• Energy Tax Facts
  • 11 Jul 13

Politico Pro (sub req’d): API study finds repealing IDC deduction would cost 233,000 job losses and hurt the US economy

The Obama administration’s plan to alter tax deductions for some drilling costs would lead to the loss of 3.8 million barrels of oil equivalent per day from U.S. oil and gas fields, according to the American Petroleum Institute.

A new study conducted for API by Wood Mackenzie concluded that President Barack Obama’s effort to eliminate the tax provision that allows oil and gas companies to deduct intangible drilling costs in the first year that a well is drilled would also shrink U.S. energy industry spending by $407 billion over the 10-year period from 2014-2023 and lead to 233,000 job losses by 2019.

Intangible drilling costs include all the costs to tap into oil and gas reservoirs excluding the actual drilling equipment and typically make up 60 to 90 percent of a well’s cost. Eliminating the first-year deduction would raise the cost of drilling each well, making some fields too expensive to tap, the API said.

In its most recent budget proposal, the Obama administration estimated that eliminating companies’ ability to deduct those costs within a year would yield nearly $11 billion in tax revenues over a decade.

But the the API said any increase in the federal revenues from eliminating IDC deduction would be more than offset by reductions in federal, state and private royalties and other state taxes lost.