President Obama is proposing to trim $3 trillion from the national debt in the next 10 years by, in part, eliminating tax preferences the oil and gas industry has enjoyed for years.
The president’s bid to raise taxes on “the wealthiest Americans and the biggest corporations” was met with a blanket of criticism from the oil and gas industry.


In a Rose Garden speech on Sept. 19, Obama said, “I will not support any plan that puts all of the burden for closing our deficit on ordinary Americans. And I will veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share. We are not going to have a one-sided deal that hurts the folks who are most vulnerable.”

Obama’s deficit-reduction plan is his latest effort to make some progress in closing tax breaks for the industry. So far, Obama’s attempts to curtail what he has called “special-interest loopholes” have failed as the Republican-controlled House has cobbled a wall of constant contention.

"If we're going to make spending cuts, many of which we wouldn't make if we weren't facing such large budget deficits, then it's only right that we ask everyone to pay their fair share," the president said, adding that his debt-reduction plan would finance the $447 billion American Jobs Bill that he introduced earlier this month.

The majority of revenue in Obama’s $3-trillion plan would be produced by ending George W. Bush’s tax cuts for the wealthiest Americans. In addition, tens of billions of oil and gas entitlements would be wiped out by the president’s proposal, including $41 billion in oil and gas tax incentives.

Speaker of the House John Boehner, R-Ohio, responded to Obama’s plan with a reoccurring Republican theme to resist additional taxes even as the national debt approaches $15 trillion.

“The administration’s insistence on raising taxes on job creators and its reluctance to take the steps necessary to strengthen our entitlement programs are the reasons the president and I were not able to reach an agreement previously,” Boehner said on Sept. 19. “And it is evident that these barriers remain.”

American Petroleum Institute (API) President and CEO Jack Gerard, who has been a steady critic of Obama’s oil and gas policies, said the president’s call for higher taxes on the industry would jeopardize efforts to create jobs.

“The plan to raise taxes would destroy jobs and drive investment out of the United States. It’s ironic that in his search for revenues, the president overlooks the revenues available from increased access to domestic oil and natural gas. Rather than raising taxes on a single industry, he could raise revenues, create jobs and strengthen our energy security,” Gerard said.

“With one stroke of his pen, the president could allow the oil and natural gas industry to create a million new American jobs in just the next seven years. This could also generate $127 billion in new revenue to the government.”

API represents more than 480 oil and gas companies in the U.S.

The Sept. 20 Raymond James Energy Update had this observation about the president’s plan: “This proposal is a carbon-copy of what Obama proposed in 2009 when he had a filibuster-proof majority, and even then it failed to pass. So the likelihood of this passing is extremely unlikely, if not impossible.”
According to Obama’s plan, proposals that would affect the industry include:
Repealing Mandatory R&D Program
The administration proposes to repeal provisions in the 2005 Energy Policy Act that established and financed a research and development (R&D) program that promotes fossil fuel production. These R&D activities have historically funded development of technologies that can be commercialized quickly and therefore should be financed by the compa¬nies that benefit from the projects, according to the president’s plan. Mandatory funding for the program is subject to a sunset provision in 2014. The repeal of this program, effective for 2012 and beyond, would save $150 million during a 10-year budget window.

Eliminating Oil And Gas Tax Preferences
In accordance with Obama’s agreement at the G-20 Summit in Pittsburgh in December 2009 to phase out subsidies for fossil fuels “so that we can transition to a 21st Century energy economy,” the president is proposing to repeal a number of tax preferences available for fossil fuels. The administration proposes repealing the following tax preferences beginning in 2013:

  • The use of percentage depletion with respect to oil and gas wells.
  • The ability to claim the domestic manufacturing deduction against income derived from the production of oil and gas.
  • The expensing of intangible drilling costs.
  • The deduction for costs paid or incurred for any tertiary injectant used as part of a tertiary recovery method.
  • The exception to passive loss limitations provided to working interests in oil and natural gas properties.
  • Two-year amortization of independent producers’ geological and geophysical expenditures instead of allowing amortization over seven years.

