3rd UPDATE:Obama Budget Hits Oil,Gas Cos With New Fees,Taxes
February 26 2009 - 3:18PM
Dow Jones News
The Obama administration Thursday proposed raising at least
$31.5 billion over 10 years from oil and gas companies, reflecting
a repeal of tax breaks for domestic production and new charges on
oil and gas production in the Gulf of Mexico.
The plans, outlined as part of a fiscal 2010 budget proposal,
revive long-standing Democratic efforts to turn to the oil and gas
industry as a source of funding for other priorities. Among other
things, the Obama budget plan calls for about $13 billion over 10
years in new charges on oil and gas companies from the repeal of a
tax deduction for domestic production.
"It's a concerning area, of course, because as you put more
royalty and tax burdens on the industry, particularly a cyclical
industry, you just have to be cognizant of the potential impact it
has on investments," said Marvin Odum, the president of Royal Dutch
Shell's (RDSA) U.S. operations, after meetings with various
lawmakers about energy policy. "That's not something you can put
real definition to, but I think it's a concern."
Oil companies have been fighting to maintain the tax treatment,
which they say keeps jobs in the U.S. by encouraging domestic
production. Congress scaled back the tax deduction last year to
help pay for an extension of tax breaks for the solar and wind
industries, but stopped short of eliminating it entirely.
The Obama administration also proposed a new excise tax on oil
and gas production in the Gulf of Mexico, saying it would raise
about $5 billion over the next 10 years. The White House said that
the new tax, along with plans to charge user fees to oil companies
for processing oil and gas drilling permits on federal lands, would
"ensure that federal taxpayers receive their fair share" and "close
loopholes that have given oil companies excessive royalty relief."
The tax "will begin in 2011, after the economy has had time to
recover," the White House said.
Democrats have been battling oil firms to get royalty payments
from Gulf of Mexico leases signed in the late 1990s, years when the
government apparently accidentally left price triggers out of
contracts. Government auditors say that the omission could
ultimately short change taxpayer coffers by billions of
dollars.
Six companies - including BP PLC (BP), Royal Dutch Shell (RDSA),
ConocoPhillips (COP) and Marathon Oil Corp. (MRO) - originally
agreed to pay royalties on the leases for production from October
2006, but not on past output. But that agreement wasn't finalized,
and negotiations stalled after lawmakers pressed for payment on
past output and after a court ruling in favor of the oil industry.
The firms only represented a fraction of the total lease
owners.
Around 40 companies representing 80% of the production haven't
agreed to re-negotiate the leases, including Exxon Mobil Corp.
(XOM), Total SA (TOT), Chevron Corp. (CVX) and Anadarko Petroleum
Corp. (APC), according to Interior Department data.
Interior Secretary Ken Salazar and key Congressional Democrats
have promised to reform the structure of fees and royalties on
public lands, and a senior Office of Management and Budget official
said the new oil industry taxes would help to "re-balance the tax
system."
"This budget begins that process, that conversation on finding
ways to rebalance the tax system over so that we can get at the
$1.3 trillion deficit that we inherited," the official said.
-By Siobhan Hughes, Dow Jones Newswires; 202-862-6654;
Siobhan.Hughes@dowjones.com