Mar 5, 2014 U.S. Oil, Gas Producers Respond to President Obama’s 2015 Budget Proposal
WASHINGTON, D.C.: Today, President Obama released his final budget for 2015. In response, Independent Petroleum Association of America (IPAA) President and CEO Barry Russell released this statement:
“In his State of the Union address, President Obama praised American energy development, highlighting that the United States is producing more oil here at home than we are importing, and producing an unprecedented level of natural gas. Yet today, the President’s budget proposal seeks to derail this phenomenal development – production that has transformed our national energy outlook while cleaning up our air, reducing carbon emissions, and bringing more jobs back to the United States.
“The 2015 budget’s call to repeal the industry’s ‘subsidies’ mischaracterizes the industry’s tax provisions and disregards the way the tax code has influenced energy development for decades.These are the same deductions provided to a wide array of other industries from manufacturing to accounting. These historic provisions enable independent producers to take on the high capital risk of exploring for and producing oil and natural gas. Without these deductions, like Intangible Drilling Costs (IDCs), the American energy revolution the President often touts would not exist as it currently does.
“Independent oil and natural gas producers currently reinvest 150 percent of their capital budgets into new energy projects, providing over 4 million jobs and billions in revenue and taxes while producing oil and clean-burning natural gas across the country. Yet if the President’s call to remove the IDC deduction is enacted, independent oil and natural gas producers would reduce their capital investments by up to 25 percent. These companies – who drill 95 percent of the nation’s wells – will be forced to cut back production, hurting job growth while providing less revenue to government treasuries and derailing our nation’s progress toward achieving greater energy security. The tax treatment is crucial to the continued health and operations of these companies.
“Proposed changes to the percentage depletion deduction would also impact America’s small independent producers – companies with an average of just 12 employees — and royalty owners. These stakeholders are the backbone of American energy development and they rely on the percentage depletion deduction to maintain America’s marginal wells, which generate 20 percent of American oil and more than 12 percent of American natural gas.
“Repeal of the passive loss exception would also harm these small businesses. This provision was originally instituted to ensure that small producers, who rely on private investors for financing, could compete with larger companies and gain access to capital from banks and other larger financial institutions. IPAA is greatly concerned about the impact repealing this tax provision would have on the small businesses that rely on these investments to continue exploring and producing oil and natural gas.
“If the President wants to match his rhetorical support of American energy development, while attracting more jobs to U.S. shores and supporting American manufacturing, he should encourage oil and natural gas production, not target historic tax provisions that support exploration and development of our vast natural resources. Instead, the 2015 budget stands to harm our great energy revival that is transforming local and state economies by targeting America’s independent producers – the same companies who made this energy and manufacturing renaissance possible.”