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Memo From Martin Frost

     We are all relieved that climate change legislation is dead for this session of Congress; however, the fight to preserve the industry’s tax preferences is far from over.  In fact, we are now entering the single most critical phase.

     Senate Majority Leader Harry Reid has said it is his intention to take an oil spill liability bill to the floor with some new green jobs initiatives as early as next week.  He is attempting to characterize this as non-controversial and “low hanging fruit.”  From our perspective, it is potentially highly controversial.

     We should not be concerned about the oil spill liability sections of the bill; however, we should be very concerned about how the Senate will pay for the projected $36 billion in green jobs initiatives (including making it easier to use natural gas for large trucks).  There are some people in the Senate who want to use our most important tax preferences (intangible drilling costs and percentage depletion) to pay for these new initiatives, either by repealing IDCs and percentage depletion or by substantially reducing the availability of them. 

     It is very important that DEPA members communicate immediately with our 11 Senate Democratic friends and ask that they tell Leader Reid that they are opposed to using IDC’s and percentage depletion as “pay fors” in the legislation that may be considered next week.  If the Senate wants to fund these new green jobs initiatives, they should look to some other sources as pay fors rather than funding them out of the preferences that are vital for domestic independents who drill 90 percent of the new wells in the United States.  Harming domestic independents will have the inevitable effect of increasing our dependence on imported oil.

     If Leader Reid persists in including substantial reductions in tax preferences for domestic independents in his legislative package, we may have to ask our Senate friends to vote against cloture for the oil spill liability bill…something that will be a hard for vote for them because they won’t want to be seen as standing in the way of providing for clean up of future oil spills.  It will be easier for them politically if these provisions are not even included in the Leader’s draft of the oil spill bill. 

Martin Frost