American? Bush just screwed you out of $28 billion in Oil Royalties

[AdD 1]

NYT: Bush's $28 billion giveaway to oil companies
by Jerome a Paris

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The oil is going, the oil is going!...

At a time when all oil producing countries are increasing their tax take to capture some of the increased value of the oil production (even the UK has recently increased the main tax rate from 40 to 50%), the Bush administration is busy doing the opposite. Recent executive decisions, and smart use by oil companies in lawsuits of ambiguous wording of the applicable laws, threaten to leave up to two thirds of Gulf of Mexico gas production paying no taxes, at a loss to taxpayers of $28 billion, according to the New York Times.

Let me summarise the main points of that fairly long and complex article.

- in 1995, the Clinton administration gave its support to a new programme exempting from royalty payments (usually, 12%) new offshore drilling for oil or gas in deep water, up to a given volume.

- One mistake was made - that of not capping the hydrocarbon price for which such incentive was available (but at least the Clinton administration had the partial excuse that oil prices were then low and not expected to go up).

- A deceptive evaluation of the cost of that measure was made, as it counted only the first 5 years of exemption in the cost, when fields usually take that long, if not longer to be developed. The cost of the exemption was thus counted as almost zero instead of its real cost over the years.

That's the Clinton legacy. The cost of that is not assessed by the NYT, but they mention that it applies to one sixth of Gulf of Mexico production, which would mean, in the current environment, about 100m$/year. But we now move on to the Bush years:

- in early 2001 (not wasting any time), new incentives were provided for shallow water producers (i.e. something easier to do). Gale Horton did put a threshhold limit, but it was then seen as an extremely high prices (5$/mbtu limit, compared to the 2-3$/mbtu wholesale price then prevalent in the North American market). And in 2004, when gas prices had increased, the threshhold level was also increased, to an extravagant 9.34$/mbtu;

- in 2003, the oil industry successfully sued the administration about an interpretation of the law: the volume limit was deemed to apply per lease, and not per hydrocarbon field. Knowing that you typically have 3 leases per field, that decision immediately tripled the cost in lost royalties. Now the Bush administration cannot be blamed for the poorly worded 1995 law, but it then did nothing to change it;

- the most recent Energy Bill, passed last summer, extended and confirmed all the royalty exemptions, and added a few other sweeteners.

And now, some oil companies are trying to get rid of some of the caps on royalty relief that still exist on the rest of the offshore oil&gas production (the article is not clear on what these caps are, I'll try to investagate further). That would allow up to two thirds of oil&gas production in the Gulf of Mexico to be tax exempt...

And yet production is down, shortages loom, and prices have skyrocketed. And we all know where oil profits are. I don't buy accusations of price gouging, but this is waaay far more effective for the oil companies, and much more discreet.

Hey, it's only a couple of months of War in Iraq, so it's not that much.
http://www.energybulletin.net/14394.html

Nice, that's going to look good on Big Oil's bottom line

Life is ez
On the dz
Every jumper's dream
3 rigs and an airstream

[JohnRich 4]

Quote

a new programme exempting from royalty payments (usually, 12%) new offshore drilling for oil or gas in deep water, up to a given volume.

Do you want to encourage new oil exploration and production, or do you want to pay $20 per gallon for a more limited supply of gasoline?

[kelpdiver 2]

come on, John. At $60/barrel, this is corporate pork.

[billvon 2,426]

>Do you want to encourage new oil exploration and production, or do
>you want to pay $20 per gallon for a more limited supply of gasoline?

Why John! Surely you are not encouraging a socialist, government-mediated management of pricing by giving favored industries a tax break! $20 per gallon is a far better incentive for companies to find more oil than all the tax breaks in the world. (And long before it gets to $20 a gallon, the gas station here that's selling E85 for $3 a gallon is going to make some farmers and distillers very, very, very rich.)

[rushmc 18]

Dam, and we all know those would be costs NOT passed through to the consumers

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[kelpdiver 2]

free money doesn't translate to a "cost"

You recall last year they were reporting record profits, yes? Interesting how quickly the price of gas dropped during the hearings in DC - usually the decline is a long slow decline and the increases are a big spike. Like the one this month.

