CPAs study impact of elmiinating oil and gas tax incentives

[dkf]

These are the possible impacts if the breaks are eliminated for all producers, not just the five congress has singled out.

http://m.mywesttexas.com/mobile/business/oil/article_1d821503-099f-5901-8a5e-fb547da37523.html

Midland Reporter-Telegram | Posted: Wednesday, May 11, 2011 3:00 pm

As debate gets underway in Congress on whether to strip tax breaks from the top five oil and gas companies, the Texas Society of CPAs is weighing in on the debate.
...
In addition, the study found, the industry provides more than 1.7 million jobs and nearly 25 percent of the economy in Texas. Nationwide, the industry provided 9.2 million jobs, represented 7.5 percent of the overall economy and invested more than $2 trillion in domestic capital projects over the last 10 years. In 2008 alone, the industry paid nearly $100 billion in federal income taxes. The study pointed out that even more jobs are being created as the industry develops new resources such as the Marcellus Shale, where 57,000 jobs were added in Pennsylvania and West Virginia in 2009 and the Eagle Ford Shale play could generate $21.5 billion in total annual economic impact and 68,000 jobs in South Texas by 2020.

In some cases, Bolt said, the issue on the tax incentives boils down to timing.
"It's not necessarily how much you can deduct but when you can deduct," he explained. With intangible drilling costs, for example, even if a well is successful, it could take several years before the net income covers the advance costs of preparing and drilling the well. Without being able to rapidly recover those costs, investors would be less inclined to fund a drilling project. The study points out that the costs would be fully deductible even without the provision, and permitting it 'up front' has no effect on the long-term revenues to the government, but makes a difference to the investors. They immediately have less at risk. Percentage depletion has been limited to independent producers and royalty owners since 1975 and even then with numerous limitations. But as with the IDC, the 'up front' timing is important to investors.

In 2010, the American Petroleum Institute hired Wood McKenzie to determine what would happen If the IDC deduction and manufacturer's deduction were repealed. Wood McKenzie reported in August 2010 that, in a sample study of 230 wells, the number of wells economically viable to investors would fall from 88 to 55. This would result in production losses of as much as 3 billion cubic feet per day of natural gas, 60,000 barrels of oil per day and reduced investment of $15 billion in 2011 alone. That would translate to 58,000 jobs at risk in 2011, rising to 165,000 jobs at risk by 2010.