New tax rules hit oil and gas industry
The first budget of Obama’s administration is tough on the oil and gas industry. The budget proposal from February hits the petroleum energy sector on both ends with an excise tax and a decline of existing tax reductions. The philosophy behind these budgetary moves is to force the energy sector as a whole to look beyond petroleum for power, but simple facts on the ground dictate that oil and gas are going to provide the large majority of energy for the foreseeable future. Right now oil and gas meets two-thirds of the United State’s energy demand.
These proposals are seen as more of a political “wish list” that will likely not come to fruition, but the message is clear to the oil and gas sector.
Here are some of Obama’s proposals affecting the oil and gas industry:
- The major change is a proposal to repeal the ability to write off drilling and development expenses. This deduction goes back over 90 years and taking it away would cost the industry around $3 billion according to the Independent Petroleum Association of America.
- Repealing the ability to depreciate wells over time to reflect reduced production.
- Ending “enhanced oil-recovery credit” that encourages continued working of depleted wells for additional energy.
- Repealing a manufacturing tax deduction.
On top of the possibility of losing these tax deductions, the oil and gas industry could also be looking at a new excise tax on production in the Gulf of Mexico. American oil and gas producers own 90 percent of the leases in the Outer Continental Shelf and the new tax would put a $5 billion burden on oil and gas investment and development.
The proposed repealed tax deductions would take $31.5 billion in deductions currently available to oil and gas companies.
Sources for this post include 2theadvocate.com and Financial Times.
Published Wednesday, May 20th, 2009 at 7:00 am and filed under Industry News.