Alex Mills
By Alex Mills
President Obama took pride in announcing in his State of the Union address on Jan. 19 that crude oil imports to the U.S. are down and that the state of the union is good.
What he didn’t say is that his administration will continue to target the oil and gas industry for increased taxes and more regulation from the Environmental Protection Agency (EPA) and other federal bureaucracies.
Just one week earlier, EPA announced it will issue new methane emission regulations for the oil and gas industry soon. EPA wants methane emissions reduced by 45 percent from 2012 level by 2025.
EPA’s own data shows that cows emit more methane than the oil and gas industry, which has voluntarily reduced methane emissions by 17 percent from 2005 to 2012 even while natural gas production increased 37 percent during the same period.
EPA figures also show that methane accounts for only 9 percent of total greenhouse gases in the U.S. and natural gas accounts for only a quarter of the total methane emissions.
Oil and gas producers obviously want to eliminate methane emissions into the atmosphere, because that is methane that could have been sold.
The president also forgot to mention that he has proposed in every budget that he has sent to Congress to increase taxes on the oil and gas industry.
Two tax provisions that are on his chopping block are percentage depletion and the expensing of intangible drilling costs.
Percentage depletion has been in the tax code since 1926 and is available only to small, independent producers and royalty owners. Major oil companies are excluded. Percentage depletion allows these small companies to deduct up to 15 percent of gross income from federal income taxes for reinvestment in future drilling and operation of current production. There are restrictions to make certain that only small producers can use this provision.
Percentage depletion is one reason why so many small companies can continue to drill and produce. In Texas, 96 percent of the wells are drilled by independents, and they produce 93 percent of the oil and 85 percent of the natural gas in 2014.
The National Stripper Well Association recently released a study indicating that the if percentage depletion is eliminated from the tax code, the gross value of the production that would be lost would be $101 billion in Texas between 2015 and 2025. Also, labor income would decrease by $61 billion, and the Texas economic output would decrease by $207 billion.
Needless to say, if President Obama’s tax and environmental policies became law, those crude oil imports would be on the rise again.
Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.
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