[rushmc 18]

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free money doesn't translate to a "cost"

You recall last year they were reporting record profits, yes? Interesting how quickly the price of gas dropped during the hearings in DC - usually the decline is a long slow decline and the increases are a big spike. Like the one this month.

I am always amazed at those that see conspiracy in everything. And Besides, the "record" profits you speek of amounted to a 10% return (aprox) on thier investment. The "record" profits may have been the highest amout of money but it dam sure not the highest return a company has seen.

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[kelpdiver 2]

we see a lot of price manipulation in California.

Spin it how you like, 36B in profit is a shit load of money for a single year.

At the very least, it's evidence that taxpayers don't need to be giving free money to oil. Consumers can pay at the pump directly.

[AdD 1]

When your country is running twin deficits of epic proportions, every billion counts, or maybe it doesn't. Fiscal responsibility isn't part of the Rep. platform these days.

Life is ez
On the dz
Every jumper's dream
3 rigs and an airstream

[Swoopyswoop 0]

Hey I missed something here,
what did the shallow water producers and horton have in common? I realize what Gale did however Im confused as to what it has to do with the story?

Im CONFFFUUUSSSSEEEEDDDDDDD

"when I die, I want to go like my grandfather while im sleeping, not like the passengers riding in the car with me
Swoopster
A.S.S. #6 Future T.S.S holder

[rushmc 18]

Quote

we see a lot of price manipulation in California.

Spin it how you like, 36B in profit is a shit load of money for a single year.

At the very least, it's evidence that taxpayers don't need to be giving free money to oil. Consumers can pay at the pump directly.

I am not the one doing the spinning ........

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[JohnRich 4]

Quote

>Do you want to encourage new oil exploration and production, or do
>you want to pay $20 per gallon for a more limited supply of gasoline?

$20 per gallon is a far better incentive for companies to find more oil than all the tax breaks in the world.

The difference is, giving them the tax break before supply gets scarce, can stave off the shortage, and keep prices low for consumers (that's us).

If you wait until the price is $20, then we consumers are already being hurt like hell, and with the lead time on new drilling, we're screwed for years. And that won't necessarily give the oil companies a windfall with which to do exploration, because demand will go way down. You can't assume that gallons of consumption would stay the same, at $20.

We need to do what we can now to find new sources of oil.

[billvon 2,426]

>The difference is, giving them the tax break before supply gets
>scarce, can stave off the shortage . . . .

There is nothing anyone can do to stave off the shortage. We are running out of cheap oil, and all the tax breaks in the world will not change that.

>If you wait until the price is $20, then we consumers are already
>being hurt like hell . . .

Gas will eventually be $20; you can bet on it. In the interim it will rise slowly as supply dwindles. This rise in price is the best possible incentive for oil companies to keep drilling, because the stuff they are drilling makes them more and more money.

That way, the people who use the oil pay for it, and the people who don't use the oil don't have their taxes used to support those who do.

>We need to do what we can now to find new sources of oil.

Pointless. We are running out of oil. It's not a lack of drilling, it's a lack of OIL that we are facing. If you run out of money, it's silly to keep digging through your pockets hoping to find one more dime. Much better to get a job (or in our case get a new source of energy.)

While we are doing that, we'll be running on the oil we have left - and we best make it last as long as possible. Therefore, incentives that get people to save oil are better than incentives that try to get oil companies to use everything that's left as rapidly as possible. And allowing prices to rise naturally, without massive corporate tax breaks, is the way to do that.

[cloudseeker2001 0]

bottom line is our government has been hijacked by big business. A small group of people are making big money of the American people.

"Some call it heavenly in it's brilliance,
others mean and rueful of the western dream"

[JohnRich 4]

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There is nothing anyone can do to stave off the shortage.

You are such a fatalist...

Quote

While we are doing that, we'll be running on the oil we have left ... Therefore, incentives that get people to save oil are better than incentives that try to get oil companies to use everything that's left as rapidly as possible.

