Don’t Hurt the Little Guy

Independent oil producers fight against possible repeal of subsidies
By Kris Bevill | October 18, 2011

Texas-based Breitling Gas & Oil Co. is a small independent upstream exploration and production company. CEO Chris Faulkner wants to remind the Obama administration that there are more than 10,000 small companies like his in the U.S. that would be negatively impacted by a decision to repeal petroleum subsidies. “Everybody takes advantage of these tax incentives if they’re available, but if you look at the capital available to Big Oil and compare that to the capital available to a small independent, a large portion of the capital they are re-investing back into their business comes from two major components that the administration is targeting,” he says. “The first is the deduction for intangible drilling costs and the second is the depletion allowance. Both of those things are capital initiatives that small oil and gas companies use to power their business.”

According to Faulkner, the federal government should continue to incentivize oil and gas production because it is an industry with a lot of risk. The oil industry is also a huge job creator and booster of the economy, he says. He also points to the less-than-ideal situation of the U.S. importing much of its oil from unfriendly countries and says the feds should open up new opportunities for domestic fuel production. 

Replace “oil” with “ethanol” and the argument sounds very familiar. Except for the part where the subsidies stay in place. Unlike oil, the ethanol industry has committed to the expiration of its main tax incentive in December and says it’s only fair that the petroleum industry should give up some if its incentives as well. “Given the state of the U.S. economy and taking oil industry profits into consideration, especially profits from the big oil companies, it’s a shame that they have been unwilling to step up to the plate like the ethanol industry did and offer to sacrifice some of their tax subsidies,” says Brian Jennings, executive vice president of the American Coalition for Ethanol. “Congress ought to summon the courage to repeal Big Oil’s unnecessary tax subsidies and work with the ethanol industry to enact policies providing consumers with meaningful fuel choice.”

The American Jobs Act, which was introduced by President Barack Obama to Congress in September, would repeal a host of oil subsidies, but Faulkner says he is confident Congress won’t pass them. 

—Kris Bevill