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44 comments on Legislative Updates on The Energy Bills: Today is the Day, Make Your Voice Heard

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oilmanbob on August 2, 2007 - 10:34pm Permalink | Subthread | Comments top

About the "tax" on federal offshore leases.

I'm a petroleum landman, I negotiate oil and gas leases on a contract basis, so I have a little expertise in this area.

All oil and gas leases except these federal leases have a royalty-a percentage payment of the production payable to the landowners. Until about 1950, the standard was 1/8th, or 12.5%. Royalties have risen over the years, and some onshore in good producing areas are as high as 30%, although most average around 3/16ths, or 18.375%.

In order to stimulate offshore drilling, the US Minerals Management Service waived the royalties due the goverment on certain offshore leases in the Gulf, but neglected to put in a clause to escalate the royalties when the leases became profitable to the operators. I opposed this when they were granted, because I thought that the Federal Government should not give away the people's interest, and I thought that it subsidised offshore gas at the expense of onshore gas prospects.

I still think its unreasonable and unfair to give away the gas of the people to a group of operators. I support Speaker Pelosi's efforts to change the leases , and collect back royalties. At a minimum, the operators should pay at the minimum Federal lease royalty rate of 1/6th, plus interest for all the gas produced since they reached pay-out on each lease. And if they refuse to pay, the operators should not be allowed to purchase new leases or participate in wells in or on federal waters and lands.
Bob Ebersole

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oilmanbob on August 4, 2007 - 7:55am Permalink | Subthread | Parent | Comments top

Another tax item:

For many years the IRS has allowed the majors to count royalties paid to a foreign government as taxes and deduct them dollar-for-dollar from their US tax obligation. This allows them to shelter their profits from petrochemicals, refining and convenience store sales, so they owe less tax than any other competing businesses who do not have foreign oil operations.

Its purposely confusing, like much of the tax code. My thought is that the first 25% of the gross product sales is in fact a royalty, and should be deducted from the gross sales, but any percentage over 25% is a tax paid to a foreign government and should be deducted dollar-for-dollar from their US tax obligation.

The last item is a basic issue of equity in the tax code in general. Congress has allowed companies to move their headquarters overseas where their operations dodge taxes. We need an alternative minimum tax for all overseas operations set at 20% of their gross US sales. If they have a problem with that, let them move back to the US and file a regular, audited tax return or not do business in America if they refuse. And, thst include foreign multinationals. They need to do 100% of their US business from a US subsidiary where their profits are transparent.

Bob Ebersole

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Robert Rapier on August 4, 2007 - 9:10am Permalink | Subthread | Parent | Comments top

For many years the IRS has allowed the majors to count royalties paid to a foreign government as taxes and deduct them dollar-for-dollar from their US tax obligation.

Well, Bob, those royalties are taxes. Why shouldn't they be deductible? If they aren't, then what you are doing is double-taxation. And that isn't specific to the oil industry. Other industries that have foreign operations are allowed to deduct their foreign taxes ("sheltering" income they made in the U.S.) I, as an individual, can deduct foreign taxes for any investments I have overseas ("sheltering" the income I made in the U.S.)

As far as the royalties/taxes distinction, if I pay money to a foreign government for the ability to remove oil from their country, then that is a tax.

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44 comments on Legislative Updates on The Energy Bills: Today is the Day, Make Your Voice Heard

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