Tax change would drain away energy investment, industry says
Proposed changes to how investments in energy companies are taxed could deal a serious blow to the industry and set back efforts toward energy independence, say industry officials and
One change involves how investors write off “intangible drilling costs.” Investors would be required to spread the deductions for those costs over five or seven years.
Also referred to as geological and geophysical amortization, intangible drilling costs are for things other than equipment, such as wages and fuel.
Extending the amortization period for those costs to five or seven years, rather than allowing a deduction from a single year’s income taxes, would remove more than $1 billion from efforts to find and develop new sources of gas or oil, according to the Independent Petroleum Association of America.
The proposed changes contained in President Obama’s budget measure “could cripple the American producers that are pivotal” for developing domestic supplies, the association said.
The provision’s implications in western Colorado are significant for large companies and small investors.
“For the big companies, it’ll be huge,” said Kathy M. White, a certified public accountant at Chadwick, Steinkirchner and Davis in Grand Junction.
Individuals, however, also would be affected because they could no longer quickly write off their investments’ intangible costs, especially in case of dry holes.
That could take its toll in helping independent producers amass the capital needed to drill wells.
“If you can’t write them off, that will make people less willing to get out and take a risk with their
money,” Grand Junction land man Don Moyer said.
“People aren’t going to be that excited about investing,” White said.
Independent producers drill 90 percent of the oil and gas wells in the United States, which means tax increases hurt these companies the most, said Barry Russell of the Independent Petroleum Association of America, calling the tax package “a devastating blow to the American oil and natural gas industry.”
In proposing the elimination of “oil and gas company preferences,” the Obama administration said its proposals would raise nearly $31.48 billion of revenue by fiscal 2019.
The administration also proposes elimination of credits for enhanced oil recovery efforts and the marginal-well tax credit, the deduction for tertiary injectants, and the passive loss exception for working interests in oil and gas properties.