Business Perspectives

October 6, 2011

Info on energy policy can be misleading

National energy policy is a complex issue.

National energy policy is a complex issue.

Opponents of American energy development have been conducting information campaigns that confuse the public and policymakers. In addition, the media appears to have difficulty covering energy policy issues in any detailed way.

Contributing to this dilemma is the tendency of some elected officials to appeal to the public's concern about rising gasoline prices in ways that can be factually misleading. To complicate matters further, it is not always easy to determine whether elected officials promoting a particular solution are doing this intentionally or out of incomplete information.

The Obama administration has been trying to eliminate oil and gas tax provisions ever since President Obama took office in 2009. Obama has specifically targeted a series of tax provisions that are critical to small domestic independent oil and gas producers.

Obama has justified ending these tax provisions on the basis that the big five major oil companies have record profits and don't need these tax provisions. This theme has been echoed by some Democrats in the House and Senate who are clearly worried about their own re-election prospects confronting a public upset about high gasoline prices.

However, here is where the facts get in the way.

The big five major oil companies do most of their drilling outside the U.S. The Independent Petroleum Association of America (IPAA) estimates that 94 percent of the new wells in the U.S. are drilled by domestic independent producers and that 67 percent of the oil and natural gas produced in the U.S. each year comes from these wells.

The tax provisions targeted by President Obama are available only on wells drilled in the U.S. Thus, the tax provisions are used primarily by small domestic independent oil and gas producers and are of limited value to the major oil companies, which Obama says he is targeting.

IPAA estimates that if Obama is successful in eliminating these tax provisions, the number of wells drilled in the U.S. will be reduced by at least 30 percent.

But it gets even more interesting.

Percentage depletion — one of the major tax provisions cited by Obama — was repealed for the major oil companies in 1975, 36 years ago. And the deduction for intangible drilling costs, which also is only available on domestic production, is utilized by small independent oil and gas producers two-thirds of the time and only one-third by major oil companies. And when it is taken by major oil companies, these firms take it on a reduced basis.

All this means that some Democrats railing against major oil company profits are not always pursuing policies that harm just major oil companies.

It would be nice if everyone were using facts and working off the same script.

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