled up in order to accomplish what we need to accomplish,” Landrieu said on Monday. “It has been historically understaffed and underfunded.”

President Obama has repeatedly used his budget proposal as a platform to push for tax hikes on the oil and gas industry and eliminate standard industry incentives.  He echoed the same intentions during his latest State of the Union address.

“It continues to be a puzzlement to me to why this administration continues to target the oil and gas industry,” said Landrieu. “If the whole entire tax code goes under review, then of course this should be under review, too.”