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By Don Briggs
President
Louisiana Oil & Gas Association

On August 1^st and August 2^nd, Congress passed and President Obama officially signed into law the Budget Control Act of 2011, or S 365.  The act sets a historic expectation for the federal government to produce at least $2.1 trillion in both budget cuts and debt limit increases over the next decade.  While it is of the utmost importance for our government to reign in spending and control our ballooning deficit problems, the passing of this landmark legislation unfortunately addresses only a small portion of our enormous debt and opens the door to potential tax increases on many levels.

The House hurriedly and controversially passed the Budget Control Act of 2011 on a vote of 269 to 161.  House leadership brought the bill to the floor without allowing congressional members and the public a 72-hour window to review the legislation.  Before his takeover of the House, Speaker John Boehner promised that after the stimulus debacle the American public would be given ample time and a chance to review every piece of significant legislation that comes to a vote in the House.  In fact, as a part of its takeover of Congress, the GOP incorporated “Read the Bill” language as a part of its Pledge to America campaign.  Unfortunately, that promise was broken.

Sixty-six conservative members chose to go against leadership’s support of the bill.  Their decision makes sense given that the legislation addresses budget cuts that equate to a meager 1% of the U.S. budget.  What is most concerning about the deal is the establishment of a 12-member Joint Select Committee on Deficit Reduction that is tasked with finding sufficient cuts in government spending over a period of time.

Under the Budget Control Act, the debt ceiling will first rise by $900 billion and is set to rise again by either $1.2 trillion or $1.5 trillion depending upon the success of the Joint Committee’s ability to avoid a trigger established in the legislation that would cut spending automatically. The bipartisan committee will be made up of three Democrats and three Republicans from each chamber.  Every industry and business should pay very close attention to the decisions made within this committee.  The savings it chooses to generate can come from spending cuts or tax increases.

The repeal of essential tax deductions that support domestic exploration and production of oil and gas is an issue that we discuss regularly.  Provisions like the intangible drilling deduction, the domestic manufacturing deduction, and the percentage depletion deduction have been on the proverbial chopping block as potential future sources of government revenue for some time.  But, now more than ever, we must ensure that they remain untouched throughout this spending cut and tax increase debate.

A growing economy means that businesses are flourishing and generating jobs, and that growth provides the tax revenues that pay for our government’s budget.  What are essential to a solid economy are stable energy prices.  Businesses can’t make money if most of their budget is swamped with energy costs.  It’s no surprise that oil and gasoline prices spike prior to each economic recession that we have experienced as a nation.  If Congress chooses to do away with these vital tax provisions, there is no doubt that domestic exploration and production will decrease, prices will rise, revenues will decline, jobs will be lost, and our debt issues will worsen.

On August 1st and August 2nd, Congress passed and President Obama officially signed into law the Budget Control Act of 2011, or S 365. The act sets a historic expectation for the federal government to produce at least $2.1 trillion in both budget cuts and debt limit increases over the next decade. While it is of the utmost importance for our government to reign in spending and control our ballooning deficit problems, the passing of this landmark legislation unfortunately addresses only a small portion of our enormous debt and opens the door to potential tax increases on many levels.

The House hurriedly and controversially passed the Budget Control Act of 2011 on a vote of 269 to 161. House leadership brought the bill to the floor without allowing congressional members and the public a 72-hour window to review the legislation. Before his takeover of the House, Speaker John Boehner promised that after the stimulus debacle the American public would be given ample time and a chance to review every piece of significant legislation that comes to a vote in the House. In fact, as a part of its takeover of Congress, the GOP incorporated “Read the Bill” language as a part of its Pledge to America campaign. Unfortunately, that promise was broken.

Sixty-six conservative members chose to go against leadership’s support of the bill. Their decision makes sense given that the legislation addresses budget cuts that equate to a meager 1% of the U.S. budget. What is most concerning about the deal is the establishment of a 12-member Joint Select Committee on Deficit Reduction that is tasked with finding sufficient cuts in government spending over a period of time.

Under the Budget Control Act, the debt ceiling will first rise by $900 billion and is set to rise again by either $1.2 trillion or $1.5 trillion depending upon the success of the Joint Committee’s ability to avoid a trigger established in the legislation that would cut spending automatically. The bipartisan committee will be made up of three Democrats and three Republicans from each chamber. Every industry and business should pay very close attention to the decisions made within this committee. The savings it chooses to generate can come from spending cuts or tax increases.

The repeal of essential tax deductions that support domestic exploration and production of oil and gas is an issue that we discuss regularly. Provisions like the intangible drilling deduction, the domestic manufacturing deduction, and the percentage depletion deduction have been on the proverbial chopping block as potential future sources of government revenue for some time. But, now more than ever, we must ensure that they remain untouched throughout this spending cut and tax increase debate.

