Major producers last Thursday tried to ward off a Senate Democratic assault on the billions of dollars of federal oil and gas tax breaks that they currently receive (see NGI, May 9).

Appearing before the Senate Finance Committee, top executives for ExxonMobil, BP America, Chevron, Shell Oil and ConocoPhillips said that stripping their companies of tax breaks would do nothing to bring down current high oil prices, but it would limit their ability to invest in future production and thus would reduce supplies and negatively impact prices.

Furthermore they pointed out that some of the tax subsidies that the Senate is seeking to eliminate are not specific to the oil and gas industry. Major oil and gas companies said they do not get “special subsidies,” as lawmakers contend.

ExxonMobil CEO Rex Tillerson said the Section 199 manufacturing tax deduction was one of the tax perks that applied to a cross-section of industries. Oil and gas companies are limited to a 6% deduction, while other companies enjoy a 9% deduction.

Moreover the foreign tax credit, which is meant to prevent double taxation and protect U.S. competitiveness abroad, is not specific to oil and gas, Tillerson said.

By seeking to end these tax breaks for oil and gas, he accused Congress of “arbitrarily punishing” the major producers. Tillerson believes that “access, not taxes” should be the focus of Congress. Legislation to strip major producers of as much as $21 billion in oil and gas tax breaks over the next decade is slated to come up for a vote in the Senate this week.

Sen. Lisa Murkowski of Alaska, the ranking member of the Senate Energy and Natural Resources Committee, released a statement echoing Tillerson’s sentiment. This hearing “illustrates the stark choice we face. We can increase taxes on the oil and gas industry and drive jobs, revenues and more of our energy supply overseas or we can provide access to America’s tremendous oil and gas resources — thereby creating jobs, generating more federal revenue to pay down the national debt and make energy more affordable…There’s no doubt in my mind as to which is the best path.”

But a number of senators on the Senate finance panel were far from sympathetic with the producers, who earned more than $30 billion in the first quarter. “I think you’re out of touch, deeply, profoundly out of touch, and deeply and profoundly committed to sharing nothing” with consumers, said Sen. Jay Rockefeller (D-WV).

ConocoPhillips CEO James Mulva countered that there’s a “great deal of misinformation about our tax liabilities…Unfortunately it’s being used to justify further increases.” .

He noted that ConocoPhillips, with a tax rate of 46%, is the most heavily taxed company in the U.S. Comparatively, the 20 largest companies by market value had an effective tax rate of 27%, he said.

BP America CEO H. Lamar McKay said he supports incentives for oil and gas. Without them, there would be less investment, less supply and higher prices, he noted.

“A stable and competitive tax framework is critical to the United States remaining attractive in…global demand for capital investment,” McKay said. “The currently contemplated changes to the tax rules would limit the resources [that] companies like BP have to invest” in conventional and emerging energy technologies, he noted.

The American Petroleum Institute (API), which represents major producers, immediately slammed the Senate hearing. “The hearing was predictable political theater, a distraction aimed at masking past energy policy failures that contributed to the volatile prices consumers are understandably concerned about,” said APIU President Jack Gerard.

“It was also an uninformed, unmerited assault on some of America’s biggest and most reliable employers, who are investing billions of dollars annually in new energy projects while also paying billions of dollars a year in taxes at some of the highest effective rates for any American industry of business,” he noted.

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