Day 1285: Taxing Gulf Of Mexico Oil & Gas Production

Reuters | US Treasury Secretary Attacks Oil, Gas Tax Breaks (last paragraph emphasized by me, before some of you have a seizure)

“We don’t believe it makes sense to significantly subsidize the production and use of sources of energy (like oil and gas) that are dramatically going to add to our climate change (problem). We don’t think that’s good economic policy and we think changing those incentives is good for the country,” Geithner told the Senate Finance Committee at a hearing on the White House’s proposed budget for the 2010 spending year.

The Obama administration’s budget would levy an excise tax on oil and natural gas produced in the Gulf of Mexico, raising $5.3 billion in revenue from 2011 to 2019.

This new 13 percent tax on all oil and gas production in the Gulf would only affect those companies enjoying a loophole that allows them to avoid paying royalties on the energy supplies they drill. Companies already paying royalties would get a tax credit.

Grandstanding or actual plan? I don’t know with our new Treasury secretary, but cautiously argue that it is a good idea based on whom it benefits. You know how I feel about oil and gas production in the Gulf of Mexico and the almost free rein oil companies enjoy in this yet plentiful basin, especially here in Lousiana. It’s death and livelihood rolled into one.  Such companies returning to New Orleans post-Katrina were surely given a generous number of deductions to continue operations but, more importantly, employment of locals and the expenditure of those locals’ tax dollars here.  On the other hand sits the state’s ravaged coastline, a small percentage of pennies on the revenue dollar going towards fixing it.  It’s way past time outfits that don’t pay royalties cough up the dough for the privilege. Despite these advantages for and burdens on the Gulf Coast’s producing states, keep one thing in mind: Being nimble is not an option for companies right now. Thanks to the miserable economy, those that are in the GoM have too much infrastructure in place combined with shrunken budgets to withdraw plans or coldstack rigs because of a proposed tax increase beginning two years from now.

Given the above, here are a few questions for Geithner’s economic team about the “$5.3 billion in revenue from 2011 to 2019”:

a) How much of it goes to oil-producing Gulf states, who deserve the biggest chunk of royalty distributions?
b) How much of it is slated for coastal restoration programs?
c) On the basis of what Gulf of Mexico production forecast did you assume $5.3 billion would be raised in 8 years, starting 2 years from now?
d) No one is leaving the GoM now, but will once projects are completed in the next few years and money becomes available for big game elsewhere. Do you know that the prevailing theory is that GoM production will be in rapid decline by 2019 and that most production activity will have shifted onshore by then?

As far as I know, the plan is too short on details for people on both sides of the political fence to start shouting it up or down. If you know more, educate me.