Monday, March 2, 2009

Early thoughts now that the other shoe has dropped

The Obama administration's proposals in its fiscal 2010 federal budget request to raise more than $31 billion over 10 years by eliminating several significant oil and gas tax incentives and imposing a new Gulf of Mexico severance tax beginning in 2011 was bad news for the industry. But it wasn't a complete surprise.

The single most important thing to remember is that these are only proposals at this stage. They still need to be approved by Congress. There are still some members there who understand the oil and gas business and will speak up for keeping the tax exemptions for intangible drilling costs, marginal wells, tertiary injectants and passive losses for working interests in properties. But there are others who will need to be convinced in different ways.

Even though they're essentially recycled ideas from bills which the House passed last year, the oil and gas tax proposals have the White House Office of Management and Budget's fingerprints all over them. They essentially outline how the administration thinks it can pay for developing what Democrats call the New Energy Economy, with domestic alternative and renewable sources reducing US dependence on foreign crude oil. The discussions will be lively.

The biggest difference this year is that the country is in a recession, which provides the backdrop for nearly any debate by federal lawmakers. It simultaneously increases pressure to raise revenue for new programs, and to preserve and generate jobs. The latter could be the most effective argument producers can make against passing the administration's oil and gas proposals.

But the next few weeks will be critical. Trade associations certainly will be doing their part, but federal lawmakers and their staffs pay closer attention to individual constituents because they represent actual votes. One stripper well operator sent me an unusually eloquent e-mail message Friday about the tax proposals' probable impacts on her operations and employees. Since she lives in Illinois, I'm recommending that she send a similar message already (if she hasn't done so already) to her state's senior US senator, Richard J. Durbin, because he's majority whip and in a better-than-average position to influence legislation.

Others and their staffs will certainly need to hear from as many people as possible about why the Obama administration's oil and gas tax proposals are such a bad idea, but it will need to be soon. Otherwise, hearings will be under way and the issues will be on the table without this important information.


Post a Comment

Subscribe to Post Comments [Atom]

<< Home