Doom and Gloom

by Jeremy Alford

LOGA chief calls the oil crash of the mid-80s a ‘cakewalk’ compared to what Obama’s 2010 budget could do. The chief of the Louisiana Oil and Gas Association is hopping mad over the amount of taxes in President Barack Obama’s budget that would be applied to Gulf of Mexico producers. Obama’s 2010 budget, which would take effect Oct. 1, includes $3.6 trillion in spending. It increases the rates of high-income taxpayers, expands a wide range of government programs and boosts spending by 32 percent above the current year. It also details a tax increase of more than $30 billion on U.S. natural gas and oil production investments, says LOGA President Don Briggs, echoing a figure that practically mirrors the estimated impact released by the White House last week.

While increases are clearly on tap, Obama’s budget proposal would also repeal several tax incentives championed by the industry and close so-called loopholes that have allowed energy companies in recent years to avoid making royalty payments to the federal government. Briggs says the tax changes represent the “most onerous tax proposal in the history” of America’s oil and natural gas industry. “I am greatly disturbed by this most recent attack on our industry,” says Briggs. “For Louisiana, which prides itself in being the Energy State, a tax increase of this size would result in a greater slow down in drilling activity, which translates into fewer jobs, less investment in communities, and less state and local revenue from producing companies.”

Doom and gloom would be an understatement of Briggs’ prediction for Louisiana should the tax changes go into effect this year. He even suggests the oil crash in the mid-80s was a “cakewalk” compared to what 2010’s budget could offer. “The ’80s crash was due to a crash in oil prices,” he says. “Today, we are experiencing a crash in oil prices, natural gas prices, world recession, tight investment capital and now a proposal to rescind all economic incentives for exploration and development of oil and gas.”

Obama’s 2010 budget would:

• Repeal the expensing of intangible drilling costs

• Repeal the practice of percentage depletion

• Repeal marginal well tax credits

• Repeal enhanced oil recovery credits

• Increases geological and geophysical amortization costs

• Create an excise tax on Gulf of Mexico production

• Repeal certain manufacturing tax deductions

• Implement a $4 per acre fee on Gulf leases designated as “non-producing”

Independent Petroleum Association of America President and CEO Barry Russell says the tax changes would hurt small businesses because 90 percent of the oil and natural gas wells developed in the U.S. are “done by small, independent businesses — not so-called ‘Big Oil.’” Russell says that hurting American oil and natural gas production runs counter to the Obama administration’s interests. “America’s clean-burning, abundant natural gas will be essential to any clean energy agenda for the administration,” he says. “And America’s natural gas and oil are critical to decrease our reliance on foreign oil.”

But not everyone views the proposed Obama budget as a travesty. The Natural Resources Defense Council, an environmental advocacy group, argues that it’s a step in the right direction. “President Obama’s budget is the first in history to make critical investments in our clean energy future and tackle global warming head on,” program director Wesley Warren said in a press release. “This is made possible by his unprecedented commitment to capping carbon emissions that will create new investments in clean, alternative energy and spur our economic recovery.”

Briggs says his group supports the development of alternative fuels as an important part of the United States’ independence from foreign oil sources. However, he also says the vital role his industry plays “cannot be ignored,” and that removing natural gas and oil from the equation of a varied, comprehensive energy structure for the country is not practical or feasible. “President Obama’s proposed tax increase aimed at increasing revenue from the oil and natural gas industry,” Briggs adds, “flies in the face of the goal of creating the comprehensive energy proposal that utilizes all sources of energy.