Domestic producers slammed President Obama’s fiscal year (FY) 2011 budget proposal to roll back $36.5 billion in tax breaks for oil and natural gas over the next 10 years.

“With America still recovering from recession and one in 10 Americans out of work, now is not the time to impose new taxes on the nation’s oil and natural gas industry,” said American Petroleum Institute President Jack Gerard Monday.

The president’s tax proposal “moves in the wrong direction,” said Lee Fuller, vice president of government relations for the Independent Petroleum Association of America (IPAA), which represents independent producers.

The proposed cuts in oil and gas tax breaks, which mirrors those advanced by Obama in the FY 2010 budget, would reduce investment in U.S. production by 20% to 40%, and could drive down domestic oil production by 20% and gas production by 12%, potentially killing thousands of jobs, said IPAA President Barry Russel.

Rolling back the tax breaks “will hit the independent right in the pocketbook,” said Alex Mills, president of the Texas Alliance of Energy Producers. He estimated the administration’s proposals would have a $50 billion price tag for the state of Texas from loss of jobs, economic activity and state tax revenue over a 10-year period.

Obama last year proposed rolling back about $30 billion in tax breaks for oil and gas producers, but the measure was held up in Congress by Republicans and Democrats representing oil and gas producing states (see Daily GPI, Feb. 27, 2009). “We will certainly do everything we can to oppose these tax changes” proposed for FY 2011, Fuller said.

The Obama administration is seeking to eliminate 12 tax breaks for oil, gas and coal. The administration’s proposal includes cutting $2.3 billion in tax breaks for coal over the next decade.

Independent producers, according to Fuller, would be most affected by the repeal of tax breaks for intangible drilling costs, percentage depletion allowance and the passive-loss exception for working interests in producing wells. Obama also proposed a new excise tax on oil and gas produced in the Gulf of Mexico.

“As we work to create a clean energy economy, it is counterproductive to spend taxpayer dollars on incentives that run counter to this national priority,” the administration said.

“To further this goal, the budget eliminates tax preferences and funding for programs that provide inefficient fossil fuel subsidies that impede investment in clean energy sources and undermine efforts to deal with the threat of climate change.”

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