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Obama Budget Proposes $30B Tax Hike for Producers

Producers last Thursday called President Obama's budget for fiscal year 2010 a "devastating blow," saying it would raise taxes by more than an "astonishing" $30 billion over a 10-year period.

The budget proposes to repeal the expensing of drilling costs ($3.34 billion over 10 years); repeal percentage depletion for oil and gas ($8.25 billion); repeal the marginal well tax credit; repeal enhanced oil recovery credit; increase geological and geophysical amortization costs for independent producers to seven years ($1.18 billion); levy an excise tax on Gulf of Mexico production ($5.28 billion); and repeal the manufacturing tax deduction ($13.29 billion).

"These proposals make no sense during this economy," said Barry Russell, CEO of the Independent Petroleum Association of America, which represents independent producers. "Coupled with his administration's delay in implementing the new five-year plan for offshore exploration, this is not welcome news to the majority of Americans who favor increased oil and natural gas production, especially from the offshore.

"Royalties collected from the American oil and natural gas industry already account for the U.S. Treasury's second-largest income stream. Less American oil and natural gas production would immediately result in less income for the federal and state governments," he said, adding that the budget also "hurts our ability to be competitive" with other nations.

"With America in the midst of an economic recession, now is not the time to impose new taxes on the nation's oil and natural gas industry," agreed the American Petroleum Institute, which represents major producers.

The federal government collects $12 billion annually in fees and royalties from oil, gas and other minerals producers, but the Obama administration in its budget outline for the Interior Department said the "return could be improved by closing loopholes, charging appropriate fees and reforming how royalties are set."

The Interior budget proposes three actions against oil and gas producers to "ensure federal taxpayers receive their fair share," including:

Interior also plans to "take steps to ensure that oil and gas companies diligently develop their oil and gas leases or risk losing them" by employing the controversial "use-it-or-lose-it" strategy for leasing that is supported by Democrats and decried by producers (see NGI, June 30, 2008). "One step is to charge a new fee on nonproducing leases in the Gulf of Mexico. This provides an added incentive for oil companies to either start producing or relinquish the leases so that others may bid on them," the budget outline said.

This action came only weeks after the Obama administration placed a hold on a Bush-era leasing plan that would open up previously banned offshore areas, as well as overturned the results of an oil and gas lease auction in Utah that was held in the final days of the Bush administration (see NGI, Feb. 16; Feb. 9).

The $12 billion Interior budget looks kindly on clean energy. Interior "will play a central role in achieving the president's vision for a clean energy future," it said. The budget includes $50 million in increases to conduct the environmental evaluations and technical studies needed to "spur development of renewable energy projects, assess available alternative resources and mitigate the impacts of development."

The Obama administration's Energy Department budget also stripped funding for oil and gas. It proposes to repeal the ultra-deepwater oil and gas research and development program, which is expected to save the federal government $210-$250 million over a 10-year period.

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