The Liars Point Their Dirty Fingers Again
It's a familiar scene. The Democrats and many Republicans summon top oil executives to televised PR events to score political points and threaten the oil industry. The televised part is for their reelection campaign to make their constituents think they are going to do something about high gasoline prices. The unseen part is the bribery and extortion part where lobbyists will go behind the scenes and hand out "Protection Money" to both parties to help limit the damage. This time however, the oil executives are not just rolling over. They have spoken up more forcefully than in a long time. When the politicians started talking about ending the subsidies to oil company's.....billions of dollars worth, I was scratching my head wondering "what subsidies?" This is the truth behind the lies of those self serving [I]"bast#*%os"[I]
Oil companies do not receive what is generally termed "Subsidiaries". Farmers get actual cash payments (taxpayer extracted money) to hold land out of production. I know a landowner who did not farm that was called up by his friend at the Agricultural Extension Office in Alice and told to come down and pick up his $9,000.00. That was in 1991. I don't know how much he has gotten since then. The milk industry has had subsides going on for decades in which the government buys excess production to keep prices up for the dairy farmers, then gives out milk, cheese, and other dairy products free to the so called poor. Your tax dollars go directly to automobile manufacturers for R&D on electric car and battery research. There are also many government employees working directly for private companies in R&D both in the auto and other green industries. Ranchers get cash to set aside land for environmental projects.
Universities and liberal professors get tax dollars to promote, teach and implement liberal, socialist and communist agendas. Unions are one of the few groups to profit from the downturn, getting billions of taxpayer money on the auto bailout while the bondholders were illegally shunted aside. The favored business and organizations get plenty of cash. Take GE for example whose CEO is head of Obama's economic board. Not only did GE have 15 billion in profits last year, but they paid zero taxes. A lot of that money was direct taxpayer cash for their investments in green energy. That includes taxpayers paying for "green air conditioners" sent all over the third world countries. It also includeds bailout cash when GE, because of its White House influence, was allowed to file some paperwork which in turn made GE Credit Corporation be deemed a "bank" and thus entitled to money. Those are real subsidies, and I am opposed to any corporation getting that. In fact, I think the idea of the Commerce Department is long outdated. That goes back to the founding of our country before America was even setteld. There were no airplanes, no interstate, no railroads, no automobiles, no radio or TV or sattlelites, E mail, internet, etc. The Commerce Department was one of the first established in order to promote trade between the states and abroad. We no longer need that and haven't for a long time. The Commerce Department is now used as a tool to restrict every kind of activity the liberals don't like and to provide taxpayer funded marketing around the world. Let the international companies pay their own way.
So what the politicians are calling subsidies to the oil companies are actually tax breaks. There is a difference. Lots of other companies across the spectrum from manufacturing to mining to service get tax breaks of one sort or another. That's what the lobbyists spend their protection money on. It is not direct or indirect cash payments that come from the 50 percent of Americans who DO pay taxes. The United States is near if not at the top of the list of the highest tax rates on corporations of all the industrialzed country's. The tax breaks are to encourage an activity that is necessary for our vital interests, or helps keep our economy humming along.
One of the so-called subsidies that has been in the news lately involves the Baaken Shale and other horizontal drilling projects that also involve fracing. If you believed the news media, including Fox News, you would think this was a new method. It's not. The first frac job I was on was in 1972, but our company, Alice Specialty, had frac tanks going back to 1965. What has changed over time is the lenght of the extended reach on horizontal drilling and the multistage frac treatments which have evolved and continue over the years. The so called subsidies to drill such wells is actually tax breaks or credits to make it economical to drill and develope such fields. One of our customers recently drilled a well not considered deep, but with all involved, it cost 8 million dollars. Horizontal drilling and fracing all came out of South Texas which has some of the world's most inhospitable drilling conditions downhole. The horizontal drilling and fracing techniques were first developed in drilling through "tight" sands. These are traps in which oil and or gas are located, but so tight they would not release the hydrocarbons in commercial quantities. Some of the sands are also only a few feet thick. By drilling horizontally through the sands, much more was exposed for production purposes, and then by pumping "frac sand" through perforations in the casing under extremely high rates and pressures, the tight formations are fractured and a porous drainfield of sand is left to keep the formations propped open so that the oil or gas can flow into the pipe for transport to the surface. The term "proppant" is also used for frac sand, although more for the heavier density manufactured sand rather than the naturally occurring round sand that comes from Ottawa and surrounding areas.
