The President’s FY 2011 budget contains hundreds of billions of dollars in new taxes on energy production and consumption. These taxes will result in higher prices at the pump, increased utility bills and less American energy jobs as companies flee the U.S. to avoid these industry crippling taxes. The full energy tax booklet is available here.
One of these changes is repealing the marginal well tax credit which will result in billions of dollars of new taxes.
Marginal oil wells are those which produce 15 barrels of heavy oil or less per day or those that produce less than 95 percent water and 25 barrels per day or less. Marginal gas wells are those which produce 90 Mcf or less in one day.
The tax credit is $3/barrel for the first three barrels of daily production and $0.50 per Mcf tax credit for the first 18 Mcf of natural gas. The tax credit phases in and out in equal increments as prices fluctuate. Price triggers are based on average annual wellhead prices.
The FY 2011 Administration Budget, approved and submitted by President Obama, calls for a full repeal of the tax credit for oil and gas produced from marginal wells.
The benefits of this tax credit to smaller producers cannot be overstated. The Department of Energy estimates that the repeal of this tax credit will cost 140,000 barrels of oil per day or a loss of $10.5 million per day. Despite the smaller production from these wells, there are an estimated 650,000 marginal oil & gas wells in the United States employing millions of people. Raising taxes on energy production will cost jobs and increase the price of energy.
America’s marginal oil wells produce the amount equivalent to 50 percent of the amount imported from Saudi Arabia – increasing this tax credit will hurt domestic supply.
Repealing this tax credit without offsetting tax relief is a net tax increase and a Taxpayer Protection Pledge violation. This tax credit is not a spending program, and eliminating it is not a reduction of government spending—it is a tax increase. 34 Senators and 172 Congressmen have signed the Taxpayer Protection Pledge. In so doing, they promised to their constituents and the American people that they would “oppose any net reduction or elimination of deductions or credits…”