U.S. Industry Tax Rates

Oil Company Subsidies? Part deux!

 The President, in his State of the Union address has disingenously propagated a description of certain tax benefits received by companies in all manner of industries as "subsidies for big  oil".

Here are a few of the items which are being incorrectly identified as “subsidies” inside the beltway:

Intangible Drilling Costs – Companies which engage purely in energy exploration and discovery can recover their costs related to exploration at tax time at a rate of 100%. This lessens the burden on energy providers for the number of “dry holes” which may be found in the process. Integrated companies (i.e. “big oil”) can recover these exploration costs at 70%. Not a subsidy.

Domestic Manufacturer’s Deduction (Section 199) – A deduction (not a credit) equal to 9% of income earned from manufacturing, producing, growing or extracting in the United States, is available to every single taxpayer who qualifies in the U.S. The oil and gas industry, and only the oil and gas industry, is limited to a 6% deduction.

Percentage Depletion – The percentage depletion deduction is a cost recovery method that allows taxpayers to recover their lease investment in a mineral interest through a percentage of gross income from a well. This depletion method is not available to companies that produce oil as well as refine and market it (i.e. “Big Oil”.) This is available to all extractive industries (gold, iron, clay, etc) in the US and is in no way unique to the oil and gas industry.

Aneth Field Carbon Dioxide Flood

Carbon Dioxide Flooding

CARBON DIOXIDE FLOODING

Carbon dioxide (CO2) can sometimes be used to enhance the displacement of oil from a reservoir. Carbon dioxide occurs naturally in some reservoirs, either with natural gas or as a nearly pure compound. It can also be obtained as a by-product from chemical and fertilizer plants, or it can be manufactured or separated from power plant stack gas.

When pressure in a candidate reservoir has been depleted through primary production and possibly waterflooding, it must be restored before CO2 injection can begin. To do this, normally water is pumped into the reservoir through injection wells until pressure reaches a desired level, then CO2 is introduced into the reservoir through these same injection wells.

Even though CO2 is not miscible with oil on first contact, when it is forced into a reservoir a miscible front is generated by a gradual transfer of smaller, lighter hydrocarbon molecules from the oil to the CO2. This miscible front is in essence a bank of enriched gas that consists of CO2 and light hydrocarbons. Under favorable conditions of pressure and temperature, this front will be soluble with the oil, making it easier to move toward production wells.

 This initial CO2 slug is typically followed by alternate water and CO2 injection - the water serving to improve sweep efficiency and to minimize the amount of CO2 required for the flood.

Production will be from an oil bank that forms ahead of the miscible front. As reservoir fluids are produced through production wells, the CO2 reverts to a gaseous state and provides a "gas lift" similar to that of original reservoir natural gas pressure. On the surface, the CO2 can be separated from the produced fluids and may be reinjected, helping to reduce the amount of new CO2 required for the project; thus, the CO2 can be recycled.

 This procedure may be repeated, known as "huff and puff" until oil production drops below a profitable level.

Gas Storage

Natural gas in storage is at 3.29 BCF, 20% higher than the 5 year average of 2.742 BCF.

Reasonable Profits Board?

Dems Propose Reasonable Profits Board to Regulate Oil Company Profits

Six House Democrats, led by Rep. Dennis Kucinich (D-Ohio), want to set up a "Reasonable Profits Board" to control gas profits.
The Democrats, worried about higher gas prices, want to set up a board that would apply a "windfall profit tax" as high as 100 percent on the sale of oil and gas, according to their legislation. The bill provides no specific guidance for how the board would determine what constitutes a reasonable profit.
The Gas Price Spike Act, H.R. 3784, would apply a windfall tax on the sale of oil and gas that ranges from 50 percent to 100 percent on all surplus earnings exceeding "a reasonable profit." It would set up a Reasonable Profits Board made up of three presidential nominees that will serve three-year terms. Unlike other bills setting up advisory boards, the Reasonable Profits Board would not be made up of any nominees from Congress

Pipeline Safety Record

The American Petroleum Institute tracks pipeline performance; the charts below show that not only are things pretty darn good, they also continue to improve.