Our company was on the pioneer well that first started the horizontal drilling boom in 1988. We were also on many multistage fracs, but these were all done in oil or gas bearing sands, not shale. There have been so many developments since those days, that Oil and Gas exploration companies thought that maybe the time had come where oil and gas could be extracted from shales profitably. That's where the tax incentives came from, and now there are areas in the Dakota's, Pennsylvania and Virginia that are booming because of all the oilfield related activities. The rewards way outnumber the tax breaks, which are miniscule compared to what other companies get. And unlike ethanol production, the oil companies don't have to have monthy cash payments to keep the oil and gas in production. Us taxpayers have to pay out every month the shortfall it takes in producing ethanol so it can be added to gasoline without jacking up prices to cover the true cost.
The one thing that is confusing to just about everybody though is the oil depletion allowance. I'm not even sure of how this is handled now because I haven't looked into it for a long time, but basically the incentive is also a tax break based on the situation that as soon as the first barrel of oil is produced, the company is selling itself out of business. If they never drilled another well, then when the last barrel was produced and sold, the company would have nothing else to sell. This is unlike other businesses in America with such an enormous capital investments, and a huge risk/reward component.
When a company like General Motors, or GE or Coca Cola, or Walmart, Barnes & Noble and others decide to go in business they put together a plan, designs and then build their factories, warehouses, shipping facilities, retail outlets etc. It may take years or months depending on numerous factors and the type of business. When all this is in place, done and the business is going, there is an ongoing process of goods and or services coming in and going out the doors. As long as the business thrives and makes the right marketing decisions, they can go on indefinitely. In doing business, the capital investments are allowed to be written off over a period of years. The smaller investments such as computers, vehicles, light equipment are generally depreciated, or written off over a short term of five to eight years. The land, buildings and large manufacturing equipment are depreciated over thirty years. These are all standard business practices allowed and taken by almost all business in America. It is a basic tax principal in which the large capital expenditures are allowed to reduce taxes owed over a long period of time. With oil exploration and production companies though, that is not the case. Now bear in mind, I am not talking about refineries, gas stations, office buildings or anything like that. This refers strictly to the oil and gas producing properties where the business of the exploration and production companies orginate and is the single largest source of expenditure by far.
Few companies that drill for oil and gas have refineries or gas stations. That is left up to the few large ones. The vast majority are in it just to find oil and gas, then get it to the surface and sell it. They do NOT own the land. They do NOT own the minerals. Nearly every one has to hire out all the services they need and buy what they need for exploration and production from other companies. It is an extremely rare occurrence that an E&P company owns a drilling or workover rig or any other capital item that they would write off. If they go out of business, they have some production facilities on the surface they could sell, and a little pipe in the ground that could be blasted and pulled, but they are also liable for plugging and abandoning the well, and at that time, it is rare to have enough equipment at the surface to pay anywhere near the cost of that, so they have to maintain bonds and money set aside for P&A operations. Since the oil companies have to pay royalties to the landowner, and build roads and waterwells which they deed to the landowner, they have nothing to hold on their books for depreciation except some field vehicles and incidental personal property. It is a huge investment to find, lease land and drill for oil without even knowing whether you will find any. It would be like Ron pouring steel in his prop molds not knowing whether or not there would be a rough cast prop inside when he opened it. Not only that, but maybe it might be 60 or 70 percent he opened with not only no prop, but no metal to be salvaged for scrap or remelted.
That is where the oil depletion allowance comes in. It gives a tax break to a certain percentage of the production to offset drilling costs in order to encourage future drilling, just as the depreciation costs of building a factory to be amortized over thirty years will encourage the plant to be built.
In can be confusing and hard to explain, but that's how come the liars in congress can get away with it. Most of the news media is to stupid to understand. They never seem to find the right people to talk with and continue to go back to the same people everytime for their "facts". Kind of long, but I wanted to let you guys know that it isn't the oil companies responsible for the high gas prices, it's the District of Corruption in Washington. Obama dithering in the middle east has fueled the speculators, but keep in mind our Treasury Secretary and the Fed have led to a very weak dollar which causes the price to go up. And congress won't let us drill in Anwar while production on the North Slope is falling off. Obama defies the law and will not let deepwater drilling in the Gulf resume while he gives 2 billion loan to Petrobras for deepwater drilling, plus gives them a permit to put a million barrel floating oil platform in the gulf. No....it's not the oil companies to blame......it's those liars who keep spending all our money. Be assured that if they got every dime from the oil companies who testified yesterday, they would not pay down the debt, they would go on another spending spree.
