• Energy Tax Facts
  • 30 Nov 17

Four Reasons Congress Must Consider America’s Independent Oil, Gas Producers in Tax Reform Debate

In recent weeks, Congress has been taking steps to pass what will be the most comprehensive tax reform bill in over 30 years. Earlier this week, the Senate Budget Committee approved the GOP tax reform plan, moving it to the Senate floor as President Trump made a trip to the Hill to discuss the legislation with policymakers. With much still to be determined, the final tax plan stands to have large impacts on the entire economy, including the energy industry. This being the case, here are four (of the many) reasons why Congress should keep America’s independent oil and gas producers in mind when it comes to reforming the tax code:

  1. Independent energy producers develop 90 percent of the nation’s oil and natural gas.

Independent oil and natural gas producers have an average of 12 full-time, two part-time employees and have been in business for approximately 23 years. These same companies are responsible for producing half of American oil and over 75 percent of its natural gas, while historically reinvesting over 100 percent of their cash flow back into production here at home. Tax reform should support these types of companies, not limit them.

  1. Independent producers generate – on average – 4 percent of U.S. gross domestic product (GDP).

New data from the Bureau of Economic Analysis (BEA) shows the mining sector (which includes the oil and natural gas industry) was the largest contributor to U.S. GDP in the second quarter of this year. Every state but one benefited from the sector’s 28.6 percent in growth, with several states experiencing large jumps in GDP. For example, North Dakota’s economy increased by 8.3 percent and Wyoming’s by 6.64 percent.

This growth is thanks in large part to the shale revolution and hydraulic fracturing. This remarkable American energy revitalization could end, however, if tax reform legislation limits independent producers’ access to capital by changing historic oil and natural gas tax provisions. Take Intangible Drilling Costs: A Raymond James analysis in 2009 reported that the loss of the IDC deduction would result in capital drilling budgets being reduced by 25 to 30 percent. A loss of production to this extent would make the U.S. less competitive and set us back on the international energy stage.

  1. The U.S. oil and gas industry supports more than 10 million jobs nationwide.

… and that is just in 2015. The American Petroleum Institute recently published a study conducted by PricewaterhouseCoopers that found the U.S. oil and natural gas industry supported 10.3 million direct, indirect and induced jobs in 2015, a number that has increased by 500,000 since 2011. Over 40 percent of the industry’s total jobs are directly related to oil and natural gas extraction, the part of the industry dominated by independent producers that drill 90 percent of U.S. wells.  What’s more, the Bureau of Labor Statistics only expects this number to grow. The bureau recently published job growth projections for each sector of the U.S. economy and projects that the mining and energy sector will be the highest growing among goods-producing sectors, adding 90,800 jobs by 2026.

  1. Independent oil and gas producers deliver significant savings to the nation’s consumers and businesses

Thanks to the country’s abundant production of oil and natural gas, families and businesses across the country are seeing savings in many areas of their everyday lives. For example, in anticipation of the Thanksgiving holiday last week, the American Automobile Association conducted a study that found that, because of the low price of gasoline as a result of increased energy development here at home, U.S. drivers would save over $22.5 million on gasoline during Thanksgiving week compared to 2014.

In addition to saving at the pump, a new study from the University of Pennsylvania found that between 2007 and 2016, residential gas customers saw a 34 percent decrease in their gas bills. For U.S. businesses, the American Gas Association conducted a report at the beginning of 2017 that found, largely because of natural gas development, commercial sector natural gas bills have decreased by 50 percent, translating to a savings of roughly $76 billion since 2009.

As we’ve seen so far in the legislative process, Congress has recognized in both the House and Senate bills that the important provisions in the current tax code, which allow our country’s independent oil and natural gas producers to generate this abundant amount of energy efficiently, should not be altered. Undoubtedly, should Congress remove these provisions, the savings to American consumers and businesses will dwindle down until they no longer exist. That is why fair, commonsense provisions like IDCs and Percentage Depletion must be maintained as tax reform moves forward. These provisions are critical to how companies manage their capital budgets, and in turn keep salaries paid and operations running. If our lawmakers choose to disregard them when it comes to the tax code, the jobs of the millions of Americans employed by the U.S. energy industry and all of us who rely on energy every day could be put at risk.