Taxes account for a significant portion of energy companies’ operating expenses and factor into investment decisions. Some fear that increasing the tax burden on energy companies or removing certain incentives could put the brakes on the recent US oil and gas production boom.
Read Breaking Energy coverage of the oil company tax debate taking place in Alaska, here.
As congress tries to hammer out a budget by the end of the year, tax revenue is an important piece of that puzzle and policymakers are reportedly looking at energy company taxation.
“We see the budget discussion continuing and [tax] revenues are an issue. There is December deadline and a January deadline and they will take all that time. After that tax reform could get started in earnest,” Stephen Comstock, director of tax and accounting policy at the American Petroleum Institute said yesterday on a call with journalists.
He said taxes will factor into the year-end process regarding the budget and “tax reform as a larger issue will develop over longer term.”
One of the main oil and gas industry tax issues involves deductions taken for intangible drilling costs, which support cash flow during highly capital-intensive drilling operations.
Read more about IDCs on Breaking Energy here.
“A study released this summer by Wood Mackenzie shows that repealing IDC would result in fewer wells drilled, fewer Americans employed, and less energy produced here in the U.S. This impact is both significant and immediate,” Comstock said in prepared remarks made during the media call.
“190,000 Americans would be unemployed next year if the IDC deduction is repealed, growing to 265,000 jobs lost over a decade, according to the study. With nearly 10,000 fewer wells drilled and $407 billion in decreased investment, domestic oil and natural gas production would fall 14 percent below current expectations after 10 years.” – Comstock
Asked about what he’s hearing on the hill with regard to IDC, Comstock said “these are closed-door discussions but [IDC] items are in the mix. People are talking about where they stand, but we don’t have clear picture on it. We seek to make sure Ways & Means Committee members understand the issues.”
So stay tuned to the budget talks unfolding as the year ends and look for energy tax reform emerging as a separate issue possibly in 2014.
