Baucus circulates proposal to change federal taxes on oil, gas

US Senate Finance Committee Chairman Max Baucus (D-Mont.) released a federal tax reform discussion draft that would make intangible drilling costs, tertiary injectant expenses, and geological and geophysical expenses “qualified extraction expenses” similar to research and experiment outlays.

It also would repeal the percentage depletion allowance, another federal tax provision that independent producers consider essential to operations.

The proposed oil and gas tax treatment changes are part of a broader document of suggested cost recovery and tax accounting reforms that Baucus released on Nov. 21. An overview indicated the “qualified extraction expenses” proposal in Sect. 24 and percentage depletion allowance repeal in Sect. 25 are partially based on bills Sen. Robert Menendez (D-NJ) introduced in 2012 and 2013 to “close ‘Big Oil’ tax loopholes.”

The latest discussion draft followed two others covering international tax reform and tax administration. All three are based on bipartisan ideas and incorporate bills introduced by Democrats and Republicans, the committee’s majority staff said.

“America today is using a bloated tax code that was built for businesses close to 30 years ago,” Baucus said. “The code is completely outdated and acting as a brake on economic growth. More must be done to simplify tax rules, lessen the burden on small businesses, and jump-start job growth.”

Seeking comments

He said he asked the Congressional Budget Office to analyze economic depreciation rates of tangible assets. The committee also will accept comments on the cost recovery and accounting rules discussion draft by e-mail at through Jan. 14, 2014.

Groups representing independent producers immediately expressed grave concerns. “To be clear, there are many problems with the nation’s tax code, but when it comes to America’s oil and natural gas industry, the current tax code, refined over the past 100 years, is an example of public policy that actually works,” Independent Petroleum Association of America Pres. Barry Russell said.

“Current tax rules and laws ensure that industry pays its fair share in taxes, which is now one of the most heavily taxed industries in the country,” Russell said, adding, “The current tax code also encourages investment resulting in massive new US energy supplies and millions of jobs. But the Baucus tax plan jeopardizes America’s energy renaissance.”

American Exploration & Production Council Pres. Bruce Thompson said, “Independent oil and gas exploration and production companies should be allowed to continue to deduct their ordinary and necessary business expenses. To limit the ability of these companies to deduct these expenses as they are incurred in the search for and production of oil and natural gas amounts to a job and growth killing tax increase.”

Necessary expenses

Thompson said a recent Wood Mackenzie Ltd. study found that making it no longer possible for upstream independents to deduct what actually are necessary business expenses, and not tax breaks, would cost 190,000 jobs within a year, cut independent producers’ investment spending by $407 billion over 10 years, and reduce energy resource production by 15-20%/year.

Russell noted, “Independent oil and gas producers’ onshore upstream taxes alone generated $67.7 billion in 2010. Removing these tax provisions would lead to less industry activity and could actually generate less in total government revenue,” adding that IPAA plans to submit extensive comments to Baucus on the matter.

Thompson said, “Increasing taxes on an industry that is providing abundant, affordable domestic energy supplies, helping spur economic growth, and moving our nation toward energy independence is not good policy.”

An American Petroleum Institute spokesman said API, which includes refiners and integrated companies as well as producers, was reviewing Baucus’s latest discussion draft.

“America’s oil and gas industry has invested $2 trillion into our economy since 2000 and supports 9.8 million jobs, an increase of 600,000 jobs in just 2 years,” the spokesman said. “Changes to cost recovery and repeal of legitimate accounting methods such as last-in, first-out could unintentionally hit the brakes on America’s energy and manufacturing renaissance. People’s jobs are at stake, so lawmakers had better get the details of tax reform right.”

Contact Nick Snow at

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

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

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
Available Webcasts

Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors


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