I work for an independent oil and gas company, but I invest in oil and gas wells, too.
The pain of drilling a dry hole is personal for me. The exhilaration (and the monetary reward) of drilling a good well is personal as well, but it’s not purely selfish. The nation shares in that success in the form of more energy supply and incrementally lower prices.
My coworkers and I take pride in being competent and capable stewards of the resource and of the environment.
My family felt the loss of income, when as a result of Hurricane Ike, most of our production was shut down for four months. Ike meant four solid months, a third of a year, of negative cash flow.
Now the Obama Administration, in its infinitely wise Budget Proposal, plans to close several tax “loopholes” that unfairly benefit the oil and gas industry.
One so-called “loophole” is a tax deduction called Percentage Depletion. Its proposed elimination specifically targets the Independent Oil and Gas Sector. Independents, bear in mind, drill 90% of domestic wells. Without robust activity from us in the Independent Sector, energy security is a pipe dream.
My opposition to the Administration’s policy is not philosophical or theoretical. I feel targeted. I take it personally.
Even some self-identified conservatives think ExxonMobil’s 2008 profit number was excessive. Well, then, let’s close that “Big Oil” loophole! But hold on … Exxon, Mobil, Shell and all the “Big Oil” companies, A/K/A “the majors”, lost Percentage Depletion many years ago.
Percentage Depletion helped the Independents survive during the lean years, 1984-2004.
But isn’t Percentage Depletion unusual, unfair or even abusive? Hardly. Percentage Depletion has been around since 1926, and is common among natural resource companies as a charge that reflects the depreciation of their in-ground asset value by production. Below is a partial listing of natural resources which benefit from Percentage Depletion:
Sulphur, uranium, clay, asbestos, bauxite, corundum, fluorspar, graphite, ilmenite, kyanite, mica, olivine, quartz crystals (radio grade), coal, lignite, perlite, sodium chloride and zircon.
Ores of the following metals: antimony, beryllium, bismuth, cadmium, cobalt, columbium, copper, gold, iron ore, lead, lithium, manganese, mercury, molybdenum, nickel, platinum, silver, tantalum, thorium, tin, titanium, tungsten, vanadium, and zinc.
Also aplite, barite, borax, calcium carbonates, diatomaceous earth, dolomite, feldspar, fullers earth, garnet, gilsonite, granite, limestone, magnesite, magnesium carbonates, marble, mollusk shells, phosphate rock, potash, quartzite, slate, soapstone, stone (used or sold for use by the mine owner or operator as dimension stone or ornamental stone), bauxite, flake graphite, fluorspar, mica, and talc.
Thus, the elimination of Percentage Depletion falls squarely on Independent Oil and Gas, and no one else.
Meet The Obama Energy Strategy: cripple the fossil fuel industry with a goal of curtailing production/consumption with high prices while boosting the competitiveness of highly-subsidized alternatives. This plan will fail. Wind and solar together comprise less than 0.5% of the nation’s energy consumption. Even if wind and solar energy supplies were to grow explosively, they would be hard pressed to meet the future increase in energy demand due just to population growth.