As US Senate Majority Leader Harry M. Reid (D-Nev.) prepared to unveil oil spill liability legislation, an alliance of Midcontinent producers and national associations representing royalty owners and stripper-well operators warned that the measure could be funded by repealing significant tax incentives.
Repealing exemptions for intangible drilling costs and the percentage depletion allowance would cut domestic production by 30% and irreparably harm US independents, said Mike Cantrell, president of the Domestic Energy Producers Association (DEPA) in Oklahoma City.
The group, which includes oil and gas associations from Texas, Oklahoma, and Kansas as well as the National Stripper Well Association and National Association of Royalty Owners, has been concerned that Reid might try to pay for T. Boone Pickens' proposal to fund $30 billion of vehicular fleet conversions to compressed natural gas by repealing $40 billion of oil and gas tax incentives.
Deficit concerns
"That concern grew to a crescendo when Sen. Reid announced his oil spill liability plans on [July 23] and included the Pickens plan," Cantrell told OGJ. "We question the timing, with the deficits we have and the pay-for rules. The Finance Committee will consider his suggestions. We're focusing on the members there."
He said DEPA's members support Pickens' CNG fleet conversion idea in principal because it would substitute gas produced in the US for imported petroleum products. But eliminating tax incentives that are vital to so many US independents' survival is not the way to pay for it, he emphasized.
The group especially disputed Reid's characterization of doing this as noncontroversial since it would threaten so many US producers.
If the showdown over what the Obama administration and several US House and Senate members consider outdated tax breaks doesn't take place now, it could come before yearend "because of the sheer number of people there who don't support public investment in oil and gas," Cantrell said.
'Prime target'
"You take a third of the capital away from independent producers who invest in domestic oil and gas, and it would be a wrong decision at a bad time," Cantrell said, adding, "You have to consider very seriously with deficits becoming an issue even for Democrats in the current election, we become a prime target. We have to convince them that these investments have been very well spent."
DEPA is working hard to help congressional Democrats from producing states whose voices have been muffled after the Apr. 20 Macondo well blowout, rig explosion, and oil spill, according to Cantrell.
"We're trying to be solutions-oriented and not draw battle lines we can't cross. We're trying to work with everybody," he said.
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