Budget proposal again targets oil and gas tax preferences

Oil and gas companies in the US would face higher taxes on multiple fronts if Congress enacted the federal budget proposed Apr. 10 by the administration of President Barack Obama.

In its treatment of energy in general, the proposal strongly resembles its predecessors.

While denying oil and gas companies the use of industry-specific tax deferrals and deductions available to other industries, raising royalty rates and fees on federal leases, restricting use of the foreign tax credit, and raising or reinstating other fees, the new budget proposal would sharply increase federal spending on nonfossil energy.

The main new feature of the administration’s proposal for fiscal 2014 is a previously announced plan to dedicate $2 billion from federal oil and gas royalties over 10 years to the new Energy Security Trust, which would fund research of alternative transportation fuels. In fiscal 2012, the government collected about $9 billion in fees, royalties, and other payments from oil and gas activity on federal acreage.

In prior years, Congress hasn’t approved the proposals targeting the oil and gas industry.

Clean-energy spending

The budget requests $7.9 billion in spending across the government in fiscal 2014 on programs “to accelerate the transition to a low-carbon economy and position the United States as the world leader in clean energy,” according to documents accompanying the proposal.

The Department of Energy would spend $1.8 billion, 43% more than in 2012, “to advance the state of the art in clean energy technologies such as advanced vehicles and biofuels, industrial and building energy efficiency, and renewable electricity generation from solar, wind, water, and geothermal resources.”

Of the agencies most important to the oil and gas industry, the DOE would receive the largest budget increase from the level enacted in 2012: 8% to $28.4 billion in discretionary spending. The Department of the Interior’s budget would increase 4% to $11.7 billion. The Environmental Protection Agency’s budget would decline by 3.5% to $8.2 billion.

Tax measures

Meanwhile, the proposed elimination of tax preferences would cost the oil and gas industry an estimated $3.9 billion in 2014 and $40.7 billion during 2014-23.

The largest items targeted for repeal in that category are expensing of intangible drilling costs, percentage depletion, and the domestic manufacturing deduction for oil and gas production. Smaller preferences in dollar terms are extension to 7 years for independent producers of the amortization period for geological and geophysical expenses, the deduction for tertiary injectants, and passive loss limitations on working interests in oil and gas properties.

Oil and gas royalty reforms proposed in the budget would cost producers an estimated $2.5 billion over 10 years. They include the setting of minimum rates, increasing the standard onshore rate, testing a price-based sliding scale rate, and repealing legislatively mandated relief for deep gas wells.

The budget proposes to shorten primary lease terms, toughen enforcement of lease terms, and impose a per-acre fee on nonproducing leases. It also would simplify royalty valuation, eliminate interest accruals on company overpayments of royalties, and permanently repeal the Department of Interior’s authority to accept in-kind royalty payments.

Among measures in the budget important to the oil and gas industry but not specifically targeting it is a change, proposed in earlier budgets, in rules for dual-capacity taxpayers related to the foreign tax credit. The move would restrict amounts companies could claim for certain payments to non-US governments.

Also potentially costly oil and gas companies, especially refiners, would be the proposed repeal of the last-in, first-out method of accounting for inventories, which the government estimates would cost US industry in general $80.8 billion over 10 years.

The budget proposes to increase the Oil Spill Liability Trust Fund financing rate by 1% and expand its scope in a move estimated to cost industry $64 million in 2014 and $1 billion through 2023. It also would reinstate Superfund taxation, costing affected companies a total of $1.37 billion in 2014 and $20.2 billion over 10 years.

Among other moves, the budget would repeal research on ultradeeper oil and gas, authorize implementation of the US-Mexico agreement on oil and gas fields straddling the countries’ maritime border, and impose new Bureau of Land Management inspection fees costing producers on federal land an estimated $48 million in 2014.

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

FWS issues Shell letter of authorization on Chukchi Sea lease

07/01/2015 The US Fish & Wildlife Service issued Shell Gulf of Mexico Inc. a letter of authorization (LOA) related to the potential disturbance of polar b...
White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts

On Demand

OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST


Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected