[Editor's note: A version of this story appears in the October 2021 issue of Oil and Gas Investor magazine.]
It’s easy today to get caught up in all the complexities about oil and gas operations with the terms “energy transition” and “decarbonization” permeating the news. Amid all of that discussion, we can’t lose sight of the fundamental public policy-related factors that make oil and gas operations viable. Fiscal terms, license to operate, a stable legal framework and access to investment capital have all been critical to the success of oil and gas operations in the U.S. In fact, our hydrocarbon laws and stable regulatory and investment climate have been the No. 1 reason the U.S. has led the world in the shale revolution.
So what is currently happening in U.S. public policy that is impacting these basic fundamental factors? First, let’s look at fiscal terms. The budget reconciliation package that is moving through Congress has a number of damaging provisions to the U.S. oil and gas industry. It eliminates several long-held cost recovery deductions and expensing allowance that have been part of the federal tax code for generations as means to encourage U.S. oil and gas production. They include the EOR credit, marginal well credit, expensing of intangible drilling costs, percentage depletion allowance for oil and gas wells, two-year amortization of geological and geophysical expenses, and capital gains treatment for certain royalties.
These deductions and allowances are similar to those used in other forms of manufacturing and resource development and are fundamental to the fiscal foundation of the U.S. oil and gas industry. Removing them will make the U.S. industry less competitive.