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President’s Push for Removal of Oil Industry Tax Breaks Could Adversely Effect Small Domestic Oil Producers

As a Texas oil and gas attorney, I am keenly interested in the political climate in which the oil and gas industry operates. Politics has a lot to do with how much oil and gas this country produces. For example, in the White House’s proposed Budget for the Department of Energy in fiscal year 2012, Barack Obama set forth a budget that “eliminates inefficient fossil fuel subsidies.” The administration did so as a part of its ongoing plan to shift the nations energy policy toward investments in “clean energy sources” like photovoltaics and wind power generation. This issue is one that has gained even greater notoriety when Republican House Speaker John Boehner recently informed ABC News that he was open to eliminate one of these tax breaks — the “ oil depletion allowance” — for large oil companies as a measure to help maintain the fiscal health of the government. He went on to state that he was open to evaluating the President’s proposed subsidy cuts as well. In response, the President wrote a letter to Speaker Boehner and other Congressional leaders asking them to support the elimination of the oil and gas industry tax subsidies.In the aforementioned interview, Speaker Boehner stated that small and independant oil producers in the United States need the “oil depletion allowance.” Representative Boehner went on to say that smaller oil firms need those subsidies to continue the current rate of exploration for new sources of petroleum reserves within U.S. borders. A later statement issued by his office stated that Boehner wishes to increase the amount of energy produced in the country to free the country from the market vagaries of oil sourced abroad, and that the President’s proposed plan would boost gas prices higher. Should the budget be approved unamended by Congress, around 4 billion dollars worth of subsidies and tax breaks will disappear, and the ramifications of such a move could have an adverse effect on our recovering economy.

Boehner’s statements to ABC illustrate the importance of evaluating all sides to this issue, and highlight the fact that the domestic oil industry is not solely comprised of billion dollar corporations. In fact, according to the Independent Petroleum Association of America (IPAA), small scale oil producers do the majority of oil exploration in the United States. Such organizations employ only twelve individuals on average, but they drill ninety-five percent of new oil wells, and produce two-thirds of our nation’s domestic oil and natural gas. In our next post, we will examine the existing “oil depletion allowance,” the proposed budget’s tax subsidy cuts, and the effect such changes could have on independent oil producers in the US.