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If President Obama’s 2017 budget proposal passes, it’s ‘lights out’ for many American stripper well producers

The President’s 2017 budget proposal, which calls for a new $10.25 per-barrel tax on domestic oil production as well as the elimination of all oil and gas industry tax provisions, is a total knock-out for America’s stripper well producers when combined with the crude oil price slump, said National Stripper Well Association Chairman Mike Cantrell.

The budget proposal released today by the White House introducing a new $10.25 per-barrel tax on oil, more than doubling current transportation taxes, and again calling for the repeal of all oil and natural gas industry tax provisions, came as no surprise to domestic oil and gas producers, said National Stripper Well Association (NSWA) Chairman Mike Cantrell.

“Once again, President Obama is offering up a budget that is a laundry list of handouts to special interests and attacks on hard-working Americans,” Cantrell said. “Knowing the President’s dislike for men and women in the oil industry, I have to say we expected this.”

However, when combined with the crude oil price slump, the Administration’s proposed new massive tax increases are a kick in the teeth to family owned and operated small businesses and the absolute worst-case scenario for marginal well oil and natural gas producers, Cantrell said.

“We have gone from a recession to a depression. While the Saudis’ strategy of reducing production from American shale producers will eventually work, their ‘dumping’ of excess oil into the market is impacting the small family-owned oil production companies around the country the most,” Cantrell said. “We estimate around 250,000 barrels a day of stripper well production has been lost. Hopefully it's not all lost forever, but a portion certainly will be.”

The new tax on American producers will force thousands more stripper well producers out of business, Cantrell said, and drive the American oil industry further into a decline that cannot be reversed.

"Who could think that punishing American families with tax increases, while giving foreign sheiks and oil dictators a pass is a good policy,” Cantrell said. “It’s hard to fight to free America from our dependence on OPEC and energy from Vladimir Putin when it seems like President Obama is working for them.”

He said, if the President were focusing his new tax only on foreign oil imports, to give American producers a chance to compete with the international state-owned and -controlled oil cartels who have indicated their clear intention of driving us out to take our place in the market, his proposal may have some merit.

"Unfortunately, his goal seems to be the wholesale destruction of the American oil industry which will only hurt consumers, workers and our economy," Cantrell said.

The President’s budget also proposes eliminating oil and gas tax provisions like percentage depletion which the small businesses of America’s oil and gas industry rely on for capital formation to drill new wells and rework old wells, Cantrell said.

“Once again, President Obama is targeting America’s independent energy producers and workers with the equivalent of a devastating tax increase on mostly small producers.”

Cantrell said that the President’s budget proposal will kill some of the 18,000 small family businesses that produce oil from marginally-economic wells because as stripper well producers, most income completely follows oil prices.

“Most of the larger companies that have made up the horizontal shale oil boom have at least some hedges in place at least through this year,” Cantrell said. “So while these companies are dramatically reducing costs, and waiting for the other shoe to drop, stripper well producers are already barefooted.”

In 2015, NSWA and IHS Global released an economic impact report which showed that eliminating the percentage depletion tax provision for oil and gas producers would not be a net revenue raiser, and instead would cost the U.S. economy an average of 178,000 jobs per year during the forecast decade. The cost to the federal government will be $2.5 billion in tax revenue by 2025, with another $1.1 billion lost in royalty revenue.

Percentage depletion is a tax provision used by oil and natural gas producers that allows them to recoup some of the costs involved in exploring for and developing fossil fuel sources, according to energytaxfacts.gov. Although they are not the only ones who can use the percentage depletion tax provision, small independent producers who operate stripper wells would be disproportionately affected by elimination of the percentage depletion deduction, Cantrell said.

He said, however, stripper well producers are enduring.

“There are only two kinds of wells in America: stripper wells, and wells that are going to be stripper wells,” Cantrell said.

“So, there will always be stripper wells and small producers are resilient as well. We'll be down but not out.”