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Stripper Well Group’s Bartlett: Windfall Profits Tax Bad Idea at Any Price

An aspect of President-elect Barack Obama’s energy platform featuring during his presidential campaign has been dropped before he has taken office.

On the campaign trail, and after his victory last month in the presidential election, Obama highlighted the prospect of a windfall profits tax on oil and natural gas companies.

However, that plan was removed from the Obama transition team’s website, www.change.gov, and it was later confirmed by a member of the President-elect’s team that the initiative is no longer being considered since the price of crude oil has fallen below $80/bbl.

“I don’t think the tax would be a good idea at any price. It seems as though the $80/bbl price was a threshold level for him. I hope that if the prices exceed $80, that the thought to impose this tax won’t return,” Dewey Bartlett Jr., chairman of the National Stripper Well Association and President of Keener Oil & Gas Company, told GPR.

The Carter Administration imposed a windfall profits tax on the oil and gas industry that ran from 1980 to 1988. According to Bartlett, it didn’t work properly since it required companies to pay taxes even when they lost money.

“It was similar in effect to an alternative minimum tax. Our company had several years when prices were very low and we lost money and even if we were spending money on the pursuit of new sources of crude oil and natural gas we still had to pay a tax. It just didn’t make any sense to me at all, it was nonsense,” he said.

Bartlett said that the windfall profits tax in the 1980s had consequences that are still affecting the industry now.

“It took a lot of capital out of the drilling budgets of all independent oil and gas operators and resulted in the loss of tens of thousands of jobs,” he said.

He added that because there was such a length of time between the implementation of the tax and its repeal, it resulted in most of the workers that lost their jobs leaving the industry for good.

This loss was roughly a generation and a half of workers that left a 15-year age gap between the exodus and the creation of new jobs in the past few years. “We’re just starting to see those people that left, their positions being replaced by an educated workforce,” he said.

Bartlett pointed out that budget reductions also hurt not just the company reducing its budget, but its suppliers.

“We lower our budget on drilling, which results in drilling rigs and all the services that support drilling activity being cut down and an additional loss of jobs, as well as tax revenue,” Bartlett said.

Some in Congress Quick to Tax

One of the major issues that Bartlett and the membership in the National Stripper Well Association is a lack of understanding by members of Congress from non-producing states of the oil and gas industry.

“They certainly do not understand the structure of the industry, because every time a windfall tax is discussed is when the price of gasoline hits a new high or when a major oil company announces record earnings,” he said.

Bartlett contends that many elected officials do not understand the difference between smaller independent producers and larger producers. The most significant difference in his opinion is that independent operators are active solely onshore in the U.S.

Onshore production means that the U.S. doesn’t have to send out fleets to protect the company’s workers or assets, he said. Bartlett also highlighted that independents are responsible for domestic job creation.

“I think the industry has had a bad reputation for a very, very long time and it’s been difficult to get beyond the ability that most elected officials have that it’s very easy to beat up on the energy industry,” he said.

Members of the National Stripper Well Association produce approximately 20% of domestic crude oil and 12-15% of domestic natural gas through 200,000 wells in 35 states.

“Most people don’t see the significance of all that. They see one well making a barrel or two per day, but add it all together and it’s a pretty significant amount,” Bartlett said.

Since independent operators are active solely in the United States, any reduced drilling would likely result in a reduction of domestic supplies to replace depleting sources and would likely be replaced by foreign sources.  This summer many politicians pushed the idea of a windfall tax as a means to help everyday Americans deal with increased prices at the pump, as well as with higher costs to heat and cool their homes, but Bartlett doesn’t believe that this tax would be used in such a manner.

“The real reason that the windfall profit tax is to be imposed is not to generate revenue, it’s to push a policy. That policy is to punish energy industries for making money,” he said. Bartlett also added that the policy was designed to favor alternative energy.

 

How to Develop Alternative Energy Industry

“If the government is really wanting to help create and nurture an alternative energy environment, then they should do that directly by making their decisions on their own priorities and not necessarily trying to have a negative impact upon an industry that really is providing relatively inexpensive energy to our economy and allowing our economy to prosper most of the time,” he added.

Bartlett was quick to point out that he has no issue with alternative energy and, in fact, utilizes photovoltaic panels to power his office building. But said that any time the government – Republican or Democrat – attempts to manipulate markets, it doesn’t work out very well.

Rather than tax one industry to favor another, he said that the government should instead utilize research grants and tax incentives to help the alternative energy grow.

“The way energy prices are, it’s difficult to get people to change their buying habits when the alternative is more expensive. Most people don’t have the wherewithal to buy with their heart and pay more money for a source of energy. It’s very difficult if the purpose of a tax is to change buying habits. It just won’t work in my view,” Bartlett said.

One key aspect of any potential windfall tax policy is that they seemingly lump crude oil and natural gas together. Bartlett said that while both the oil and gas industry are often related in some fashion, they have to be considered differently because they have different methods of transportation, different methods of use and affect different parts of the economy.

“I think somebody in the Obama administration figured out that it didn’t make much sense to institute this tax policy at a time when we’re looking for alternative energy,” he said.

Bartlett said that if the windfall profit tax was in place last summer, it would not have had much effect. But the current situation would be made worse because companies would not have been able to accumulate large amounts of capital.

Bartlett said that stripper well operators are just now beginning to feel the effects of low prices since they are still receiving money from a few months ago. However, as prices remain low, it will weaken the ability to not only develop holdings, but could result in a loss of production due to an inability to make expensive repairs to wells.

While President-elect Obama’s windfall profit tax proposal is off the table for now, Bartlett said it is still a threat that remains to his company and other small operators.

“There are still a significant number of members of Congress and the Senate that would vote ‘yes’ if a windfall profits tax was presented to them,” he said.

This includes the incoming chairman of the House Energy & Commerce Committee, Rep. Henry Waxman (D-Calif.), who has been a frequent opponent of the oil industry.

Bartlett had one bit of advice for the incoming chairman. “He’s in a position to do himself and the country a favor. I’d love to see the gentlemen come here (to Oklahoma). He owes it to himself and the country to understand this industry,” he said.