Obama administration 2015 budget request retains punitive measures

The White House proposed repealing six federal tax code provisions it considers unnecessary breaks for the oil and gas industry in its fiscal 2015 budget request. The repeals essentially repeated those in its fiscal 2014 budget request, and quickly drew fire from industry leaders.

Eliminating what it labeled “oil and natural gas preferences” would reduce the federal deficit by an estimated $4.9 billion in the first year, and by $27.75 billion over 5 years and $44.83 billion over 10 years, according to the latest proposed budget.

The biggest impacts would come from no longer allowing intangible drilling costs to be expensed ($2.32 billion in fiscal 2015 and $14.35 billion over 10 years), percentage depletion allowances for oil and gas wells ($1.5 billion initially and $13 billion through fiscal 2024), and the domestic manufacturing deduction for oil and gas production ($963 million in 2015 and $14.22 billion through 2024).

The budget request also called for no longer allowing a deduction for tertiary injectants, removing the exception to passive loss limitations for working interests in oil and gas properties, and increasing independent producers’ geological and geophysical amortization period to 7 years.

It also sought repeal of allowing use of last in-first out accounting for inventories, which some industry groups have said is an important tool for their members.

Would undermine investments

The proposed budget basically recycled earlier calls for tax hikes which would hurt job creation, energy production, and government revenue, according to American Petroleum Institute Pres. Jack N. Gerard maintained.

“The president should be concerned about the deficit of new ideas in his budget,” Gerard said, adding, “Raising taxes on US oil and gas companies would undermine the investments in energy production that are driving job creation and moving us closer to energy security than we have been in decades.”

Independent Petroleum Association of America Pres. Barry Russell, meanwhile, said the budget request mischaracterizes necessary tax provisions as subsidies and disregards the way the tax code has influenced energy development for decades. “These are the same deductions provided to a wide array of other industries from manufacturing to accounting,” he said.

“These historic provisions enable independent producers to take on the high capital risk of exploring for and producing oil and gas,” Russell said, adding, “Without deductions like intangible drilling costs, the American energy revolution the president often touts would not exist as it currently does.”

American Exploration & Production Council Pres. Bruce Thompson said that the proposed repeals “risk squandering the huge competitive advantage this industry has provided to our nation by the recent and continuing development of game-changing amounts of domestic energy resources.”

He suggested that the critical importance of a strong, vibrant US energy industry has never been more obvious. “The policy proposals to inflict huge tax increases on independent oil and gas exploration and production companies contained in the president’s budget are ill-advised and should be immediately rejected by Congress,” Thompson said.

Contact Nick Snow at nicks@pennwell.com.

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