For decades, the general public has been taught to hate the oil business and especially the rich oil man. This "man on the street" sincerely believes the oil man unfairly profits from selling oil and natural gas to the public. All forms of the media have trumpeted these ideas. Like much of the news, there is some truth in this brainwashing of the public. There are a few new-rich investors who lend evidence by their newsworthy actions.
Now, however, our nation is faced with a crisis. We are importing more oil every year with an ever-increasing imbalance of payments. Prices are going upellipseand they will continue to rise. Major oil fields worldwide are in rapid and irreversible decline. The excess production capacity is simply not there anymore. See the excellent letter by Linton Morrell in (OGJ, July 17, 2000, p. 12). Every year production in the US declines. When the oil producer asks for help, he may get some reduction in severance taxes or some exemption for marginal wells, but we now know that even $30 oil hasn't rejuvenated the infrastructure of the business. We need new drilling rigs, new oil field workers, new geologists and engineers, and new supply companies. It will take a major shock to bring all this infrastructure back.
The Answer:
There is a simple solution! If the investor (individual or company) received a 50% depletion allowance on new production only, with no caps and no alternative minimum tax, the entire industry would begin to regenerate. The great thing about this is it doesn't cost anyone. To replace the lost income taxes to the IRS the entire tax structure of the government would receive production taxes, property taxes, sales taxes, and income taxes which would exceed the loss by a wide margin. So, this solution is a win-win answer to the need to rejuvenate the entire oil and gas industry.
Roy H. Guess
Casper, Wyo.
