Congress is considering major changes to the federal oil and gas tax code that would generate $36 billion or more over the next decade. It's all part of President Barack Obama's proposed 2010 budget, which calls for eliminating seven tax provisions and creating another excise tax on production in the Gulf of Mexico.
In recent interviews, Treasury Secretary Timothy Geithner has said the money would be used to beef up research and development for alternative sources such as wind and solar. He also said oil and gas companies, like those operating in Louisiana, contribute to global climate changes and shouldn't enjoy the benefits of federal tax breaks. But most of Obama's proposed tax changes target small independent producers, not Big Oil.
In response, the Louisiana Oil and Gas Association (LOGA), which consists of more than 1,000 independents statewide, has ratcheted up its grassroots lobbying efforts. In March, it created a new nonprofit group called the Energy Security Alliance that has coalesced thousands of anti-Obama supporters (an online petition has garnered about 37,000 signatures).
Since it already represents the front line, LOGA largely targeted recruits which feel an indirect impact from the state's oil and gas industry, such as oil patch service companies. More than 100 businesses have joined the effort, alongside roughly 20 associations and economic development groups.
LOGA president John Briggs says the drive is aggressive for a reason. "Given the proposals we've seen from the Obama administration and Congress, we believe we are in a fight for our right to explore and produce America's oil and natural gas resources," Briggs says. "Domestic energy sources have an important role to play in our country's energy security. Not to mention the profound impact oil and gas exploration has on Louisiana's economy. The Obama administration's approach is, quite frankly, shocking to us."
The Obama proposals that would be most damaging to independents are the abolition of tax deductions for percentage depletion and intangible drilling costs. These deductions are currently available to all mining interests, but oil and gas operators are the only ones faced with losing them this year.
Opponents contend the end result could hurt the nation's economy, not help it, as Obama promises. "People don't appreciate how big the gas industry is in this country," says Natural Gas Supply Association President R. Skip Horvath. "Four million Americans depend on domestic gas for their livelihoods, both those who work directly in the industry as well as those in second jobs, such as steel and concrete and retailing."
LOGA points to the fiscal year 2010 federal budget outline as evidence that the Obama administration has specifically targeted the oil and gas industry. According to LOGA's own analysis, the proposed budget contains several other "onerous provisions that could cripple the industry."
From a national perspective, Independent Petroleum Association of America President Barry Russell says hurting domestic oil and natural gas production runs counter to the Obama administration's interests. "America's clean-burning, abundant natural gas will be essential to any clean energy agenda for the administration," Russell says. "And America's natural gas and oil are critical to decrease our reliance on foreign oil. These proposals make no sense during this economy when increased American energy could result in new jobs and more tax and royalty revenues."
Royalties collected from the American oil and natural gas industry already account for the U.S. Treasury's second-largest income stream. Moreover, less American oil and natural gas production would arguably result — almost immediately — in less income for the federal and state governments, Russell adds. "This budget hurts our ability to be competitive with other nations in the growing world energy marketplace," he says.
Dan Lashof, director of the Climate Center at the Natural Resources Defense Council disagrees, saying Obama's budget outline invests $150 billion in clean energy and efficiency over 10 years. Lashof says the budget will create jobs, reduce America's dependence on oil and prevent the worst consequences of global warming. "By following this vision, we can become the world's leader in renewable energy instead of the biggest importer of oil," Lashof says. "We can create new jobs at home instead of relying on others. We can put people to work to prevent the worst impacts of global warming instead of letting climate change take its course."
As for finding middle ground, negotiations have yet to yield any tangible results. But, as Lashof notes, that compromise will have to be found, especially before Congress votes on the 2010 budget. "At this critical moment in our nation's history," he says, "we need a budget that drives our economic growth, protects our planet, and puts us on a path to a clean energy future."
What such a budget might look like, no one knows.
Jeremy Alford can be reached at email@example.com.