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  • Energy Tax Facts
  • 7 Sep 17

OpEd: Don’t Let Tax Reform Hamper The Nation’s Energy Needs

IPAA President Barry Russell writes on tax reform and our nation’s energy needs in Investor’s Business Daily. As Russell states, “As Washington, D.C., looks to tackle reforming the tax code, the critical role of American energy production cannot be overlooked. Tax reform is essential to keep the U.S. economy growing. This effort needs to move in the direction of strengthening businesses of many shapes and sizes, putting our economy on a track for success, and creating new jobs and opportunities along the way for our workforce.”

Read the original piece on Investor’s Business Daily HERE and read more below.

The United States is the world’s largest producer of oil and natural gas, a distinction that creates unparalleled economic, trade and security advantages. Yet one issue could enhance or derail this position in weeks to come: shortsighted tax reform.

Tax reform is essential to keep the U.S. growing, yet the current dialogue around reform remains focused first and foremost on lowering rates. While that may appear simple enough, tax reform is a complex issue that must reflect how capital is formed and recuperated if it is going to truly help and support American jobs and businesses.

For thousands of U.S. oil and natural gas producers, capital recovery — the ability to recover investments made in energy development and reinvest those funds into new projects — is vital. Provisions such as this are critical to how companies manage their capital budgets, and in turn keep salaries paid and operations running. Potential changes to these provisions could significantly impact U.S. energy production and the many benefits it provides.

Each and every one of us relies upon energy to power our lives. Yet it can be easy to overlook the many ways in which our larger economy is reliant upon the companies responsible for secure U.S. energy development, and the way tax laws can support or impede this development.

America’s role as a leader in the global energy mix not only enhances our national security and trade, it drives our economy and middle-class workforce. In fact, according to a new report from PricewaterhouseCoopers, the U.S. oil and natural gas industry supported 10.3 million jobs in 2015. These include direct jobs created by individual oil and natural gas companies, as well as the millions of indirect and induced jobs supported by the industry at large and energy wages entering the economy.

recent report from the Natural Gas Council, which represents U.S. companies that produce, transport and deliver natural gas, also highlights the robust benefits of our abundant natural gas resources to providing clean, reliable fuel for electricity generation. This development not only creates opportunities at the wellhead, but all along the supply chain in new infrastructure development, American manufacturing, and affordable utility bills at home. U.S. energy production has also put the nation on the path to be a net exporter of natural gas this year, with the Executive Director of the International Energy Agency stating in June, “The U.S. shale revolution shows no sign of running out of steam and its effects are now amplified by a second revolution of rising LNG supplies.”

These are very real aspects of our economy intrinsically tied to the healthy operation of American energy producers. Yet their operations hinge on the availability of capital for investment. In order to continue investing in new production, producers are highly reliant on the ability to recover the upfront costs of development to continue to reinvest the large capital costs required for production. Long-standing tax provisions like the treatment of intangible drilling costs and, for small producers, percentage depletion have been essential to recovering funds needed to keep these businesses moving forward, investing in new wells as older wells produce less over time. Tax law changes that eliminate these capital-generating provisions would hinder this development and the companies behind it.

This is especially critical for the hundreds of operators that are the backbone of our energy economy: independent oil and natural gas producers. These companies have an average of 12 full-time and two part-time employees and have been in business for 23 years — making many of these operators long-standing community businesses. These same companies are responsible for producing half of American oil and over 75% of its natural gas, while historically reinvesting over 100% of U.S. oil and natural gas cash flow back into production here at home. Tax reform should support these companies, not limit them.

As Washington, D.C., looks to tackle reforming the tax code, the critical role of American energy production cannot be overlooked. Tax reform is essential to keep the U.S. economy growing. This effort needs to move in the direction of strengthening businesses of many shapes and sizes, putting our economy on a track for success, and creating new jobs and opportunities along the way for our workforce.

Efforts must fully assess successful tax policies currently in place and look for changes that support growth and continued investment in the U.S. Any change to the tax laws that limits this ability will hurt our world-leading energy standing and the men and women working every day to support it.