President-elect Obama has nixed plans to impose a windfall profits tax on oil and natural gas producers due to the steep slide in energy prices over the past couple of months.

“Our understanding is that they’ve decided not to pursue the windfall profits tax,” said Lee Fuller, vice president of government relations at the Independent Petroleum Association of America.

“They believe that with prices falling, it’s not a logical place for them to pursue revenues,” he told NGI. Fuller said he also believes the Obama team has realized that it would be “inconsistent” with its national security policy to impose a tax that could slow investment in oil and gas.

“It’s good new for the industry and it’s good news for America.”

The news that the Obama team reversed direction came Tuesday when a small business group announced that the transition team had removed all reference to the windfall profits tax on oil and gas from the transition website (www.change.gov). The language regarding the tax was removed on Nov. 8 in an “unceremonious and abrupt manner,” but it has just come to the public’s attention, according to the American Small Business League (ASBL), which favors a windfall profits tax on oil and gas.

During the presidential campaign Obama repeatedly called for the tax on oil and gas producers as a means of subsidizing a $1,000 “emergency” rebate to consumers struggling with high gasoline prices, said ASBL in Petaluma, CA.

Producer groups had hoped that Obama would not resurrect the windfall profits tax, recalling that the tax was disastrous when it was last imposed in 1980. It resulted in less domestic production and more foreign imports.

Industry sources conceded late in the presidential campaign that a windfall tax was becoming a less attractive option for Obama in light of the steep drop in oil and natural gas prices.

Even Obama adviser Elgie Holstein acknowledged that the windfall profits tax had lost some of its steam. “That was his proposal, but of course oil prices have been declining so that may obviate at least some of the need [for the tax]. It would certainly reduce the extent to which a windfall profits tax would apply,” he said in late October following a Natural Gas Roundtable (see Daily GPI, Oct. 20).

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