House Energy Bill Discourages New, American Supplies of Oil and Natural Gas

WASHINGTON, Jan. 12  /PRNewswire-USNewswire/ -- The Democratic leadership of the House of Representatives today unveiled a proposal to increase taxes on the U.S. oil and natural gas industry, a move that would steer billions of dollars from investments in new, American energy resources, according to the Independent Petroleum Association of America (IPAA).
"If the goal is to lessen our dependence on foreign oil, then this bill falls far short," said IPAA President Barry Russell.  "The American oil and natural gas industry is our most precious and primary defense against increased oil imports.  This is a time to encourage American investment in energy projects here at home, not discourage it. This bill takes capital from U.S. oil and natural gas companies that otherwise would be spent on domestic energy exploration."
IPAA represents more than 5,000 oil and natural gas companies, most of them small, independent businesses, who drill 90 percent of the oil and natural gas wells in the United States.
There are three provisions in the legislation specifically opposed by IPAA:
1. Section 199 -- The Manufacturing Tax Deduction.  The legislation repeals a 2004 law that allowed companies to keep more of their earnings.  The bill singles out the oil and natural gas industry, while maintaining this incentive for every other manufacturing and extraction industry.
IPAA's Russell said:  "Increasing the industry's tax rate will siphon billions of dollars from much needed American energy projects.  This measure is purely political with the goal of punishing an industry that has low favorability on Capitol Hill.  But the result actually punishes the consumer and our national interest of secure, domestic energy supplies."
IPAA companies do invest their capital here in the United States. Independent oil and natural gas producers reinvest, on average, 150 percent of their domestic cashflow into new exploration projects in the United States, according to a study by John S. Herold, an energy industry consulting firm. This means that U.S. oil and natural gas companies are not only spending all of their earnings on new American energy supplies, but also borrowing from lenders and investors to find new oil and natural gas resources.
2. Royalty Provisions.  The bill penalizes offshore oil and natural gas companies that signed leases in 1998 and 1999 that, due to federal agency mistake, did not set a price threshold for royalty incentives.  The bill requires all companies to re-negotiate these leases (or adhere to certain payments or consequences), even though they were fairly signed and the companies have no responsibility for the federal government's contractual mistake.  This creates a plethora of questions over the sanctity of federal contracts.  The bill also states that those companies that do not renegotiate or pay a $9 per barrel "conservation fee" will be banned from participation in future federal offshore lease sales.
IPAA's Russell said:  "The contracts signed by the federal government and energy producers are called 'non-negotiable' for a reason. Quite simply, they are legal and binding, regardless of the government's mistakes in drafting them.  Many companies will choose to work with the federal government on a reasonable solution.  That is a business and legal decision for each individual company.  However, sanctity of contracts is a cornerstone of America.  The U.S. offshore regulatory program is admired around the globe for its stability and predictability, the action in the House sends the wrong signal to investors around the world about the reliability of America's federal contracts."
3. Alternative Energy Fund.  Any money raised by this bill (from increased taxes on the oil and natural gas industry to new royalties) will be captured and directed to a fund that will provide research and development of "alternative" energy.
IPAA's Russell said:  "Sixty percent of the nation's energy comes from oil and natural gas.  For the foreseeable future this will continue.  While it is important for America to develop a broad energy portfolio, the nation's vast oil and natural gas resources cannot be ignored.  Research on improving the development of these resources can be equally essential to the nation's future and its security.  For example, imagine the value of new technologies that could extract the more than 390 billion barrels of oil that are currently unrecoverable in America."
IPAA represents the companies that drill 90 percent of the oil and natural gas wells in the United States and its offshore waters.
Independent Petroleum Association of America