Independent oil and gas producers in the U.S. have adjusted their political agenda as it regards the tax code. Independent Petroleum Association of America Pres. Denise Bode says her association will concentrate its tax lobbying efforts on correcting current law instead of on winning incentives for exploration and production. Why? IPAA wants to focus on goals it stands a chance of achieving. Bravo.

Sure, independent producers would take special incentives if they could get them. Times remain tough for people who make their livings drilling wells and producing oil and gas. But special tax incentives for oil and gas producers aren't in prospect--not now, maybe not for a long time. As one IPAA official described the current political climate, it's a pay-as-you-go Congress. Favors with dollar signs attached to them are hard to come by. They are for the U.S. producing industry, at any rate.

AN ANTIDRILLING MOOD

In its current political mood, still dominated as it is by make-no-mark environmentalism, the nation wants less drilling, not more. For a country still bouncing in the wake of the Persian Gulf war, it's irrational. But that's how moods are. Producers need to resist this one. They cannot do so effectively if any of them seem mainly to be pursuing special favors that can come only at someone else's expense.

Producers need to focus on the importance of domestic production to a nation increasingly dependent upon others for oil, on the essential role of drilling in that national interest, and on the harm that results from faulty leasing and tax policies. All producers should support all measures that encourage domestic oil and gas production without skewing markets or burdening the economy with artificial costs. To repeat, domestic production is a matter of vital national interest. All producers benefit when it's promoted that way.

Even though most independents never will work on the Outer Continental Shelf or Arctic National Wildlife Refuge Coastal Plain, they should support measures to open leasing in those areas because doing so would be good for domestic production. And even though most majors are shifting their exploration and production attention away from the U.S., they should support changes in U.S. tax laws that encourage drilling investments. Change is possible if producers work together to resist the antidrilling mood, then seek correction of all policies that work against domestic drilling and production.

That's why IPAA's shift of emphasis in its tax policy agenda is a constructive step. Current U.S. tax policy, especially the alternative minimum tax does penalize investments in drilling and production. It doesn't do so as much now as it did before last year's omnibus budget reconciliation bill. But the alternative minimum tax and percentage depletion limits still hurt producers' cash flows and abilities to recover capital. As long as that's the case, outside capital essential to domestic production will seek less risky investments, and national interests will suffer.

FINISHING THE JOB

Correcting the tax code to remove the drilling and production penalty won't be easy. Many lawmakers think they did enough for producers last year. They must be convinced that last year they just partially corrected errors that had been piling up in the tax code for many years. Then they must be persuaded to finish the job.

Lawmakers won't relax the tax penalty to make U.S. producers prosperous or even to keep them in business. They won't do anything that looks like new--or more--favors. To keep the U.S. from sliding another rung down the oil import dependence ladder, however, they might try to make old wrongs right.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.

CORRECTING U.S. TAX POLICY ERRORS

In order to access this content, you must be logged-in and have an active subscription to the OGJ Premium Archive