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Energy Tax Breaks Await Michigan Governor's Signature

Michigan's oil and natural gas operators may be reaping the benefits of tax breaks to expand energy infrastructure in the state under legislation now awaiting Gov. Rick Snyder's signature.

The state Senate and House on Wednesday concurred on a four-bill legislative package that primarily would lower the rate on the gross cash market value of total production to 4% -- from 5% for natural gas and 6.6% for oil. The tax cuts would apply to extractions that otherwise would be considered unlikely to be done because of the additional costs, but they would not apply to horizontal drilling using hydraulic fracturing.

For example, operators would get a break for investing in enhanced oil recovery projects, which involves flooding tight formations with carbon dioxide (CO2) to bring oil to the surface. It's a form of unconventional drilling that has drawn investment dollars to Wyoming, North Dakota, Louisiana and other states by producers that include ExxonMobil Corp. and EOR expert Denbury Resources Inc. (see Shale Daily, Feb. 6; Dec. 19, 2013; Aug. 13, 2013; Jan. 16, 2013; Dec. 4, 2012).

"The bottom line is that this is about energy security, environmental protection and Michigan's economy," said state Rep. Aric Nesbitt (R-Lawton). CO2 reused in deep extraction projects could be stored underground rather than released into the atmosphere, he told his colleagues on the House floor Wednesday.

Another incentive for producers is a bill to allow operators to condemn property through eminent domain to secure rights of way for oil, gas or CO2 pipelines. Although it passed both houses, the bill received some blow back by Republicans and Democrats concerned that operators would be able to ram through pipeline projects with little regard for property owners.

Senate Democrat Coleman Young II, who serves Detroit, criticized the eminent domain bill noting that the city had given a $175 million tax to Marathon Petroleum Corp. to expand a plant that produced less than 20 local jobs.

"We know that oil companies are flush with cash and they want our taxpayers to pad their pockets with something more," Young said. "They're not just asking for tax breaks, they're asking for eminent domain. So they want a tax break, and they want to take your property too."

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