[Swiftwater Gazette] Oil and Gas Investing

[Brad Haslett]

Yup!  I guessed this one correctly.  Our new Chief Tax Cheat, er,
Treasury Secretary made it official.  War has been declared on
domestic oil & gas production (see attached).  This is the statement
that should scare the hell out of you; "Geithner said the additional
taxes "can be absorbed" by the oil and gas companies, given the
billions of dollars they have earned from high energy prices."
Reality check, please,  Who will pay the carbon tax on power plants?
You will.  Who will pay the excise tax on domestic oil? You will.  You
can argue within reason why that may be a good idea, but don't blow
smoke up our arses! Companies don't pay taxes, they collect them and
pass them on to customers. Econ 101.

Brad

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US Treasury secretary attacks oil, gas tax breaks
Thu Mar 5, 2009 3:18am IST

By Tom Doggett

WASHINGTON, March 4 (Reuters) - U.S. oil and natural gas producing
companies should not receive federal subsidies in the form of tax
breaks because their businesses contribute to global warming, U.S.
Treasury Secretary Timothy Geithner told Congress on Wednesday.

It was one of the sharpest attacks yet on the oil and gas industry by
a top Obama administration official, reinforcing the White House
stance that new U.S. energy policy will focus on promoting renewable
energy sources like wind and solar power and rely less on traditional
fossil fuels like oil as America tackles climate change.

"We don't believe it makes sense to significantly subsidize the
production and use of sources of energy (like oil and gas) that are
dramatically going to add to our climate change (problem). We don't
think that's good economic policy and we think changing those
incentives is good for the country," Geithner told the Senate Finance
Committee at a hearing on the White House's proposed budget for the
2010 spending year.

The Obama administration's budget would levy an excise tax on oil and
natural gas produced in the Gulf of Mexico, raising $5.3 billion in
revenue from 2011 to 2019.

This new 13 percent tax on all oil and gas production in the Gulf
would only affect those companies enjoying a loophole that allows them
to avoid paying royalties on the energy supplies they drill. Companies
already paying royalties would get a tax credit.

Obama's budget would also place a $4 per acre annual fee on energy
leases in the Gulf that are designated as nonproducing. The budget
proposal projects the fee would generate $1.2 billion from 2010 to
2019.

Senator John Cornyn of Texas criticized the tax increases, saying they
would hurt independent energy companies that provide a large share of
U.S. oil and gas supplies.

"My view is that higher taxes on small and independent producers here
in America will make us more dependent on imported oil and gas while
we transition to cleaner energy alternatives, a goal we all share,"
said Cornyn. "And it will also hurt job retention and job creation in
the energy sector, which provides an awful lot of jobs in this
country."

Geithner said the additional taxes "can be absorbed" by the oil and
gas companies, given the billions of dollars they have earned from
high energy prices.

"The impact of these subsidies are very small relative to revenues
produced by U.S. oil and gas producers," he said. (Reporting by Tom
Doggett; editing by Jim Marshall)


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On Sat, Feb 28, 2009 at 7:13 AM, Brad Haslett <flybrad at gmail.com> wrote:
> For someone who was a Senator from Illinois, Dear Leader sure doesn't
> seem to know much about oil and gas.  The Illinois Basin oil field
> (which covers three states, IL, IN, and KY) was a prolific producer
> until about the mid 50's of the last century.  It still produces a lot
> of oil but is considered a "mature field".  The recent run-up in oil
> prices sparked new interest in the field with some new drilling
> (there's one being drilled on my nephew's land as we speak) and
> substantial investment in workovers and upgrades to older well heads.
> Here's a snapshot of some of the tax hikes coming -
>
>    1) On people making more than $250,000.
>
>        * $338 billion - Bush tax cuts expire
>        * $179 billlion - eliminate itemized deduction
>        * $118 billion - capital gains tax hike
>
>    Total: $636 billion/10 years
>
>    2) Businesses:
>
>        * $17 billion - Reinstate Superfund taxes
>        * $24 billion - tax carried-interest as income
>        * $5 billion - codify “economic substance doctrine”
>        * $61 billion - repeal LIFO
>        * $210 billion - international enforcement, reform deferral,
> other tax reform
>        * $4 billion - information reporting for rental payments
>        * $5.3 billion - excise tax on Gulf of Mexico oil and gas
>        * $3.4 billion - repeal expensing of tangible drilling costs
>        * $62 million - repeal deduction for tertiary injectants
>        * $49 million - repeal passive loss exception for working
> interests in oil and natural gas properties
>        * $13 billion - repeal manufacturing tax deduction for oil and
> natural gas companies
>        * $1 billion - increase to 7 years geological and geophysical
> amortization period for independent producers
>        * $882 million - eliminate advanced earned income tax credit
>
>    Total: $353 billion/10 years
>
> To invest in private placements of oil and gas ventures you are
> required by the SEC to be a qualified "sophisticated" investor,
> meaning you have to have a taxable income of $250K for two years or
> more or a net worth of 1 million or higher.  Investing in new wells is
> risky.  Even investing in existing wells carries considerable risk,
> not the least of which is you don't have any control over the price of
> your product.  Part of the risk is mitigated by being able to expense
> versus capitalize drilling and other front-end cash outlays.  Over the
> years, we've heard about all the "special tax breaks" for oil and gas
> by the ignorant and the uniformed.  You cannot avoid taxes, you can
> only delay them!  If you look at the above list, it becomes obvious
> that the bulk of business tax reforms are aimed directly at domestic
> oil and gas production.  It will kill the small producers.  Was that
> the idea?
>
> Big Oil and Gas companies will continue to produce in other countries
> and sell their product on the world market.  What is the incentive to
> produce or sell in the US given the tax penalties?
>
> Did I miss something in the news?  Did our cars suddenly start running
> on something other than gasoline.  Did OPEC suddenly decide they're in
> love with us and are going to start selling crude oil at cost?
>
> I'm sure to a lot of lefties, killing off domestic drilling makes them
> happy.  If so, start celebrating, cause this sure as hell is going to
> do it!
>
> Brad
>