Higher spill tax could come on top of other hikes, API warns

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Nov. 30 -- Proposals to raise the federal oil spill tax by $31 billion would increase the US oil and gas industry’s possible targeted amount to $117.48 billion in the fiscal 2011 budget, American Petroleum Institute officials warned. Higher federal oil and gas taxes could result if federal lawmakers adopted proposals singling the industry out without considering the consequences, they said.

“There’s a public perception that something needs to be done to reduce the budget deficit,” Stephen Comstock, API’s senior tax counsel, told reporters during a luncheon briefing with API Chief Economist John C. Felmy and Senior Economist Rayola S. Dougher. “Our discussions with lawmakers will emphasize what we’re already doing.”

That included the US oil and gas industry’s paying 2009 income taxes at a 48.4% effective rate, compared with 28.1% for other members of Standard & Poor’s Industrial Index, according to API. It said that US Energy Information Administration data show that major US oil and gas companies paid $300 billion in income taxes from 2004 to 2008, not including $60 billion in production, sales, use, property, and other non-income taxes, or $350 billion in petroleum product excise taxes.

A higher oil spill tax, which was proposed following the Macondo well accident and subsequent Gulf of Mexico crude oil spill, could come in addition to $32 billion from repealing the last in-first out accounting option, $14.79 billion from repealing the manufacturing exemption for the industry from the federal tax code’s Section 199, and $10.92 billion from ending expensing of intangible drilling costs, Comstock said.

“To the extent that these issues aren’t discussed in the lame duck legislative session, the question in 2011 could be whether programs need to be paid for through spending cuts or higher taxes,” he indicated. “We feel we can be part of a broad debate on federal tax reform. If the increases are targeted, we’re ready to discuss impacts.”

Survey results
The briefing came as API released results of an election night survey by Harris Interactive that found that 60% of 1,000 voters increasing federal taxes on the industry, compared with 30% who supported the idea. API said that 54% of the respondents said higher federal oil and gas taxes could destroy jobs.

Jobs already are being lost as delays continue in resuming exploration in the gulf, Dougher said. “There are still a lot of people who want to get back to work,” she declared. “It’s beginning to roll over into lease sales. Next year could be the first since 1965 when there isn’t an offshore US oil and gas lease sale.”

Uncertainties over offshore liability could substantially restrict independent producers’ participation in future deepwater activity, Comstock added. He said that API is tracking US Senate Finance Committee Chairman Max Baucus’s (D-Mont.) extenders bill, which has pay-for provisions including the proposed $33 billion oil spill tax increase.

Pressure to increase federal oil taxes also could be influenced as the deficit’s authorized limit approaches this spring, he said. “We expect all the proposals to increase oil industry taxes to remain and potentially be brought up in future budgets,” Comstock said.

“The last thing we need economically is to raise taxes on anybody,” said Felmy, adding that domestic oil markets reflect a gradually improving US economy. “It’s clear that demand for petroleum is going to grow in this country,” he maintained. “The question is whether more is produced here, with the attendant economic benefits, or overseas, where the impacts would fall on our foreign trade deficit.”

Contact Nick Snow at nicks@pennwell.com.

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