Tax on US oil, gas producers will hit small biz, consumers and kill jobs

‘Big Oil’ is a convenient target for some politicians and allied groups, but what most Americans don’t realize is that the oil and gas industry includes far more companies than huge corporations.

In the U.S. there are 18,000 domestic independent oil and natural gas producers—on average they employ 12 workers.

Washington is abuzz with talk of raising taxes on producers, and those taxes won’t hit the biggest corporations. Instead, according to Barry Russell, president and CEO of the Independent Petroleum Association of America, the tax would negatively impact those small producers. What’s worse: it will kill jobs.

Russell said, “Increasing taxes on independent producers, who supply the vast majority of oil and natural gas in America, will reduce capital investment in the industry, and it will result in fewer jobs, less revenue to American governments, hurt American retirees, whose mutual funds, pension plans and Individual Retirement Accounts are invested in publicly traded oil and gas companies, and harm American energy security.”

In a statement released on Tuesday, Russell shared some figures that will surprise many who aren’t in the political sector. For instance American production activities are dominated by indies who drill 95 percent of natural gas and oil wells in the U.S. Those indie producers account for 67 percent of our total natural gas and oil production.

Independent producers, according to Vice-President Joe Biden, should be considered very patriotic. Russell cited a study that estimated taxes, rents and royalties: “[O]nshore independents will return more than $930 billion to state, local and federal governments in the form of taxes, rents and royalties over the next 10 years – all driven by a forecast that predicts an ever-expanding role for U.S. independents in developing more onshore wells, and delivering greater volumes of reliable and affordable oil and natural gas to American consumers.”

Indie producers, said Russell, “accounted for nearly 4 million American jobs in 2010, a number that represents more than three percent of the total US workforce.”

Some politicos claim the industry receives tax subsidies. That’s not the case. Russell said, “Tax provisions targeted for repeal are ordinary and necessary business expenditures that have been recognized in the federal tax code since its beginning in 1913 (drilling cost expensing) or shortly thereafter, such as percentage depletion in 1926.”

If those regulations are changed, there will be less money for jobs or any other positive result.

Independent producers contributed $579 billion (4.0 percent) of US GDP in 2010.

The complete IPAA release is an eye-opener and well worth reading. Negatively targeting an industry that produces a product that runs the country and averts dollars going abroad is a mistake. Based on some politicians’ rhetoric, it is obvious they do not understand how the oil and gas industry works.

Even some Democrats understand the potential negative impact of tax hikes on the industry. Erick Erickson at Red State pointed to one congressman:  “Democrat Congressman Dan Boren who explains why doing so would drive up the cost of oil production, make us more dependent on foreign oil, and — oh by the way — points out that getting rid of these would not affect Exxon, Shell, BP, Phillips-Conoco, etc. in the least little bit.”

As with so many policies coming from Washington these days, potential tax hikes would harm small businesses, killing jobs and ultimately driving the price higher for a necessary product for the consumer.

Ironically current administration policy, reflective of a kneejerk reaction to a foreign-owned company’s accident, punts the industry advantage to other foreign countries like Brazil and Cuba when it comes to oil production.

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(Analysis by Kay B. Day/April 28, 2011)

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