Proposed O&G Taxes Limit Job Growth in Weak U.S. Economy

President Obama's elimination of oil and gas industry tax breaks in his administration's 2013 budget will push oil and gas investment overseas and diminish job-creation and economic activity in the U.S., American Petroleum Institute (API) President and CEO Jack Gerard said Monday.

An API spokesperson said Monday that the organization has not conducted a study to determine how many oil and gas jobs would be impacted by Obama's proposed budget. However, the provisions that are addressed are essentially the same ones that the administration and others have focused on before.

"We didn't think past proposals to increase taxes on us made any sense for an economy in trouble and this one doesn't square with any serious plan to create new jobs," said API spokesperson Willis Bush.

The U.S. oil and gas industry already returns more than $86 million to the federal treasury every day, pays taxes at far higher effective rates than most other industries, and is one of few industries that have created jobs throughout the economic downturn, Gerard said during a conference call.

Pushing oil and gas investment overseas and reducing opportunities for job creation at home would result in less domestic energy production after a handful of years – particularly of gas – and result in more imports, fewer new jobs, and eventually, depressed tax, royalty and other revenues.

"If the industry's job-creating investments are a stimulus for the nation, then what the administration is proposing is an anti-stimulus," Gerard noted. "To spur new jobs, the president advocates tax breaks for everyone but the oil and gas industry – the one sector with the proven ability to create jobs and already supporting 9.2 million of them."

A full program of domestic oil and gas development – unfettered by the kind of tax increases the administration is proposing and by needless new regulations – could create one million more new jobs in just seven years and increase revenue to the government by $127 billion by 2020 and $800 billion by 2030, Gerard noted.

"Hundreds of thousands of new jobs are being created in North Dakota, Pennsylvania, Texas and other states with new energy production – production made possible by innovations in technology and large private investment," Gerard commented.

Gerard referenced a recent analysis by former U.S. Census officials, which showed that, out of nine geographic regions across the U.S., only the oil patch experienced an increase in household income between 2007 and 2010. He added that, of the 10 states showing the greatest increases in household income, seven are oil and gas producing states.

"We can and will see many more of these success stories if we produce at home more of the oil and natural gas our nation requires, especially on federally controlled lands and offshore areas," Gerard noted. "We're going to need all sources of energy to feed a growing economy, but even with aggressive expansion of renewable and alternative energy, oil and natural gas will continue to provide the majority of our energy for decades to come."

Proposed Budget to Strip Out O&G Tax Breaks

President Obama on Monday unveiled his fiscal year 2013 budget, which would propose to repeal more than $4 billion per year of tax breaks to oil, gas and other fossil fuel producers. The proposed tax cuts echoes previous calls by Obama to stop subsidizing the oil and gas industry.

"Especially during a time of fiscal challenges, it makes little sense to provide incentives for fossil fuel producers when the Nation's priority is to increase the demand for and supply of clean energy," the budget said. "Repealing fossil fuel tax preferences helps eliminate market distortions, strengthening incentives for investments in clean, renewable and more energy efficient technologies."

Instead, the proposed budget emphasizes the president's commitment to creating clean energy jobs and technologies, pipeline safety as well as nuclear energy as part of the U.S. national security strategy.

U.S. Secretary of Energy Steven Chu commented, "The United States is competing in a global race for the clean energy jobs of the future. The choice we face as a nation is simple: do we want the clean energy technologies of tomorrow to be invented in America by American innovators, made by American workers and sold around the world, or do we want to concede those jobs to our competitors? We can and must compete for those jobs."

Under the proposed budget, the expensing of intangible drilling costs would be repealed, as would the enhanced oil recovery and marginal well credits. While the President believes his proposal targets 'Big Oil', it instead burdens the heart of America's energy base – the thousands of small and independent American oil and natural gas producers, said Gigi Lazenby, president of the Independent Petroleum Association of America.

"These businesses – that on average employ only 11 workers – develop 95 percent of U.S. wells while producing 85 percent of U.S. natural gas and 54 percent of U.S. oil," Lazenby noted. "Additional taxation will harm this linchpin for American energy production as it would any business no matter what industry – all the while cutting jobs and reducing revenues on which so many states rely."

The proposed budget stands in contrast to plans by the House Republicans to create more jobs through increasing domestic oil and gas production.

Recent efforts by Republicans to boost domestic oil and gas production include the introduction late last month by Republicans in the U.S. House of Representatives of the American Energy and Infrastructure Jobs Act, which they say would create 1.2 million U.S. jobs by reversing the president's offshore moratorium and open up energy production along the Atlantic and Pacific coasts. The proposed bill calls for revenues from oil and gas production to be used to fund the construction of new roads and bridges.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at


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Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Joel Warthen | Feb. 16, 2012
It seems that the president has no sense of reality either political or otherwise. He must think that there are enough environmentalists to get him re-elected. Why are the republicans not turning up the volume on this subject?

Jonathan Garrett | Feb. 15, 2012
I continue to be disappointed by media types that describe the depleteion allowance & deductions for intangible drilling costs as "tax breaks", especially from journalists who are employed by the industry trade journals & newsletters. These deductions cannot even be deemed to be "incentives". They are actually a mechanism for normalization of tax treatment in comparison with other hard industries. The depletion allowance is akin to depreciation allowed most industries. The intangible drilling cost deduction is equivalent to any similar capitalized investment as a cost of manufacturing.

Pete L | Feb. 14, 2012
Time to vote these communists out of office, or we will become a third world country.

Allan Ray | Feb. 14, 2012
I think that our representatives and our president need to realize that we will need to continue to drill and produce our own energy with oil and gas. The clean energy cannot be produced and consumed at an affordable rate and this is obvious to anyone not trying to buy an election.


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