When President Obama and Democratic leaders shoved the health care reform bill through Congress recently, it should have sent a cold shiver down the backs of upstream oil and gas executives everywhere. That’s because the Chicago-style tactics employed by the majority party on health care are likely to be re-employed on other major issues, including energy, and particularly oil and gas.
I say “Chicago-style tactics,” because key Obama administration members trace their political roots to the political machine of Mayor Richard M. Daley. Here are some more prominent Chicago Obama advisors: Chief-of-Staff Rahm Emanuel, Senior Advisor David Axelrod, Senior Advisor Valerie Jarrett, Secretary of Education Arne Duncan, and yes, First Lady Michelle Obama. If she had not already left her job as White House Social Secretary on March 1, Desirée Rogers would have been on this list.
To understand what the E&P sector may face requires examining what transpired on health care. For a year after taking office, Obama and his congressional allies tried to pass health care reform as part of a larger, sweeping agenda. But attempt after attempt came up short. Early this year, health care reform appeared nearly dead.
Then, the Chicago contingent got busy. Emanuel and Axelrod consulted with Speaker of the House Nancy Pelosi (D-CA) and Senate Majority Leader Harry Reid (D-NV) on how to circumvent the traditional, slow process of crafting yet another, all-new bill, and what procedural tricks could be employed. In addition, a lot of old-fashioned Chicago arm-twisting was employed on Democratic congressional members that were not falling into line with administration plans. That arm-twisting included threats about members’ political futures, with much of that muscle provided by labor union officials. According to a March 18 item at Politico.com, union officials even threatened to fund primary challengers against some Democratic incumbents that weren’t on the bandwagon.
These efforts succeeded, and the bill passed the House on March 21, but only after Rep. Bart Stupak (D-MI) and four other pro-life House members were figuratively bought-off by Obama’s separate issuance of an executive order that bans federal funding of abortions. Ironically, Stupak announced two weeks later on April 9 that he would not seek re-election, knowing that he would not recover politically in his district after voting “yes.”
The health care bill’s passage has emboldened Obama on other issues. The administration is resuscitating virtually the entire, original, radical, idealogically driven agenda of items that was nearly moribund early this year. For instance, Cap-and-Trade is now being re-launched in a compromise, carbon tax version under different names—Carbon Tax Bill, Climate Change Bill, Energy Bill, etc.
In addition, Obama’s proposed FY 2011 federal budget again calls for repealing all upstream tax incentives and write-offs. He tried the same thing last year in his FY 2010 budget. The granddaddy items that must be protected, if the independent sector (majors don’t enjoy these breaks) is to remain healthy and able to attract risk capital, are the Intangible Drilling Cost write-off (initiated in 1913) and the Percentage Depletion Allowance (initiated in 1926). Without these items, the ranks of independents would thin considerably. If all eight items on Obama’s list are eliminated (one is actually a new tax), the industry’s financial hit would be an estimated $40 billion, with half of that ($20 billion) suffered in Texas over a four-year period.
The logic used by the Obama Administration in justifying the repeal of these tax provisions defies rational thought. An example is remarks made to the House Ways and Means Committee on April 13 by Michael Mundaca, Assistant Treasury Secretary for tax policy. He told members that repealing tax breaks would not affect the hiring decisions of oil and gas producers. He then added, “The amount of tax incentives we are proposing to repeal are less than 1% of the revenue generated in the oil and gas industry. We don't think it will have a significant effect on prices, so we don't see that there will be a significant [knock] with respect to employment." He obviously doesn’t know that independents drill 90% of new U.S. wells and produce 68% of U.S. oil and 82% of the natural gas. IPAA estimates that removing tax breaks could reduce U.S. oil and gas production by 20% to 40%. This issue continues to evolve and promises to be a long, hard battle.
Last , but not least, Obama and his minions could exercise their anti-oil-and-gas agenda without Congress by employing the EPA. Ground Zero for this is the Fort Worth portion of the Barnett Shale in North Texas. Despite multiple studies that show hydraulic fracturing (a.k.a. “fracing”) does not threaten the water table and does not use unreasonable amounts of water, the EPA is very much considering whether to restrict or even eliminate fracing in some areas of Texas, and the rest of the U.S. Since fracing is now being used to help develop additional oil production, as well as natural gas output, one can only imagine the massive, negative effect that this would have on future industry activity, on future domestic energy supplies, on individual state economies, and on future tax receipts of producing states. The EPA might also intervene on emissions from production, particularly benzene, even though that particular risk has been overstated and overblown by local media, as per testing by the Texas Commission on Environmental Quality. It doesn’t help that a local state representative wants a one-year moratorium on new drilling permits in seven counties surrounding Fort Worth. The Alliance is concerned enough, that we are about to launch a public education media campaign on these subjects in the Fort Worth area, in cooperation with several other industry associations.
One final thought—The next time that the White House’s principal occupant takes off on his jet to go address a university commencement, where he bashes oil and gas companies, he needs to remember that the jet fuel for that plane came from oil that was explored for, produced, refined and distributed by oil companies.
Kurt Abraham is Vice President of the Texas Alliance of Energy Producers, the largest state oil and gas association in the nation. The opinions expressed are solely of the author.
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