[Congressional Record Volume 156, Number 88 (Monday, June 14, 2010)]
[Senate]
[Page S4876]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         OIL AND GAS PRODUCTION

  Mr. INHOFE. Mr. President, there doesn't seem to be anybody else 
here, so I will make one comment about amendments coming up that are 
closely related to the subject we just discussed. It is Sanders 
amendment No. 4318. I knew this would happen--that the bill would be 
used to pass another agenda. Sure enough, that is what is happening.
  The Sanders amendment is aimed at stopping oil production altogether. 
It does three things: It repeals expensing for tangible drilling costs, 
it repeals percentage depletion for marginal oil and gas wells, and it 
repeals the manufacturing deduction for oil and gas production.
  I predicted the spill in the Gulf of Mexico would be used as an 
opportunity to shut down domestic oil and gas wells owned and operated 
by independent oil and gas producers throughout the country. That is 
what is happening with this amendment.
  Repealing expensing of intangible drilling costs eliminates the 
ability to expense intangible drilling and development costs, called 
IDC, which would force at least a 25- to 30-percent reduction in 
drilling budgets, leading to lost jobs, lost production, and higher 
prices for consumers. We have not talked much about higher prices to 
the consumers.
  With cap and trade--if they were successful in that--we would feel 
that in a matter of weeks. Despite the rhetoric, IDC expensing is 
firmly grounded in sound accounting practices and principles, and it 
has been in the Tax Code since 1913. IDC expensing is similar to 
expensing by other companies for technology, wages, and fuels which 
other industries expense for operations. So they are singling out the 
oil and gas industry, just willfully, to stop them and put them out of 
business.
  Likewise, since 1926, small producers and millions of royalty owners 
have had the option to utilize percentage depletion to both simplify 
and account for the decline in the value of minerals produced from a 
property. It is complicated, but percentage depletion recognizes that 
oil and gas reservoirs are depleted by production, so it is the amount 
which small producers can expense to reinvest in production. Percentage 
depletion is particularly important for the production of America's 
over 600,000 low-volume marginal wells.
  I am particularly interested in this because in my State of Oklahoma 
we have mostly marginal well production. Marginal wells produce less 
than 15 barrels a day. It is a smaller type of production. The average 
marginal well produces barely two barrels a day--we have been talking 
about millions of barrels in the gulf--yet, cumulatively, they account 
for nearly 28 percent of domestic production in the lower 48 States.
  Since every on-shore natural gas and oil well eventually declines 
into marginal production, the economic lifespan and corresponding 
production of nearly all natural gas and oil wells would be reduced 
through the elimination of percentage depletion.
  Finally, Congress has already frozen the manufacturers' tax deduction 
specifically for only oil and natural gas companies less than 2 years 
ago. All other domestic manufacturing can deduct income at a higher 
rate than oil and gas companies. Repealing the entire reduction for oil 
and gas companies is only targeting oil and gas production, and it 
shows what the motivation is.

  We have to remember a couple of very important points when we seek to 
target certain industries for tax treatment. First, oil and gas 
companies employ Americans and fund our communities. Oil and gas 
companies employ over 9 million people in the United States. 
Approximately 3 million land and mineral owners from coast to coast are 
the beneficiaries of monthly checks from the royalties produced on 
their properties. Many of these individuals are small property owners--
very small--and some are just small family farms. In fact, just today 
the National Association of Royalty Owners ranked this as its No. 1 
concern on its Web site. That was today.
  They say the Sanders amendment is their No. 1 target. These are not 
rich people. They are small farm owners and landowners. States annually 
collect billions of dollars in oil and gas excise and severance taxes 
that furnish critical funding for roads, schools, and law enforcement. 
By punishing America's oil and gas industry, this amendment only puts 
unemployment and State and local funding in peril.
  Secondly, punishing our oil and gas industry only makes us more 
dependent on foreign sources of energy. After President Jimmy Carter 
imposed a windfall profit tax on the oil and gas industry in 1980, the 
nonpartisan Congressional Research Service later determined that its 
results were hugely counterproductive, saying:

       The windfall profit tax reduced domestic oil production 
     between 3 and 6 percent, and increased oil imports from 
     between 8 and 16 percent. . . . This made the U.S. more 
     dependent upon imported oil.

  America's natural gas and oil companies are already paying taxes at 
the highest rates. Figures from the Energy Information Agency indicate 
that America's major oil producers already pay, on average, more than a 
40-percent income tax rate.
  The EIA also reported in December of 2009 that, on average, 53 
percent of the net incomes of oil and gas companies are paid in taxes 
compared to 32 percent from others in the manufacturing sector.
  Now is not the time to group the entire oil and gas industry together 
for punishment. Punishing the entire industry in the sledge hammer 
approach this amendment uses only increases the cost of energy for all 
Americans, and it makes us more dependent upon foreign countries to run 
this machine called America, as I often say.
  People say they don't want oil, gas, coal, or nuclear. Well, in the 
final analysis, how do you run the country without it? You can't. If we 
retard in any way the ability to produce oil and gas, it will make us 
more dependent upon foreign countries for us to drive this machine 
called America.
  With that, I yield the floor.
  The ACTING PRESIDENT pro tempore. The majority leader is recognized.
  Mr. REID. Mr. President, would the Chair be kind enough to have the 
bill reported.

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