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Producer Group Encouraged as House, Senate Budget Process Begins

An independent producer group was encouraged as the budgetary process for fiscal year (FY) 2010 got under way in the House and Senate Wednesday, saying it appeared that Congress "was not going to rush to judgment" on President Obama's proposed $30 billion in tax hikes for oil and natural gas producers.

Congress is "moving in such a way as to not limit debate" on the administration's proposal to boost producer taxes, said Lee Fuller, vice president of government relations for the Independent Petroleum Association of America (IPAA), which represents independent producers.

The House Budget Commission unveiled a $3.45 trillion budget resolution, shaving more than $100 billion from the president's proposed budget that was released in late February (see Daily GPI, Feb. 27). The House budget members "don't seem to be embracing any of the administration's tax proposals" on energy, health care, charitable deductions and other areas, Fuller said.

Nor do either the House or Senate budget committees seem to support a reconciliation provision, which would compel the tax-writing committees (House Ways and Means and Senate Finance) to make changes to existing tax law, he noted.

"If they continue along this path, it would be a positive step" for producers, Fuller said, but he cautioned that the budget process in Congress is only at the beginning stage.

The budget resolutions, which are being marked up by the committees, have what are called "deficit-neutral reserve funds" to fund Obama's major initiatives -- energy, health care, education and the environment. This means that Congress will have to come up with offsetting revenues from other sources to fund these initiatives, possibly from oil and gas producers.

"We have had to insist that things be paid for," said Sen. Kent Conrad (D-SD), chairman of the Senate Budget Committee. The House and Senate budget resolutions are nonbinding, but they set the framework for tax and spending legislation later in the year, according to CQ Today.

Meanwhile, Fuller said IPAA officials and independent producers have been flooding Capitol Hill to "talk to anybody we can about what the consequences of these tax provisions in Obama's proposal would be for independent producers."

He noted that the producer group is "working closely" with Rep. Gene Green of Texas and other moderate Democrats who have signaled their opposition to the president's proposed $30 billion tax hike.

A coalition of 16 House Democrats led by Green Tuesday expressed their objection in a letter to House Budget Committee Chairman John M. Spratt Jr. (D-SC). This could potentially pose a problem for Obama's tax plan in the House.

"We support President Obama's goals to end our addiction to foreign oil, invest in clean, renewable energy and transition to a low-carbon economy while creating U.S. jobs," the Democrats said. But "we are also concerned with the impact [the] budget proposals may have on domestic energy production and job growth. Increasing the costs of producing energy would further strip essential capital from new domestic investments and reduce our energy supplies.

"Lower energy prices and the tight credit market have already shed thousands of energy industry jobs nationwide, which disproportionately impacts small, independent U.S. energy producers," said members of the coalition, which included drilling proponent Rep. Neil Abercrombie of Hawaii, Sen. Jim Costa of California and Rep. Charlie Melancon of Louisiana.

Independent producers develop 90% of domestic wells and produce 82% of U.S. natural gas and 68% of domestic oil, according to the lawmakers. And independents employ about 2 million people in the country, they said.

The lawmakers further cited the importance of gas for global climate change, saying, "If we make it more expensive or difficult to produce natural gas domestically, it will hinder our ability to meet our clean energy goals while also increasing natural gas prices for all Americans."

The Obama budget for FY 2010, which was released in late February, proposes to repeal the expensing of drilling costs (costing producers $3.34 billion over 10 years); repeal percentage depletion for oil and gas ($8.25 billion); repeal the marginal well tax credit; repeal the 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).

Besides the Obama administration's proposed excise tax on Gulf of Mexico oil and gas production, which would take effect in 2011, it also wants to charge producers user fees for processing oil and gas drilling permits on federal lands and increase the return from oil and gas production on federal lands by "reforming" royalties and adjusting rates.

In addition, the administration in its budget for the Department of Energy seeks to repeal the ultra-deepwater oil and gas research and development program, which is projected to save the federal government $210-250 million over a 10-year period.

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