I live in a portion of Texas where the main industry is oil and gas production. That is to say that our main income producing industry is either drilling, producing, maintaining or transporting oil and gas. Also producing the necessary water to drill wells, or water-flood near depleted wells.
On any given day over fifty one percent of the total drilling rigs running in the northern hemisphere of the Americas are drilling in Texas. Today the rig count in Texas is down by 11.3% thanks to an overabundance of natural gas as well as DOE and EPA restriction policies. Today there are 838 (land) oil drilling rigs operating in Texas. The state nearest to that count is Oklahoma with 194 (land) rigs running.
Today Texas will produce 2.139 million barrels of oil at a price of $96.08 per barrel for a total income of $205,515,120 million dollars, and that is for one day only!
At the current price that would amount to $75,013,018,000 Billion dollars annually!
A side note is required here: ‘All oil revenue in Texas, other than the ‘School Lands’ that was set aside at the founding of the Republic of Texas to finance schools, comes from privately owned land and is mostly drilled, produced and sold by either individuals, or small companies. Exon Mobil, BP, Conoco-Phillips and Chevron are all small potatoes in this state.
The annual oil production, in U.S. dollars, from Texas oil alone, is only (approximately) $11 Billion dollars less than the annual total industrial output of the ‘Peoples Republic of China’—exceeding third place Japan’s total ‘industrial output’ by slightly over $7.9 Billion annually.
President Obama continues to try to eliminate the oil business in the U.S. by both restrictions and taxes. A good example of the travesty of his ideology of taxing ‘Big Oil’ is to eliminate the ‘Depletion Allowance’. He calls it ‘Eliminating Big Oil’s Loopholes’.
By way of explanation; the cost of drilling a five thousand foot deep well today is approximately $1.75 Million dollars. This is a one-time CAPITAL INVESTMENT and as such is a ‘direct expense’ whether the well makes ‘pay’ or is a ‘dry hole’.
Should the well be an ‘oiler’, or ‘gasser’ the actual amount of recoverable resources are unknown. What IS known is the resources will not last forever. ‘Depletion’ is the USING UP of the resources as they are consumed. For this unknown amount of depletion of unknown resources the IRS allows the owner or the investor to to take a deduction of 15% annually of the GROSS INCOME of the well. Please note this is GROSS INCOME not NET INCOME!
Compare this with the capital investment of building a manufacturing plant or a shopping center. The investor may set his DEPRECIATION for the number of years of LIFE EXPECTANCY of the structure. This could be 10, 15, 20 or even 30 years.
If the owner selects twenty years as the optimum life of the structure, he may divide the total cost of the construction of the structure by 20 and that is the annual depreciation. This depreciation is a direct deduction from the owners total income PRIOR to taxes.
Do you EVER hear of anyone shouting for the removal of depreciation allowances on REAL PROPERTY?
Can anyone fail to see the hypocrisy here? Anyone notice the hue and cry of campaign mode pomposity in his call for removal of ‘BIG OIL’ loopholes in the oil producer’s taxes, while ignoring REAL PROPERTY TAXES? (No, I am not in the oil business.)
On the other hand Facebook.com recently announced that it had a net operating profit in excess of $1 Billion dollars last year.
How much tax did Facebook pay on that? NOT ONE RED CENT!
In fact, they received a TAX REFUND OF $449 Million dollars!
It is an interesting fact that the originator of Facebook, Mark Zukerberg is a friend of President Obama, and that Facebook contributed $100,000.00 Dollars to President Obama’s re-election campaign. I don’t suppose this ‘friendship’ and/or campaign contribution could have influenced the IRS in anyway in Facebook’s taxes and their tax return. Do You?
JUST SAYING, THAT’S ALL! Larry Camp