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U.S. Senate Bill Would Hike Oil Tax

D. Ray Tuttle
Dolan Media Newswires
July 28, 2010

OKLAHOMA CITY, OK -- The U.S. Senate Democrats’ proposed energy bill would raise federal taxes on Oklahoma crude oil more than 500 percent.
If the Senate bill, introduced late Tuesday, is approved, it would hike federal taxes from 8 cents a barrel to 49 cents a barrel. The Oklahoma tax on crude oil production is 7 percent of value.

While programs funded by the bill would include a new natural-gas vehicles program at the Department of Energy, the Oklahoma Independent Petroleum Association bashed the provisions designed to cover the cost of the legislation. The legislation is expected to run $15 billion. The natural gas vehicle programs in the bill are modeled on the Pickens Plan popularized by Holdenville native, Oklahoma State University graduate and current Dallas energy investor T. Boone Pickens.

Oklahoma is one of the nation’s largest natural gas-producing states, and any efforts to increase the use of the fuel in the U.S. will benefit the state’s economy and the nation’s drive toward energy independence, said Mike Terry, OIPA president. The OIPA is the state’s largest oil industry trade group, with more than 2,000 individual members and companies.

“However, significantly increasing taxes on the industry that produces the fuel will push smaller independent oil and natural gas producers out of business and reduce the number of drilling rigs exploring for natural gas in Oklahoma,” Terry said.
The Senate bill is an immediate threat to the industry, Terry said.

Somerlyn Cothran, executive director of the National Stripper Well Association, agreed.

“We are fighting every day,” Cothran said.

Higher taxes impact the stripper or marginal wells because marginal well operators have razor-thin profit margins, Cothran said. A marginal well produces no more than 10 barrels or 60,000 cubic feet of natural gas daily. Oklahoma wells produce an average of 2.3 barrels of oil per day, according to the state’s Marginal Well Commission.

There are 65,504 marginally producing oil and gas wells in Oklahoma, out of a total of 119,255 wells that are tracked by the Oklahoma Corporation Commission.
“We are doing everything in our power to keep from having to pay these taxes, which would plug wells and cost jobs,” Cothran said.

Liability provisions in the bill would make working in deep waters of the Gulf of Mexico a near impossibility for smaller, independent producers, he said.

“Pushing American energy producers out of U.S. waters will kill jobs,” Terry said. “Raising that tax could severely hamper the ability for independents to drill.”

The American Petroleum Institute estimates that 175,000 jobs in the Gulf Coast region are at risk if the bill passes. No estimate was available on the number of jobs in Oklahoma threatened by the federal tax hike.

An energy industry expert also decried the legislation.
“This is the kind of nonsense that passes for legislation today,” said Thomas Pyle, president of the Institute for Energy Research. The energy think tank conducts research and analysis on government regulation of energy markets. The conservative organization believes that free markets provide the most efficient and effective solutions to energy and environmental challenges.

“The only thing that is certain about this bill is that it will make it harder to produce domestic energy,” Pyle said. “It will create uncertainty for domestic producers and all the jobs they support, and lead to making the U.S. less competitive in energy production and more reliant on foreign sources of energy.”

The legislation is another example of Congress believing it must do something, anything, Pyle said.

“This is the government attempting to pick winners and losers,” Pyle said. “The only real outcome is that we all lose as consumers.”

Also of concern, Terry said, are provisions related to hydraulic fracturing. In the process of hydraulic fracturing, or fracking, a specially blended liquid called slick water is pumped down a well and into a formation under pressure high enough to break the rock and allow natural gas to flow to the well.

“Although requiring drilling companies to disclose the chemicals used in the fracking process seems harmless at first glance, this legislation will open the door to increased regulations on the process that has been proven safe and is a necessity in unlocking new natural gas fields,” Terry said. “Burdensome and costly regulations on the hydraulic fracturing process will slow American drilling rigs, cost Oklahomans jobs and delay our country’s push to energy independence.”

The bill creates tax credits to speed the development of natural gas vehicles. Specifically, it would provide incentives for turning the nation’s heavy truck fleet to natural gas and the electrification of the transportation sector.

“This is an attempt by Congress to address an issue, but it is really a leap-before-looking approach,” Pyle said.

If it is truly Washington’s wish to reduce the country’s dependency on oil, lawmakers should have the discussion out in the open, rather than hiding it behind the public’s rational concern about the spill in the Gulf, Pyle said.

The bill includes as its centerpiece “oil spill response” legislation that would require BP to pay for its spill damage, make oil companies invest in new spill cleanup and prevention technologies, improve federal spill response, reform the Minerals Management Service and update maritime laws.

The Senate bill also provides five years of funding for the Land & Water Conservation Fund, which is used to acquire federal lands. It also amends maritime statutes to allow families of the victims of the Deepwater Horizon oil spill to seek certain types of damages.

The bill also provides funding for the Home Star program, which encourages homeowners to install energy-efficient technology.