CIPA Members Descend on Washington
Monday Morning Report, April 30, 2012
CIPA members, staff, and lobbyists worked the halls of Congress and various departments at last week’s CIPA Federal Call-up to warn against the effects of higher taxes on domestic production and increased regulation on hydraulic fracturing.
Thirty-five participants representing CIPA covered 26 meetings with members of Congress and officials at the Departments of Energy, Bureau of Land Management (BLM) and Congressional Tax Committees.
The President’s proposed $36.5 billion tax hike on domestic oil and gas production which he has proposed consistently as part of his proposed budget was again the biggest priority. CIPA advocates explained how this would impact the financial resources available for new drilling activity. Consequently, this would increase our dependence on imported foreign oil at a time when the President is calling for more domestic production. Several of the proposals affect small independent producers exclusively since major oil companies are excluded from many of the targeted tax provisions.
Specifically, CIPA teams argued against:
Eliminating Expensing of Intangible Drilling Costs (IDC) - IDC were enacted by Congress in 1913 in order to attract capital to the high risk business of oil and natural gas production. The treatment allows an independent to deduct the costs in the year the expenses were incurred, rather than over the productive life of the property through a depreciation allowance. This provision would eliminate $3 billion available for new production.
Eliminating Percentage Depletion - All natural resource minerals are eligible for a percentage depletion income tax deduction. Percentage depletion for oil and natural gas has been in the tax code since 1926. Unlike other resources, natural gas and oil percentage depletion is highly limited, available only to the first 1000 barrels per day of production from any one producer and limited to 65 percent of the producer’s net income. This provision will eliminate $8 billion that would have been available for new production.
Extending Geological and Geophysical Amortization - Currently G&G costs are amortized over a two year period (for larger companies, the period is five years). Extending the amortization period would remove $1 billion from capital available for new production.
Eliminating the Manufacturing Tax Deduction - This provision was enacted by Congress in 2004 to encourage the creation of American jobs. However, the oil and natural gas industry is restricted to a six percent deduction while other industries currently enjoy a 9% deduction. Eliminating the deduction altogether would wipe out capital needed for the creation of jobs from new domestic production.
With President Obama announcing a committee of the multiple agencies working on hydraulic fracturing regulations and studies, it was important to highlight the efforts of state and local regulations to ensure safe and effective use of hydraulic fracturing. As exploration of the vast Monterey Shale formation in California continues to increase with hydraulic fracturing it is important not to restrict its use. CIPA highlighted the regulations already in place as well as our support for AB 591 to bring additional disclosure on the issue.