Doing nothing to increase the short-term supply is wrong. There are things like sand-oil which are unprofitable at $2.00 per gallon, but which can be tapped as prices rise. Yes, we need to wean ourselves off of oil in the long term. But meanwhile, we still have a problem. And doing nothing, is not the correct option. That just leads us much quicker down the road to doom.

[billvon 2,426]

>You are such a fatalist...

I can just see the argument we'd have if we were ever driving somewhere.

"John, you're gonna run out of gas. We have to stop and get more gas."

"Nonsense! We're not 'running out of gas.' I've had this car two months, and driven it over 200 miles, and I've never, ever run out of gas!"

"But you will. It doesn't last forever."

"Man, you are such a depressing fatalist! Let's just see what happens."

"It's like 11pm and we're in the middle of nowhere! Why not stop now, while we have gas, and get some more?"

"I'll believe this 'running out of gas' thing when I see it! In the meantime, no reason to do any different."

>Doing nothing to increase the short-term supply is wrong. There are
>things like sand-oil which are unprofitable at $2.00 per gallon, but
>which can be tapped as prices rise.

That's exactly right. And if we do NOTHING to increase short-term supply, gas prices will rise, tar sands will become economically feasible, and they will be developed by enterprising businesses. If you pump money into massive drilling projects by big oil, that will keep prices artificially low for a while, and those tar sands won't be touched until it's too late.

We always talk about how great capitalism is, and how we're not a socialist country. Let's see if we mean it.

[nacmacfeegle 0]

"There are things like sand-oil which are unprofitable at $2.00 per gallon, but which can be tapped as prices rise."

Yeppers John, shale oil sand is really nasty stuff though, other things also exist to squeaze existing reservoirs include gas lift, water injection, electro submersible pumps, multiphase pumps, jet pumps, and a whole pile of gismos that are still kinda secret.

As the price of oil goes up, more and more previously uneconomic prospects and methods to exploit them become viable.

For example I am currently working on a project to extend an oil field life by twenty years on what was previously seen as an asset in its twilight years (its already way past its original design life).

What we are also seeing in the North Sea is the emergence of leaner operating companies that can exploit reservoirs at margins way below the profit expectations of the majors like Shell, Mobil, Chev Tex etc. We are also seeing many more aliances to bring onstream relatively minor fields by combining license and operating agreements. So we see, say, Texaco producing small subsea fields onto say CNR rigs, then into a BP pipeline.

The future is not as dark as many people think.

--------------------

He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. Thomas Jefferson

[JohnRich 4]

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I can just see the argument we'd have if we were ever driving somewhere.

"John, you're gonna run out of gas. We have to stop and get more gas."

"Nonsense! We're not 'running out of gas.' I've had this car two months, and driven it over 200 miles, and I've never, ever run out of gas!"

That's a cute scenario, but you have the roles reversed. I'm the one arguing that we need to stop and get more gas, and you're the one saying that if just do nothing everything will take care of itself. The real conversation would go something like this:

John: I'm going to stop at the next station for gas, we're running low and need a fill-up."

Bill: Well, if you had just installed those solar panels on the roof like I told ya', then you wouldn't have this problem. And if you just keep driving and run out, sooner or later the price of gas will go up, then there will be more exploration, followed by more gas supply, and sooner or later someone will build a new gas station nearby where we're stranded. And then we can get a fill-up!"

[JohnRich 4]

Quote

Yeppers John, shale oil sand is really nasty stuff though, other things also exist to squeaze existing reservoirs include gas lift, water injection, electro submersible pumps, multiphase pumps, jet pumps, and a whole pile of gismos that are still kinda secret.

The future is not as dark as many people think.

Correct. I recall looking in my Dad's college geography textbook once, from the 1940's, and saw that it predicted only another 50-years worth of oil supply. Obviously, that turned out not to be true. Then when I look at my own college geography book, it also says there is only a 50-year supply remaining. But with the new technology always emerging, such as you mention, that prediction is also already being proven untrue.