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AAPL President James T. Devlin, CPL, delivers letter to Congress opposing the $3.5 trillion budget plan targeting the oil and gas industry

                                                                                                                    

 

September 13, 2021    

                                                   

Dear Senators and Representatives:

On behalf of the nearly 11,000-member American Association of Professional Landmen (AAPL) and our 41 affiliated local associations across North America, I am writing to you to express our strong opposition to the $3.5 trillion reconciliation budget plan that not only taxes and borrows unprecedented amounts to fund unjustified legislative proposals, but specifically targets the traditional domestic energy industry, and by extension our members’ livelihoods. It is unconscionable that Congress would choose to set our country down a path towards bankruptcy while also seeking to cripple American energy companies that not only employ tens of thousands of workers but ensure the United States has safe, reliable, and affordable energy to power our nation. Moreover, you may be unaware, but traditional energy funds America – providing much needed revenue for state and local infrastructure, schools, and health care services. Simply put, traditional energy secures our prosperity and our children’s future.

In fact, our industry already contributes nearly $70 million a day to the federal government in taxes, rents, and royalties. Moreover, oil and natural gas income tax expenses (as a share of net income before income taxes) has averaged nearly 40 percent, compared to 25.8 percent for other S&P industrial companies.1 According to the non-partisan National Conference of State Legislatures, severance and production taxes in some states contribute nearly 40-50 percent of total tax collection. At the state level, oil and gas tax revenues are typically deposited into a general fund. Those funds are used not only to keep government programs running but to fund conservation or environmental cleanup projects and distribute portions of the collected taxes to local governments. Additionally, some states reserve a portion of the collected taxes for permanent funds, whose earned interest can help balance state budgets.2

And apart from the revenue generated and thousands of direct jobs created by traditional energy, “America’s oil and natural gas industry supports 10.3 million jobs in the United States and nearly 8 percent of our nation’s Gross Domestic Product.”3 According to data from the Texas Independent Producers & Royalty Owners Association’s latest state of energy report, the U.S. oil and gas industry employed 902,223 professionals in 20204 – nearly one million jobs that could be lost in the next few years if the budget package is passed as currently proposed.

While we recognize the important contributions renewable energy sources play as part of a total energy mix, traditional energy sources will continue to power our nation – and the world – for years to come. Now is not the time to hamstring the American economy with overreaching proposals that will lead to irreversible harm to our infrastructure and ability to provide hard-working Americans with the domestic energy production we need.  These actions will simply force America to rely on adversarial nations with questionable environmental records to satisfy our vital energy needs.

Moreover, these budget policy proposals targeting specific industries are not just misguided but will cost our nation dearly as most of the money to fund these measures will be borrowed. According to fiscal projections from the non-partisan Congressional Budget Office, “the federal budget deficit equals $3.0 trillion in fiscal year 2021 and averages $1.2 trillion per year over the 2022–2031 period, under the assumption that existing laws governing taxes and spending generally remain unchanged. Because of those large deficits, federal debt held by the public is projected to reach 103 percent of GDP at the end of fiscal year 2021 and 106 percent of GDP, the highest level in the nation’s history, in 2031.”5 Adding $3.5 trillion of borrowed money to our country’s debt is not only fiscally unsound but imperils our future.

While this ever-growing budget package contains many policies that will harm our nation, we strongly oppose specific proposals that include rollbacks or elimination of long-standing, common industry tax treatments that promote domestic energy production, such as: 

  • Intangible Drilling Cost Deductions
  • Percentage Depletion
  • Amortization of Geological and Geophysical Costs
  • Marginal Well Tax Credit
  • Passive Loss Exception

The proposed budget also includes costly new taxes and fees which would entirely upend recognized industry practices affecting energy production and landmen, including:

  • Increasing the onshore royalty rate up to 20%
  • Raising the minimum bid fee per acre
  • Mandating royalties be paid on extracted methane
  • Cutting federal lease terms to 5 years
  • Imposing idle well fees
  • Increased rental rates to $100/acre
  • Imposing a new $500 billion methane and greenhouse gas tax on domestic producers envisioned as part of S. 645, known as the Methane Emissions Reduction Act of 2021.

To make the budget plan even more damaging, on September 9, the House Committee on Energy and Commerce reported their proposal to remove natural gas as a clean power source
for electric utility generation in order to meet certain climate goals by 2030.6 This radical idea is not only unrealistic but implausible   Even the Biden administration’s own U.S. Energy Information Administration still claims that “Natural gas has many qualities that make it an efficient, relatively clean burning, and economical energy source.”7 Proposals like these not only represent an unwanted shift in legislative priorities, but will irreparably damage our country and standing in the world.

With the 2022 election cycle upon us, I strongly urge you to vote no on any budget package containing provisions specifically targeting the traditional energy industry with misguided fees, taxes, or punitive measures intended to hamper or penalize the industry and our country. This will only put our nation’s energy security at risk while also burdening the American people with even more inflationary debt at the time we are emerging from a global pandemic.

Respectfully,

James T. Devlin, CPL
President
American Association of Professional Landmen

 

FOOTNOTES

1 Taxes, Energy and the Economy; American Petroleum Institute (API); https://www.api.org/news-policy-and-issues/taxes

2  State Oil and Gas Severance Taxes; National Conference of State Legislatures (September 6, 2018); https://www.ncsl.org/research/energy/oil-and-gas-severance-taxes.aspx

3 Oil & Natural Gas Contribution to U.S. Economy Fact Sheet; API; https://www.api.org/news-policy-and-issues/taxes/oil-and-natural-gas-contribution-to-us-economy-fact-sheet

4 How Many US Oil Jobs Were Lost in 2020? (Rigzone; February 8, 2021); https://www.rigzone.com/news/how_many_us_oil_jobs_were_lost_in_2020-08-feb-2021-164551-article/ 

5 CBO’s Updated Budget Projections (Congressional Budget Office; August 5, 2021); https://www.cbo.gov/publication/57403

6 Natural gas blocked from Democrats' clean electricity plan (Washington Examiner; September 9, 2021); https://www.washingtonexaminer.com/policy/energy/natural-gas-blocked-from-democrats-clean-electricity-plan

7 Natural Gas Explained (U.S. Energy Information Administration; September 24, 2020); https://www.eia.gov/energyexplained/natural-gas/natural-gas-and-the-environment.php