Just how much in the way of energy policy will President Barack Obama and Vice-President Joe Biden accomplish at the outset that will benefit the US oil and gas industry?
Or should that read: How little?
Perhaps surprisingly to some, I found a few items in the Obama-Biden energy policy position paper that, at first blush, are seemingly designed to benefit the oil and gas industry. Or are they? Don’t break out the champagne just yet.
In the Obama-Biden position paper, the then-candidates noted that while “the US cannot drill its way to energy security…US oil and gas production plays an important role in our domestic economy and remains critical to prevent global energy prices from climbing even higher.”
They then reiterate their opposition to opening up “currently protected areas” while citing several “key opportunities” to support increased US production of oil and gas. Among these are the Bakken shale in Montana and North Dakota, Barnett shale in Texas and Fayetteville shale in Arkansas, and National Petroleum Reserve-Alaska. An Obama policy objective would “set up a process for early identification of any infrastructure obstacles/shortages or possible federal permitting process delays to drilling” in these regions.
Whew! What a relief. Now we can dispense with all that fierce opposition to drilling in Texas. Especially the Barnett shale—you know, where opposition to drilling is so intense that the industry is readily getting permits to drill practically on the freakin’ tarmac at DFW. Puh-leeze.
Another one of those “key opportunities” is the previously reported “use it or lose it” approach to existing leases.
This bullet point subtly revives the hoary old chestnut that the Democrats used to combat the Republicans’ “Drill, baby, drill” mantra to end offshore drilling bans during the election campaign. Speaker of the House Nancy Pelosi invented the ridiculous canard that “Big Oil” was sitting on acreage that could somehow magically double oil production from US federal leases to 4.8 million barrels per day but for the fact that these evil plutocrats were suppressing domestic production to keep oil prices high.
According to the position paper, the Obama administration “will require oil companies to diligently develop these leases or turn them over so that another company can develop them.”
Quick show of hands, please, from all of you Big Oil types sitting on all of these hydrocarbon riches while oil was above $100 per barrel. Oh, wait. Independent producers—which have on average about 20 employees—drill 90% of the nation’s wells and produce 68% of domestic oil and 82% of US natural gas. So I guess that, since it is Big Oil that’s sitting on all of this unproduced oil and gas, it must underlie a tiny fraction of the federal acreage in question. Just where is this Prudhoe Bay-sized accumulation? And where can I buy the stock of the megagiant company that is suppressing its development until oil bounces back to $200 per barrel?
No, instead Big Oil sits around shelling out billions of dollars each year to acquire and maintain leases just to hoard them while they blithely liquidate themselves by not replacing production—or so it goes in the Obama-Pelosi fairy tale. I’m still trying to figure out where the “key opportunity” is here.
And, finally, to encourage all of this drilling that could and should be occurring, Obama said he “will require oil companies to take a reasonable share of their recording-breaking windfall profits and use it to provide direct relief worth $500 for an individual and $1,000 for a married couple. The relief would be delivered as quickly as possible to help families cope with the rising price of gasoline, food, and other necessities. The rebates would be fully paid for with 5 years of a windfall profits tax on record oil company profits.”
The jawboning window for a windfall profits tax is pretty short if oil prices don’t rebound sharply between now and 4th quarter earnings reports. That “windfall” won’t look so convincing then.
During the campaign, Obama also claimed that his opponent, John McCain, “will give more tax breaks to Big Oil,” cutting their taxes by nearly $4 billion.
As it turns out, that number relates to McCain’s proposal to cut the corporate tax rate—second highest in the developed world—to 25% from 35%. The Obama campaign, apparently borrowing Speaker Pelosi’s crackerjack energy policy analyst, figured out what the tax savings would be under McCain’s plan to the five biggest US oil companies, based on taxes paid in 2007 to the federal government on income from US operations.
What Obama neglects to mention is that McCain’s proposal would have applied to all US corporations, and McCain’s intent was to stem the flight of businesses and jobs overseas. There was no proposed tax break targeting oil companies.
So the question of the day for President-elect Obama is: With the imposition of the 5-year windfall profits tax, the foregone corporate tax reduction, the oil and gas price collapses, and tighter, costlier credit in today’s economy—where will the cash come from for oil and gas companies to fund these “key opportunities” to boost domestic oil and gas production?
You thinking “bailout” too?