Big Oil Fattens Up at the Public Trough

Big Oil fattens up a the public troughAs Big Oil continue to rake in record profits – $123 billion in 2007 – the oil and gas industry is due to receive $32.9 billion in tax breaks, royalty relief, subsidies and other support from public coffers through 2013. Analyzing the issue in “Big Oil, Bigger Giveaways,” released July 2008, Friends of the Earth analysts note that the figure could grow dramatically over the next 25 years if these are extended and if oil companies win a lawsuit through which they are seeking to avoid paying as much as $53 billion in offshore drilling royalty revenue.

A Long & Growing List

Tax breaks for the oil and gas industry included in the Energy Policy Act of 2005 increase from around $1.3 billion in 2000 to some $3.6 billion in 2008, and they’re set to grow further, to some $3.8 billion by 2010, according to the Joint Committee on “Taxation Estimates of Federal Tax Expenditures for Fiscal Years 2007-2011,” FoE points out in its analysis (pdf). The list of oil and gas industry tax breaks is a long one. At an estimated cost of $5.9 billion over five years, the oil and gas depletion allowance allows oil companies to deduct 15% of their sales revenues to reflect the declining value of their investment. The problem is that the accounting methodology does not accurately reflect companies’ assets actual loss in value over time, and they often wind up deducting more than the value of their original investment, according to the report’s authors. Congress has passed H.R. 4520, the “American Jobs Creation Act of 2004,” which included provisions added that changed the classification of oil and natural gas production to that of a manufactured good.

This enabled them to claim billions of dollars in new tax deductions, effectively lowering their tax rate,” according to the report.

Initial estimates by the Joint Committee on Taxation estimated that it would cost the federal government some $3.5 billion over the next five years. On the other hand, efforts to change this, as was included in “The Renewable Energy and Energy Conservation Tax Act of 2008,” could raise more than $5.1 billion in revenue. Deductions for intangible drilling costs – cost of wages, supplies and site preparation, royalty payments, foreign royalty, and income tax payments will add another $6.5 billion to the lost government revenue total over the next five years.

Royalty Holidays for Offshore Drilling

President Bush recently rescinded a federal ban on offshore oil drilling and Republican presidential candidate John McCain has come out in support of this stance. Government royalties or a percentage of actual revenue for federal oil and gas exploration permits, whether onshore or offshore, provide much needed funds for a range of public institutions, including the Land and Water Conservation Fund, Historic Preservation Trust Fund, oil producing states and the federal treasury. Thing is that legislation is in the works that will relieve oil companies to pay them, proposed laws that will cost taxpayers at least $3.8 billion over the next five years and

could balloon significantly as a result of an initial oil industry lawsuit win that would eliminate provisions in oil and gas contracts that limit royalty relief through the inclusion of price thresholds,” the authors write.

Andrew Burger
Andrew Burger
A product of the New York City public school system, Andrew Burger went on to study geology at the University of Colorado, Boulder, work in the wholesale money and capital markets for a major Japanese bank and earn an MBA in finance.

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