Articles Posted in Legislation

Congress passed the 2010 federal budget without adopting the Obama Administration’s proposal to eliminate several tax provisions favorable to the oil and gas industry, including percentage depletion and expensing of intangible drilling costs. See my earlier post discussing these tax provisions.  Adam Haynes, EVP of Texas Independent Producers and Royalty Owners Association (TIPRO), was quoted in TIPRO’s April 17 newsletter as saying that that the industry had “dodged a bullet,” and that repeal of these tax provisions, which purportedly cost taxpayers $80 billion a year, “would very negatively impact the exploration for needed energy here and throughout the nation.”

President Obama, in an attempt to recoup some of the money being spent to revive the economy, proposes to repeal several tax provisions near and dear to the oil and gas industry:

• Enhanced oil recovery credit
• Marginal well tax credit
• Expensing of intangible drilling costs
• Deduction for tertiary injectants
• Passive loss exception for working interest owners in oil and gas properties
• Manufacturing tax deduction for oil and gas companies
• Percentage depletion deduction for oil and gas
• Not surprisingly, the oil and gas industry is mounting a huge lobbying campaign to prevent loss of these tax benefits. 

The only one of these tax benefits that directly affects royalty owners is the percentage depletion deduction.  Currently, 15% of royalty income is deductible as “percentage depletion.”  The deduction is intended to recognize that the sale of oil and gas is in part the sale of a depleting asset, so that a portion of the royalty should be treated like a return of capital rather than as income.

H.R. 1835, the New Alternative Transportation to Give Americans Solutions Act of 2009 (NAT GAS Act) was introduced in the U.S. House of Representatives by Dan Boren (D-OK), John Larson (D-CT) and John Sullivan (R-OK).  Its purpose is to promote the use of natural gas in vehicles, with an emphasis on large trucks and fleet vehicles.  It wiould provide incentives for installation of natural gas fueling stations.  It is the first legislation to promote Boon Pickens’ plan to use domestic natural gas to reduce dependence on foreign oil.