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Obama Targets Oil and Gas Tax Breaks Anew

President Obama on Tuesday jumped at the opportunity to possibly eliminate tax breaks for the oil and gas industry, urging congressional leaders "to take immediate action" after comments by House Speaker John Boehner (R-OH) seemed to indicate that he was receptive to the idea.

"While there is no silver bullet to address rising gas[oline] prices in the short term, there are steps we can take to ensure the American people don't fall victim to skyrocketing gas prices over the long term," Obama said in a letter to Boehner, Rep. Nancy Pelosi (D-CA) and Sens. Harry Reid (D-NV) and Mitch McConnell (R-KY). "One of those steps is to eliminate unwarranted tax breaks to the oil and gas industry and invest that revenue into clean energy to reduce our dependence on foreign oil."

Obama said the subsidies amount to more than $4 billion a year and proposed removing them from the budgets for fiscal years 2011 and 2012.

"We simply can't afford these wasteful subsidies," the president said.

During an interview with ABC News in Hamilton, OH, on Monday, Boehner said oil and gas companies "are going to pay their fair share in taxes and they should," but when pressed said the possibility of eliminating the tax breaks "is certainly something we should be looking at.

"We're in a time when the federal government is short on revenues. We need to control spending, but we need to have revenues to keep the government moving. And they ought to be paying their fair share. I think we have to take a look at it. Everybody wants to go after the oil companies and frankly, they've got some part of this to blame."

Boehner added that he didn't think major oil companies needed oil depletion allowances. "But for small independent oil and gas producers, if they didn't have this, there would be even less exploration in America then there is today," he said.

But on Tuesday it appeared that Boehner may be backing away from his earlier statements. According to media reports, Boehner spokesman Brendan Buck on Tuesday indicated that the speaker wasn't necessarily calling for elimination of the tax breaks. Buck also dismissed Obama's proposals, saying they "would simply raise taxes and increase the price at the pump.

"[The speaker] wants to increase the supply of American energy and reduce our dependence on foreign oil, and he is only interested in reforms that actually lower energy costs and create American jobs."

The oil and gas industry reacted furiously to the proposal to eliminate the tax breaks.

"Contrary to popular belief, these tax proposals do not target 'Big Oil' but instead go after 18,000 American independent oil and natural gas producers, who on average employ only 12 workers," Barry Russell, CEO of the Independent Petroleum Association of America (IPAA), said Tuesday. "American production activities are dominated by these independent producers who drill 95% of the nation's natural gas and oil wells, accounting for 67% of total U.S. natural gas and oil production."

Russell added that eliminating the tax breaks "will reduce capital investment in the industry, and it will result in fewer jobs, less revenue to American governments, hurt American retirees, whose mutual funds, pension plans and individual retirement accounts are invested in publicly traded oil and gas companies, and harm American energy security."

IPAA Vice President Lee Fuller told NGI on Tuesday that "there is an awful lot of effort [being made by] taking a small comment Boehner made and leveraging it politically. I think there is a threat that there will be an effort by a whole slew of Democrats to go after oil and gas tax structure" in the months ahead. He added that Obama's letter to congressional leaders is meant to target Big Oil but instead "the meat of it targets independents."

American Petroleum Institute spokeswoman Rayola Dougher called Obama's proposals "short-sighted" and said they would lead to less investment in oil and gas, less fuel in the marketplace and increased dependency on foreign oil.

"The president's proposals to tax industry further is really a desperate move and it has nothing to do with reducing gasoline prices," Dougher told NGI on Tuesday. "This very idea that we're subsidized is absolutely false. We can't afford not to support our industry. We can't afford to weaken our companies in the face of the competition we have from nationalized oil companies around the world."

Sen. Robert Menendez (D-NJ) re-introduced legislation on Feb. 3 that could raise taxes for major oil and gas producers by more than $20 billion over the next 10 years while giving tax breaks to small independent producers, refiners and natural gas processors (see Daily GPI, Feb. 4).

Last September a proposal to strike a tax break for major oil and gas producers and manufacturers failed to pass in the U.S. Senate by just four votes. Had the proposal passed, the break-even marks for gas and oil development would have shifted from $5.40/Mcf and $47/bbl to $6/Mcf and $52/bbl, respectively (see Daily GPI, Sept. 15, 2010).

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