A growing economy means that businesses are flourishing and generating jobs, and that growth provides the tax revenues that pay for our government’s budget. What are essential to a solid economy are stable energy prices. Businesses can’t make money if most of their budget is swamped with energy costs. It’s no surprise that oil and gasoline prices spike prior to each economic recession that we have experienced as a nation. If Congress chooses to do away with these vital tax provisions, there is no doubt that domestic exploration and production will decrease, prices will rise, revenues will decline, jobs will be lost, and our debt issues will worsen.

By Don Briggs
President, Louisiana Oil & Gas Industry

On Tuesday night, President Obama addressed the nation during his State of the Union speech where he called for
swift and immediate measures to speed up job creation and cut federal spending. On the top of his agenda was a call
to ensure a cleaner environment and foster clean energy like wind, solar, and biofuels. The President
straightforwardly acknowledged that the clean environment he envisions would come at a significant cost. Who’s to
pay for this visionary clean environment? – That’s right, the American taxpayer and the oil and gas industry.
It’s the President’s hope to spur American innovation and job creation through advancements in clean energy
technologies. In order to pay for these advancements the President plans to eliminate billions of dollars in tax
breaks for oil and gas companies. Obama candidly remarked, “And to help pay for it, I’m asking Congress to
eliminate the billions in taxpayer dollars we currently give to oil companies. I don’t know if you’ve noticed, but
they’re doing just fine on their own.”
In his address, President Obama noted that oil was “yesterday’s energy” and urged all Americans to pursue a change
of course. Obama stated, “With more research and incentives, we can break our dependence on oil with biofuels,
and become the first country to have a million electric vehicles on the road by 2015.” The President also added,
“Some folks want wind and solar. Others want nuclear, clean coal and natural gas. To meet this goal, we will need
them all — and I urge Democrats and Republicans to work together to make it happen.”
While we commend the President for his advocacy of clean burning natural gas playing a role in our nation’s energy
future, it’s important that the President’s policies reflect his rhetorical support. A question he may consider is,
“How can we increase taxes on natural gas production and ensure its affordability to meet his economic and
environmental goals?”

It’s time to get real
We need to be clear about the difference between tax breaks and direct subsidies. The President notes that the U.S.
taxpayer is in someway footing the bill for America’s oil and gas industry. This could not be further from the truth.
Taxes are an interesting and complex tool utilized by politicians and government. For instance, if you create a tax
one day, distribute the revenue, and then eliminate the tax on down the road – you’ve essentially created the
perception that tax dollars were “taken” from the public. It’s one thing to offer tax breaks to an industry, but to
directly subsidize it is an entirely different scenario.
Take for instance the U.S. renewable energy market. Companies developing windmills, solar panels, and other
renewable energies receive financial start-up money from the federal government that covers 80% of all their costs.
In reality, the American taxpayer is footing the bill for renewable energies that cannot compete in the marketplace.
The President may think that oil is the energy of the past, but the American consumer is saying something different.
According to a 2007 Department of Transportation study, there was an estimated 254.4 million registered passenger
vehicles in the United States. It’s safe to say that 99.9% of those vehicles run on fossil fuels. Until cars and trucks
run on windmills and solar panels, I don’t suspect the public will shift significantly from petroleum usage.

What about these electric cars?
Unfortunately, electricity is not an energy source. It takes energy to create electricity. The majority of electricity
generation comes from coal and natural gas. If the President plans to put a million electric cars on the road it may
be a good idea to incentivize natural gas production rather than stifle it with his tax increase plans. Higher
electricity costs mean less affordable electric vehicles.
According to the U.S. Energy Information Agency, less than 7% of U.S. energy consumption derives from
renewable energies like wind, solar, geothermal, and biofuels. Natural gas and petroleum make up nearly 70% of
energy consumed in America. There is a reason why alternative energies makeup such a small percentage of our
energy production – these technologies are significantly inferior to the energy provided by affordable fossil fuels and
renewable energy is too costly for the American consumer.
Even with billions of dollars in incentives, alternative sources of energy like solar and wind are not cost effective.
The only way they can become competitive in the marketplace is to increase the cost of fossil fuels through raising
taxes on the oil and gas industry. Raising taxes on fossil fuels will not bring about job creation and economic
growth. If anything it will lead to increased energy costs, higher food prices, and result in a lower standard of living
for all Americans. If the President is serious about getting us out of this economic situation and job creation is his
top priority, he should refrain from stifling an industry that will help our nation rise above our economic challenges

By Don Briggs, President of LOGA

In the last few weeks, you’ve most likely had the experience of standing by your automobile staring at the meter of a gasoline pump. Lost in disbelief, you watch the numbers tick away your hard earn dollars. Feeling ripped off and wondering why a gallon of gas is so high, you wonder what is going on. Feeling dij` vu? You should. Gasoline prices rise every spring just before the high demand summer months
Last week, the average price across the country for a gallon of regular gasoline was $3.20. Consumers automatically think “price gouging;” populist state legislators cry foul, Congress introduces “price gouging” legislation and demand investigations. Adding to the dilemma which consumers find themselves in, is the announcements of the huge profits of the larger integrated oil companies. In the past 40 years the oil industry has had 30 investigations by the Federal Trade Commission and state attorneys-general for collusion and price gouging. In all of the investigations, the industry was exonerated from any wrong doing.

