Who are America’s independent producers?
The Independent Petroleum Association of America (IPAA) represents more than 6,000 independent oil and natural gas producers across the United States. While operating in more than 30 states, these independent business owners drill 95 percent of the oil and natural gas wells in the U.S. - accounting for 85 percent of American natural gas production and 54 percent of American oil production.
America’s independent producers are job creators.
Independent producers provide much needed revenue to government coffers.
Top Issues Facing America’s Independent Producers
America’s independent natural gas and oil producers have historically reinvested as much as 150 percent of their cash flow back into American production to create jobs and energy supplies here in the United States. Certainty in the industry tax structure is a key factor in constructing a business plan for independents.
America’s independent producers have been able to deduct the costs associated with drilling for natural gas and oil that have no salvage value for more than 80 years. These “intangible” drilling costs are 65 to 80 percent of the capital expenditure budget of independent producers and eliminating this provision will decrease American jobs and production.
Eliminating the tax deduction for drilling costs at current tax rates (Obama budget proposal) will cut independents’ capital budgets by 25 percent. Eliminating the deduction even with lower tax rates (Obama corporate tax proposal) would reduce capital budgets by 20 percent.
All mineral resources are permitted to use percentage depletion as a way to reflect the decreasing value of their resource as it is produced. Originally added to the tax code in 1926, the oil and natural gas percentage depletion allowance only applies to America’s smaller independent producers and royalty owners.
Nearly two-thirds of America’s independent producers are small businesses, organized as pass-through entities. If Congress only lowers the corporate income tax rate, these small businesses will receive no benefit since they pay taxes as individuals. Pass-through entities take the same deductions as corporations. If Congress eliminates business deductions to pay for a reduction in the corporate tax rate, small businesses will no longer be able to use these deductions resulting in a tax increase.
During one of the worst national economic downturns, the American oil and natural gas industry is a beacon for job creation and economic growth. Independent producers across the country are hiring thousands, generating billions in revenue, improving the nation’s balance of trade, increasing American energy supply while reducing foreign oil imports for the first time in decades, and strengthening economic and national security.
However, the oil and natural gas industry continues to be confronted by a regulatory framework that is complex, extensive and growing. Industry detractors continue to use the regulatory process to halt American energy production through the federal agencies.
The states have effectively regulated the production of oil and natural gas for the past century and continue to do so. Now, the Obama administration is looking to federalize the regulation of oil and natural gas production under laws that have not been used before – creating duplicative, costly burdens that will be detrimental to America’s independent producers. Twelve federal agencies are currently taking aim at American oil and gas production. Such actions would hamper production and result in a loss of jobs, loss of revenue, decreased American energy supply, increased reliance on foreign imports and a weakened economy and national security.
The Obama administration’s final 2012-2017 five-year Outer Continental Shelf (OCS) plan follows the same tired path for American offshore exploration that has been pursued for a generation. Although the presidential and congressional moratoria were lifted in 2008, the new five-year OCS plan continues to lock up the key parts of the Atlantic, Pacific, Eastern Gulf and Arctic waters. The House of Representatives recently passed H.R. 6082, which would replace the administration’s plan with one that opens up new areas for exploration of our nation’s rich resource potential offshore.
In addition, oil production on private and state lands has risen by 11 percent and natural gas production has risen by 40 percent since 2000. This is largely due to the industry’s development of the vast shale plays across the United States with revolutionary technologies, such as horizontal drilling and hydraulic fracturing.
While state and private lands are booming, we continue to see a decline for production on federal lands. The number of new federal oil and gas leases issued by the Bureau of Land Management (BLM) is down 44 percent. The number of new permits to drill issued by BLM is down 39 percent. Finally, the number of new wells drilled on federal lands has declined by 39 percent.
We Need Your Help – Get Involved
Instead of politicizing energy, we must energize the political process! We must keep energy at the forefront of debate as we enter the election season and as we welcome the 113th Congress in 2013. As Congress prepares to act on issues of critical importance to our industry, you must get involved by helping to educate members of Congress on both sides of the aisle about issues impacting independent oil and gas producers – by responding to action alert requests and attending town hall meetings in your member’s district back home.