Intangible drilling costs (IDC) are "an ordinary and necessary business expense of the oil and gas industry," and should only be modified as part of a broader tax reform package -- and in combination with a lower, globally competitive corporate tax rate -- according to Industrial Energy Consumers of America (IECA).
"As we see it, the intangible drilling costs tax provision represent an important form of capital formation for the oil and gas industry," said IECA, which represents some of the largest industrial consumers of natural gas and electricity, in a letter to the chairmen and ranking members of the Senate Committee on Finance and the House Committee on Ways and Means. "The IDC is not a subsidy as some have described it. It is the equivalent of cost deductions taken by the manufacturing sector that they deduct against revenue.
"The IDC is a tax deduction that has been in place since 1913 and for many companies is critical to their competitiveness and ability to invest new capital. IECA is concerned that modification of the IDC deduction could result in less capital spending, lower production and higher prices for natural gas, natural-gas-fired power generation and oil."
While opponents of the IDC deduction claim its repeal would save the government as much as $12.4 billion annually, consumers would end up footing the bill, according to IECA President Paul N. Cicio.
"If natural gas prices rise even just the small amount of 50 cents, consumers will pay that much in higher bills. We urge the Congress to consider the very important trade-offs," Cicio said.
And in the first year without the IDC tax break, natural gas suppliers would be forced to slash their exploration and production budgets 15-20%, IECA said.
The IECA joins a list of energy industry experts who have called on lawmakers to keep federal tax deductions for IDC, including Continental Resources Inc. CEO Harold Hamm, who also serves as energy adviser to Mitt Romney's presidential campaign, former Sen. Don Nickles (R-OK), CEO of the Nickles Group LLC and a board member at Chesapeake Energy Corp., and former Rep. Phillip Sharp (D-IN), who now serves as president of the nonprofit Resources for the Future (see NGI, June 18).
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