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‘Mom and Pop’ drillers decry Obama tax plans

Platts Magazine / Melanie Tatum
March 11, 2009

Energy tax proposals tucked into President Barack Obama’s fiscal 2010 budget “would ultimately sound the death toll for the nation’s stripper oil and natural gas industry,” the National Stripper Well Association maintained Tuesday.

“Known as the ‘Mom and Pops’ of the oil and natural gas industry, stripper well producers are average American small-business owners who are very different than the ‘big oil’ companies,” NSWA said. “If passed, the new provisions would kill domestic drilling for oil and natural gas and enhanced oil recovery efforts, leading to the inevitable abandonment of the nation’s 420,000 domestic stripper wells.” The Obama budget would repeal the manufacturing tax deduction and depletion allowances, in addition to imposing an excise tax on Gulf of Mexico-area production (GD 2/27).

NSWA urged that stripper wells, which produce 15 barrels of oil equivalent/d or less, be exempt from the legislation. It cited a recent study from the Interstate Oil and Gas Compact Commission indicating that plugged and abandoned stripper wells in 2006 resulted in the loss of $1.77 billion in economic output, $469.2 million in reduced earnings and 8,223 lost jobs.

In addition, NSWA said more than 50,000 jobs are directly or indirectly dependent on stripper wells, while in 2007 every $1 million generated by such production resulted in more than $2 million of activity elsewhere in the US economy.

On top of the tax changes, the group acknowledged that the ongoing financial crisis has led producers to more closely examine the value of thousands of stripper wells.  “It doesn’t make sense to lose a tremendous opportunity by abandoning these wells — forever shutting off the production from that well and access to its valuable reservoir,” NSWA Chairman Dewey Bartlett said. “It has also been proven that as new technologies such as the sequestration of CO2 are implemented, these wells will be able to generate additional oil reserves — while avoiding the necessity of having to drill a new well in place of the now plugged stripper well. “The future is bright for these wells, and any subsequent well abandonment is a step backwards as we strive towards long-term energy independence,”
Bartlett added.

The group has gained backing from at least one US senator. “Every marginal well operator in the country should be gravely concerned that President Obama’s proposals to significantly increase taxes on oil and gas production will force the premature plugging of low-production marginal wells,” Oklahoma Republican James Inhofe said in a statement released by NSWA. “These counterintuitive taxes will undoubtedly make our nation more dependent on foreign oil, not less.” — Melanie Tatum