Wednesday, July 29, 2009

California dreamin’

For a few heady days, it looked as if California’s legislature might approve a bill which would have set the stage for the first new oil activity off the Santa Barbara coast in 40 years.

Gov. Arnold Schwarzenegger and the minority and majority leaders in the state’s senate and assembly had made a plan to let Plains Exploration Co. proceed with its proposed Tranquillon Ridge project part of a package of bills to address the state’s budget crisis. The senate accepted the idea on July 24. The assembly rejected it several hours later.

Schwarzenegger started talking about the project as a way to raise money in June, several months after the State Lands Commission refused to approve PXP’s application despite strong support from local environmental groups which saw it as a way to bring all oil production off Santa Barbara to an end several years ahead of schedule.

In the end, it was the governor’s politically ham-handed plan to create a special purpose commission to overrule the lands commission and approve the project that led a majority in the assembly to push for the proposal’s deletion (along with another bill which would have diverted gasoline tax revenues from cities and counties for several years with the idea that the state eventually would pay them back).

Opponents also chided Schwarzenegger for refusing to propose a severance tax on oil and gas production in California. What they failed to mention was that producers in the Golden State already pay a hefty ad valorem tax.

Similar debates could play out in other states as governments weigh whether to cut more services or find other ways to replace lost revenue from businesses which were recession casualties. The basic question remains whether their lawmakers decide to tax existing oil and gas production more heavily, or find ways to encourage new activity which would generate jobs as well as dollars.


Anonymous Karl said...

Nice post Nick ... Maybe some of the producing state legislatures will come up with plans that reward producers (e.g., tax credits) for making otherwise-uneconomic investments that will increase future recovery of oil and gas, and generate immediate jobs and economic activity. They could easily do this (no out of pocket cash) and in return would get a bigger stream of future tax revenue. If the projects relate to CO2 EOR, it becomes a win-win-win "threefer" ... helping to sequester that nasty carbon, generating domestic oil, increasing state tax revenues. This worked for unconventional gas ... we are reaping the benefits of the Section 109 tax credit every day.

August 10, 2009 at 2:03 PM  
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