So when you pump 20 gallons of gas into your vehicle and pay $60 to the establishment, where does the $60 go and who gets what?

Fifty percent is attributed to the price of crude oil, and as you know this is determined by the world crude oil market. Today the current price of West Texas Intermediate crude is roughly $64 per barrel. Some economists suggest a good rule of thumb is that for every $1 increase in the price of crude oil, the price of a gallon of gasoline will fluctuate by .02 cents.

Twenty-eight percent is attributed to the cost of refining. To me, the refining of crude oil is as complex as a refinery looks. One of the major effects on prices today is due to refinery fires this year.

Eight percent is attributed to the cost of distribution and marketing. Crude oil is transported to refineries, and then gasoline is shipped to distribution points and trucked to gas stations. The markup a gas station adds to a gallon of gas is normally around .02 cents.

Fourteen percent is attributed to the cost of taxes. Taxes include state, federal and sometimes local and vary from state to state. Louisiana tax on a gallon of gas is .20 cents, plus federal tax of .18 cents per gallon, for a total of .38 cents per gallon.

So the next time you are filling up, take a good look at the pump. Rest assured that though you would rather pay less and keep the change, you know why the price per gallon of gasoline is so high.

By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)

The Louisiana Legislature has consistently voted down proposals to increase oil and gas taxes, beginning back when the First Use Tax was originally proposed and passed by then-state Rep. Billy Tauzin in 1978. Once the First Use Tax was declared unconstitutional by the U. S. Supreme Court, proponents of new oil and gas taxes were recharged by then-Governor Dave Treen who, in 1982, used his executive and political muscle to promote CWEL, Coastal Wetlands Environmental Levy, as a way to tax oil and gas traversing the Louisiana coastline from the Outer Continental Shelf (OCS) or from foreign countries. These two tax measures were the genesis of what is now called a processing tax.

Throughout all these many years, passionate speeches have echoed through the chambers and committees of Louisiana’s Senate and House of Representatives, as well as the Governor’s Mansion, declaring it only right for the state of Louisiana to tax non-taxed foreign and OCS oil crossing its boarders. Why not? The answer to that question has been obvious to our Legislature for many years. It’s not the hyped influence of oil and gas lobbyists with their perceived power, because it’s certain that the Louisiana Legislature would have passed a tax on foreign oil if it could.

First, it’s important to note that, before Louisiana could possibly levy a tax on oil coming into the state from the OCS and foreign countries, there would be barrage of legal, constitutional, and technical challenges that would have to be dealt with. For our purposes, let’s simply assume the legal and constitutional challenges had been dealt with and the state of Louisiana could levy a $4 billion tax (just picking a number) on oil coming into the state.

In our hypothetical case, Louisiana oil refineries are now faced with a barrel of oil with a new incremental cost $4 billion dollars attached to it. Do you think the refineries are going to absorb the $4 billion dollars? If you do, then I have a snow cone stand at the North Pole I would like to sell you. Suppose a new tax or incremental cost were to be levied on any other Louisiana products such as timber, cotton or sugar cane. Would that additional cost not be passed on to the consumer? Yes, it would.

In our case, the Louisiana refineries would send a portion of the new $4 billion cost directly to Louisiana consumers at the gasoline pump. Notice, I said Louisiana consumers, because out-of-state consumers will not pay for Louisiana taxes. The cost will be borne only by Louisiana consumers. It is certain that Louisiana consumers and businesses, as well as our manufacturing community would pay higher energy prices, certainly not what our devastated economy needs for recovery.

Any part of the $4 billion that wasn’t passed on to the consumer at the gas pump would be pushed back to Louisiana’s oil producers. Our in-state producers would be paid less per barrel for their crude.

The indirect impact of the new processing tax would look like this: Refineries would divert their refinery expansions to refineries outside Louisiana. We would lose the economic impact of hundreds of millions of dollars being spent in the state. Exploration companies would invest their drilling dollars in other regions, because the return on investment is greater with higher spot oil prices. Again, Louisiana would loose the economic impact of drilling dollars being spent in Louisiana.

So when you get to the bottom line, a processing tax on oil coming into Louisiana would be costly to Louisiana consumers. This is one of those times, you have to hand it to the Louisiana Legislature for defeating the processing tax for the past 25 years.

Don Briggs is president of the Louisiana Oil and Gas Association. His column appears in The Advertiser twice a month on Mondays.