Energy

Angelle says cutting incentives is wrong way to go

Louisiana Department of Natural Resources (DNR) Secretary Scott Angelle said today that the push by the White House to end long-standing tax incentives as part of the 2011 federal budget is a push toward higher energy prices, greater dependence on foreign sources of energy and fewer jobs in the state and nation.

 “Even with the existing tax incentives to promote domestic energy exploration and production, our country still has to import almost 60 percent of our oil,” Angelle said. “If we raise the costs and risk of domestic production, that imbalance will only grow worse and further threaten our energy security. That’s the wrong direction.”

Angelle said that the call to get rid of tax incentives that help investment in oil and natural gas exploration and production could put $36 billion in incentives at stake in the next decade, threatening the domestic energy production and exploration at a time when the national economy is still only beginning its recovery from recession.

Public policy that allows the expensing of intangible drilling and development costs has been critical to the financing of energy exploration for almost a century, by helping companies manage the high financial risks involved in finding oil and natural gas. That proposed elimination could mean reducing new drilling in this country by 25 to 40 percent at a time when half of U.S. natural gas is coming from wells drilled in only the past four years.

Cutting back on drilling and domestic production will mean a decrease in supply and subsequent increase in cost for fuel. Every 50-cent increase in the price of gasoline means an added cost to the nation’s drivers of $1.4 billion a week.

“If we damage the economic structure that has allowed these new discoveries and sources of traditional energy we never knew we could reach before, then our potential for greater

energy independence will remain buried underground,” Angelle said.

Also under attack in the federal budget proposal are incentives such as percentage depletion for oil and natural gas producers, a big factor in continuing to operate marginal wells – older wells that no longer produce at the high levels they did in the earlier years of operation.

Three quarters of the nation’s natural gas wells are marginal wells, and they produce 12 percent of U.S. natural gas. About 85 percent of U.S. oil wells are marginal wells, and they produce about one-fifth of U.S. oil.

Angelle said that if the intent behind the proposed elimination of tax incentives is to target the major multi-national oil and natural gas companies, then it misses the mark.

“These tax proposals are a particular threat to our smaller independent producers. That means it’s a threat to the producers who drill 98 percent of the wells in Louisiana, and the producers who develop 90 percent of the wells in this country,” Angelle said. “These are small business owners, not corporate giants.”

In Louisiana, domestic energy exploration and production is crucial to the state’s economy and provides direct employment for more than 50,000 people. As recently as 2006, a study showed that the energy sector accounted for at least 300 jobs in 26 Louisiana parishes – and at least 1,000 jobs in 14 of those.

Many of those jobs could be at risk if the tax incentives that support energy exploration and production are eliminated – from high-end jobs such as geologists and executives to good-paying blue-collar jobs such as welder, pipefitters, and workers on rigs and in fabrication yards, Angelle said.

In Lafayette Parish, in the U.S. 90 corridor, more than 15,000 jobs were tied to the energy sector, with more than 10,000 jobs tied to the energy sector along the rest of the U.S. 90 corridor in Iberia, St. Mary and Terrebonne parishes.

On the southeastern side of the state, more than 6,000 jobs are tied to the energy sector in the parishes of Lafourche, Jefferson, Plaquemines and St. Bernard.

A study on the impact of energy production, refining and the pipeline industry in the state shows that those industries support more than $70 billion in sales in Louisiana firms, generates more than $12 billion in household earnings for Louisiana citizens and supported an additional 320,000-plus jobs in the state.

Counting drilling in federal waters off Louisiana’s coast, Louisiana is the No.1 domestic producer of crude oil and second highest producer of natural gas – the majority of which

comes through the La. 1 corridor through Port Fourchon.

Exploration and production in the Gulf of Mexico – most of which is done off Louisiana’s coast – accounts for 30 percent of the domestic oil supply, and Port Fourchon services half the rigs operating in the Gulf.

Louisiana also ranks first in the nation in natural gas processing capacity and second in petroleum refining capacity – critical industries not only for the state, but the nation.

The concentration of refineries in the southeast portions of the state – in the parishes of St. James, St. John the Baptist, St. Charles, St. Bernard and Plaquemines – eight refineries operate with a combined capacity of about 1.5 million barrels a day. With the exception of the Motiva Enterprises operation in Convent – each of those depends on crude oil for 30 percent or more of their input.

Angelle said that recent estimates show that the oil and natural gas industry supports more than 9 million jobs in the U.S. as a whole, or 5.2 percent of total U.S. employment, and oil and natural gas industry operations and capital investment contributed more than $1 trillion to the U.S. economy.

“At a time when new discoveries and expansion of our domestic energy industry could mean cleaner fuel, more available fuel and more jobs tied directly and indirectly to exploration and production, we should not weaken the economic constructs that support our energy and job security,” Angelle said.