• Energy Tax Facts
  • 10 Mar 14

IPAA Responds to President Obama’s 2015 Budget

Last week, President Obama released his final 2015 budget. As in years past, the president repeated his call to repeal certain tax provisions that support American energy development, including the Intangible Drilling Cost (IDC) deduction. This action would not only impact the ability of America’s independent oil and natural gas producers – companies that account for 54 percent of America’s oil production and 85 percent of its natural gas production – to continue their operations, but also limit the jobs, energy security, and state and federal tax revenues they provide.

As Independent Petroleum Association of America (IPAA) President and CEO Barry Russell noted in his response to the budget, the Obama administration often touts the many benefits of increased oil and natural gas production here in the United States. From developing more oil here at home than we are importing, to shoring up America’s manufacturing renaissance, the benefits are plenty. Yet the call to repeal these vital and historic tax provisions – the same provided to a wide array of manufacturing industries – could hinder the very benefits the president often touts.

From IPAA’s Barry Russell:

“Independent oil and natural gas producers currently reinvest 150 percent of their capital budgets into new energy projects, providing more than 4 million jobs and billions in revenue and taxes while producing oil and clean-burning natural gas across the country. Yet if the president’s call to remove the IDC deduction is enacted, independent oil and natural gas producers would reduce their capital investments by up to 25 percent. These companies – who drill 95 percent of the nation’s wells – will be forced to cut back production, hurting job growth while providing less revenue to government treasuries and derailing our nation’s progress toward achieving greater energy security. The tax treatment is crucial to the continued health and operations of these companies.

“Proposed changes to the percentage depletion deduction would also impact America’s small independent producers – companies with an average of just 12 employees — and royalty owners. These stakeholders are the backbone of American energy development, and they rely on the percentage depletion deduction to maintain America’s marginal wells, which generate 20 percent of American oil and more than 12 percent of American natural gas.

“Repeal of the passive loss exception would also harm these small businesses. This provision was originally instituted to ensure that small producers, who rely on private investors for financing, could compete with larger companies and gain access to capital from banks and other larger financial institutions. IPAA is greatly concerned about the impact repealing this tax provision would have on the small businesses that rely on these investments to continue exploring and producing oil and natural gas.”

Increased American energy production – spurred by the innovation of independent producers – has transformed our national energy outlook while reducing carbon emissions, enhancing American manufacturing, and bringing more jobs back to the United States.  Yet as IPAA President Barry Russell states in the Oil and Gas Journal, “Without deductions like intangible drilling costs, the American energy revolution the president often touts would not exist as it currently does.”

Independent producers take on high capital risk when exploring for and producing oil and natural gas.  It’s time the administration match its rhetorical support of continued energy development with a budget and policy that also supports continued exploration and production – creating more jobs and supporting the American economy along the way.