The elimination of these tax preferences would, according to the president, reduce the deficit by $41 billion over 10 years.

Reinstating Superfund Taxes
The president proposes to reinstate taxes that were deposited in the Hazardous Substance Superfund prior to its expiration on Dec. 31, 1995. These taxes, which contributed to financing the cleanup of the nation’s highest-risk hazardous-waste sites, are proposed to be reinstated after 2012 with expiration in 2022. The proposed taxes include the following:

  • An excise tax of 9.7-cents-per-barrel on crude oil and imported petroleum products.
  • An excise tax on hazardous chemicals listed in section 4661 of the Internal Revenue Code (26 U.S.C.§ 4661) at rates that vary from 22 cents to $4.87 per ton.
  • An excise tax on imported substances that use listed hazardous chemicals as a feedstock (in an amount equivalent to the tax that would have been imposed on domestic production of the chemicals).
  • A corporate environmental income tax imposed at a rate of 0.12% on the amount by which the modified alternative minimum tax income of a corporation exceeds $2 million.

The restoration of Superfund taxes would reduce the deficit by $19 billion over 10 years, according to the president.

Instituting A Fee On Non-Producing Oil And Gas Leases
As noted in the March 2011 Blueprint for a Secure Energy Future, more than 70% of the tens of millions of offshore acres under lease are inactive. A $4 per acre fee on non-producing federal leases on lands and waters, according to Obama’s plan, would provide a financial incentive for oil and gas companies to either get their leases into production or relinquish them so that the tracts can be leased to and developed by new parties. The proposed fee would apply to all new leases and would be indexed annually. This will produce $1 billion in revenue over 10 years, the president said.

Realizing Savings At The Department Of The Interior
The administration is proposing six mandatory savings proposals at the Department of Interior that would provide a total savings of $1.6 billion over 10 years. These proposals, according to Obama, would give taxpayers a fair return from energy development and mining on federal lands and waters while providing incentives for companies to get leases into production or relinquish them. In some cases, the proposals seek to share equitably the costs of oversight with the states or companies that benefit.

Making Net Receipts Sharing For Energy Minerals Permanent
Mineral and energy leases on federal lands generate significant revenue, half of which is shared with the states. According to the Obama plan, the costs of administering these leases should also be shared with the states. This is now accomplished through an annual appropriations provision referred to as net receipts sharing. This proposal would make this equitable arrangement permanent, beginning in 2013, and would save taxpayers $412 million over 10 years.

Repealing Oil And Gas Fee Prohibition And Mandatory Permit Funds
The administration supports the environmentally sustainable development of energy resources on federal lands, with industry sharing in the cost of administering permits. To facilitate this process, the Bureau of Land Management (BLM) relies on cost-recovery fees for processing applications for oil and gas permits to drill. Congress has implemented permit fees through appropriations language for the last several years, and the 2012 budget proposes to continue this practice. This proposal, according to the Obama plan, would make the authority to establish fees permanent. Fee receipts could then replace a mandatory funding account, which would be terminated to generate savings. This would save $66 million over 10 years.

Reauthorizing the Federal Land Transaction Facilitation Act of 2000
The Federal Land Transaction Facilitation Act of 2000 (FLTFA) allows the BLM to sell lands identified as suitable for disposal in recent land-use plans and to use the revenue to fund the acquisition of environmentally sensitive lands. The administration proposes that the FLTFA, which recently expired, be reauthorized. This would produce a savings of $20 million over 10 years.

The Sept. 20 Raymond James Energy Update had this observation about the president’s plan: “This proposal is a carbon-copy of what Obama proposed in 2009 when he had a filibuster-
proof majority, and even then it failed to pass. So the likelihood of this passing is extremely unlikely, if not impossible.”