As Senate Democrats prepares to take up legislation to end the oil and natural gas tax perks, the Senate Finance Committee has called the leading producers to testify Thursday.
Appearing before the Senate panel will be John Watson, CEO of Chevron Corp.; Marvin Odum, president of, Shell Oil Co.; H. Lamar McKay, president of BP America Inc.; James Mulva, CEO of ConocoPhillips; and Rex Tillerson, CEO of ExxonMobil Corp.
Senate Democrats want to repeal approximately $21 billion in oil and tax break over the next decade. They may bring a measure to the floor as early as this week to nix tax breaks for the large, multinational oil companies. But a vote on the measure won't likely occur this week.
"Our industry and company are already taxed heavily compared to other industries in the United States," Mulva said. "For example, ConocoPhillips' effective global income tax rate from 2006 through 2010 was 46%. If you look at nonfinancial companies in the Fortune 500, the 20 largest by market value had an effective tax rate of 27%."
Sen. Max Baucus (D-MT), chairman of the Senate finance panel, is drafting a measure that would eliminate for major producers the Section 199 manufacturing deduction, reduce the foreign tax credit for royalties payments to foreign governments and impose an excise tax on certain Gulf of Mexico leases.
Democratic Sens. Robert Menendez of New Jersey, Sherrod Brown of Ohio and Claire McCaskill of Missouri have introduced a bill that would go even further. In addition to modifying the foreign credit rules and eliminating the Section 199 domestic manufacturing tax deduction, it would deny major producers the option of expensing intangible drilling costs, repeal percentage depletion for the majors, require the largest producers to capitalize the costs of tertiary injectants that are used, and repeal Outer Continental Shelf deepwater royalty relief. Lee Fuller, vice president of government relations for the Independent Petroleum Association of America (IPAA), doubts there's sufficient backing in the Senate to end the tax breaks.
The push by the big producers, such as Shell, BP and ExxonMobil, to retain the tax breaks is at odds with what these companies told Congress in 2005. "Testifying before the Senate in 2005, every CEO of the five biggest oil companies acknowledged that they do not need incentives to explore for oil and gas. And just this year, the former CEO of Shell Oil said 'subsidies are not necessary,'" wrote Senate Majority Leader Harry Reid (D-NV) and Menendez in a "Dear Colleague" letter last week.
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