May 26, 2021 IPAA: Senate Finance Committee Bill Seeks to “Undermine American Production”
WASHINGTON – The Independent Petroleum Association which represents thousands of independent oil and natural gas producers and service companies issued the following statement on the Clean Energy for America Act, Senate Democrats’ legislation that contains the repeal of multiple oil and natural gas industry tax provisions:
Barry Russell, IPAA President and CEO: “The Democrat bill considered by the Senate Finance Committee today demonstrates an unjustified bias against American oil and natural gas that imperils future energy security. The provisions of this bill that repeal an array of oil and natural gas tax deductions were written solely to undermine American production. They target small businesses; they target the 12 million royalty owners who rely on their oil and natural gas income for their farms, ranches, and retirement; they will not reduce American reliance on oil and natural gas for two-thirds of its energy but return the nation to reliance of foreign energy supply. ”
Background:
Percentage Depletion – The Clean Energy for America Act sunsets the use of percentage depletion for oil and gas wells. Percentage depletion is a normal business deduction that only benefits small business oil and natural gas producers and royalty owners. According to a new study from the National Stripper Well Association, the small wells that utilize Percentage Depletion collectively make up a significant portion of America’s oil and natural gas production. On average, these wells produce less than 15 barrels of oil per day, yet account for more than 7 percent of U.S. oil production and less than 90 thousand cubic feet per day, yet account for over 8 percent of U.S. natural gas.
Intangible Drilling Costs (IDCs) – The Democrats’ legislation also repeals the IDC deduction. IDC is a normal business deduction that compares to the early capital recovery that all businesses are allowed, that it is predominated by labor costs. Like other rapid depreciation schedules in the tax code, the drilling cost deduction allows for investment capital to be immediately recovered and encourages its reinvestment. Its repeal will mean less capital being spent for U.S. oil and natural gas. Less capital for U.S. energy means more imports – returning the country to being dependent on foreign sources like Russia and the Middle Eastern national oil companies, a condition that harmed America for 50 years until the U.S. expanded its production as a result of shale oil development.
