The Obama administration is trying to eliminate a number of tax incentives that benefit the oil and gas industry and impose new fees on the sector. This strategy is part of a larger effort to pay for the recently proposed multi-billion dollar jobs bill and help cut the deficit.
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American Jobs Act
The American Jobs Act was unveiled last week by the President. The plan is to accelerate job growth, which is still sluggish even though the recession officially ended in June 2009. The official cost is $447 billion and the administration is looking to end a wide range of tax breaks and impose new fees on the industry.
The White House has proposed a $4-per-acre fee on non-producing federal leases in an effort to increase drilling. This would apply to both onshore and offshore leases and raise $1 billion over 10 years.
Another revenue-raising measure proposed would be the reinstatement of an excise tax that was previously collected as part of the Superfund used to clean up hazardous waste sites. The excise tax would be 9.7 cents per barrel of crude and would raise $19 billion.
The administration has also proposed repealing a number of tax breaks that benefit the industry, with an estimated savings of $41 billion over 10 years. These include the elimination of various deductions and expenses used to offset income, lengthening of amortization periods and changes to passive loss treatment on oil and gas wells.
The industry is already setting up to move against the plan with the American Petroleum Institute (API) as one of the organizations leading the fight. The API is a trade association that represents the industry and advocates the industry goals. The organization also provides education on oil and gas matters and conducts research into other issues.
Members of API include some of the largest integrated oil companies like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX), as well as large independents like Apache Corp (NYSE:APA) and Devon Energy (NYSE:DVN). Other members include companies that supply the industry or are involved with other parts of the energy complex. These include Fastenal (Nasdaq:FAST), which supplies the Chemical industry, and General Electric (NYSE:GE), which has a number of energy and power businesses.
The API is launching a counterattack using the argument that removing regulatory barriers and streamlining the approval process will accelerate the exploration and development of domestic oil and gas resources and create a substantial number of jobs.
A recent study sponsored by the API and conducted by Woods McKenzie concludes that initiating these types of regulatory policy changes will create 1.4 million jobs by 2030. The exploration and development would also lead to $800 billion in government revenue and an extra 10 million barrels of daily oil and natural gas production.
The industry is not alone in advocating a private sector approach, as labor unions, a traditional Democratic Party stronghold, are also lobbying the White House. The United Association, which represents hundreds of thousands of workers in the plumbing and pipe fitting industry, wants the Obama administration to approve the Keystone XL pipeline project, which has been proposed by TransCanada (NYSE:TRP).
This pipeline will carry crude oil from Canada to the Gulf Coast of the United States. The United Association estimates that this project will create 342,000 new jobs in the United States over the next four years
The Bottom Line
The Obama administration is desperately trying to get job growth higher as the economy drags along sluggishly and a reelection campaign approaches. Although the oil and gas industry is a tempting target for politicians, they should also realize that the industry is one of the few that actually is creating jobs. The President should find a different way to raise revenue and let the industry keep adding to that job growth. (For additional reading, take a look at "Temporary" Taxes That Stuck.)
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