Oil, gas tax hikes threaten royalties, too

RIFLE — President Barack Obama’s proposal to revoke tax breaks for the oil and gas industry would hurt mineral owners too, says Neil Ray, president of the Rockies chapter of the National Association of Royalty Owners.

Ray, speaking last week at the Northwest Colorado Oil and Gas Forum in Rifle, said the result would be declining oil and gas development and a resulting drop-off in royalties to mineral owners.

For example, Obama’s proposal would eliminate a tax credit applying to wells with marginal production. Twenty percent of American oil and gas production comes from such wells, and without the tax credit, many of them would get shut in, Ray said.

“And of course when we’re not bringing minerals up out of the ground, royalty owners don’t get paid,” he said.

The proposal’s chances of being implemented appear slim. A Democratic motion to repeal the tax breaks was defeated 249-176 in the U.S. House of Representatives last week.

The administration is proposing a repeal of expensing of intangible drilling costs, saying the change would save $12.4 billion over 10 years. It also wants to exclude the oil and gas industry from a domestic manufacturing tax deduction to save $18.2 billion.

Jack Gerard, American Petroleum Institute president and chief executive officer, has issued a statement predicting the tax hikes would cost the government money.

“Besides eliminating thousands of new potential jobs, the increases, over the long term, would actually lower revenue to the government by many billions of dollars as a result of foregone revenues from projects the tax hikes would prevent going forward,” he said.

Ray describes the proposed changes as “kind of an attack on industry,” and on royalty owners.

“This isn’t a joke. This is the budget, and there isn’t anyone in the administration that is wanting to negotiate on this,” he said.

The Obama administration contends the changes would eliminate market distortions, reduce greenhouse gas emissions and encourage investments in clean and renewable energy.

Frank Smith, director of organizing for the Western Colorado Congress citizens group, said he’s glad there’s finally an administration “that’s willing to call out the status quo of subsidizing dirty industry, and that’s good news for public health and Western Slope landscapes and federal revenues.”

He said that oil and gas development will occur regardless because prices will rise as the finite resources are depleted, providing an incentive to drill.

The repeal of the tax breaks should include a requirement that industry pay for it using its record profits, “and make sure that royalty owners don’t foot the bill,” Smith said.


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