Energy Industry Developments – February 2009

Energy Industry Developments

Obama Administration Proposes Changes to Energy Priorities and Taxes As Reflected in the Recent Budget Proposal and Economic Stimulus Package

    Summary of Proposed Tax Changes As Reflected in Obama Administration 2009 Budget Proposal

1. Proposals to eliminate "oil and gas company preferences" worth $31.48 billion over 10 years
   
   1. Expensing of intangible drilling costs
      
   2. Repeal of the manufacturers' tax deduction for oil and gas companies ($13.29 billion over 10 years)
      
   3. Repeal of the percentage depletion allowance, important to small independent producers ($8.25 billion over 10 years)
      
   4. Repeal of the enhanced oil recovery credit
      
   5. Repeal of the marginal well tax credit
      
   6. Repeal of the deduction for tertiary injectants
      
   7. Repeal of the passive loss exception for working interests in oil and gas properties
      
2. Proposals to increase taxes on oil and gas
   
   1. Excise tax on Gulf of Mexico production ($5.28 billion over 10 years)
      
   2. Reduction to Gulf of Mexico royalty relief beginning in 2011 (related to an apparent government error to not include a provision in leases that would raise royalty payments in times of high oil prices).
      
   3. A new 13 percent tax on all oil and gas production in the Gulf would affect companies not currently paying any royalties due to a "loophole".
      
   4. Increase the geological and geophysical amortization period for independent producers from 5 to 7 years ($1.19 billion over 10 years), reversing a provision in the 2005 Energy Policy Act
      
   5. Reinstate the "Superfund" tax on refiners and petrochemical manufacturers (projected taxes of $1.2 billion in 2011, phasing to $2.3 billion in 2019 and totaling $17.2 billion in 2011-190)
      
3. Proposals to increase fees on producers
   
   1. Charges to producers for user fees for processing permits to drill on Federal lands
      
   2. Increases to "reform royalties and adjust rates"
      
   3. Imposing a new fee, $4 per acre, on nonproducing Gulf leases that would raise $1.2 billion over ten years
      

 

Summary of Proposed Changes in Energy Policy Priorities

1. $19 million in the EPA budget to be used to upgrade greenhouse gas reporting measures.
   
2. Elaborate carbon "cap and trade" program to put a price(tax) on emitting pollution
   
   1. Starting in 2012 the government would sell pollution permits, generating a projected $646 billion of revenue through 2019, or $78.7 billion per year starting in 2012.
      
   2. The number of available permits would gradually decline, forcing businesses to buy increasingly scarce and costly rights on an open equities-style market.
      
   3. The Administration hopes this will encourage businesses to invest in clean technologies as a cheaper alternative.
      
   4. The goal is to double renewable energy production in three years and to have 10 percent of electricity generated from clean energy by 2012. Along with this the goal is to cut greenhouse gas production 14% below 2005 levels by 2020 and 83 percent by 2050.
      
   5. The initial estimated carbon credit price is about $20 per ton.
      
   6. Of the $646 billion, $120 billion, or $15 billion per year, would be invested in low carbon technologies starting in 2012.
      
   7. The remainder of the $646 billion would be directed to disadvantaged communities and businesses to "help the transition to a clean energy economy." The plan aims to help finance Obama's tax credit for workers and to help with clean-up costs for small businesses.
      
   8. The CBO estimates the revenue generated from a cap and trade system could ultimately range from $50 billion to $300 billion per year.
      
3. The Administration rejected permitting nuclear waste to be stored at Yucca Mountain in Nevada, after 20 years of plans and a cost of $9 billion.
   
4. The budget would end federal funding for ultra-deepwater oil and gas research and development.
   

Fifty Percent Business Bonus Depreciation Extended Through 2009

The 50 percent bonus tax depreciation provision included in the 2008 economic stimulus legislation was extended in the most recent economic stimulus package for expenditures made during 2009. The estimated cost of the extension was $5.07 billion over 10 years.