Ritter questions repeal of federal drilling tax credit | AspenTimes.com

Ritter questions repeal of federal drilling tax credit

Judith Kohler
The Associated Press
Aspen, CO Colorado

DENVER ” Gov. Bill Ritter has asked congressional leaders to consider the effects of ending a tax break for the oil and gas industry, saying it could discourage energy development.

Ritter said in a letter Wednesday to the heads of the Senate Finance and House Ways and Means committees that eliminating a tax deduction for intangible drilling costs will result in less drilling and lower natural gas supplies.

The tax deduction is among those targeted by President Barack Obama, who has criticized them as “unjustifiable loopholes” that other companies typically don’t get. It applies to such expenses as fuel, supplies and clearing an area for drilling.

Last week, Oklahoma Gov. Brad Henry sent a letter urging Obama to keep the intangible drilling cost credit.

A preliminary analysis shows that repealing the deduction could cost oil and gas producers in Colorado at least $1 billion in tax benefits, Ritter said. That could discourage companies’ investments and drive up costs for consumers, he added.

The industry has accused the Ritter administration of dampening companies’ interest in Colorado by approving stricter oil and gas regulations. The rules, which took effect in most places April 1, require more consideration of the environment, wildlife and public health and safety.

The new rules’ supporters blame plunging gas prices and the tight credit market for the slowdown in Colorado’s natural gas boom.

Industry officials have also questioned whether Ritter’s promotion of a “new energy economy” includes a role for more conventional energy sources. Ritter has called natural gas a bridge to a time when renewable sources will be a bigger part of the energy mix.

The Colorado Oil and Gas Association, a trade group, has filed a lawsuit seeking to overturn the new regulations. While COGA continues to be wary of the regulations, spokesman Nate Strauch said Ritter’s letter is a positive development.

“We’re very encouraged that he’s taking proactive steps to help business and the consumers of Colorado with their future energy needs,” said Marc Smith, executive director of the Denver-based Independent Petroleum Association of Mountain States.

Smith said the drilling cost deduction has existed since 1913 and is similar to deductions other businesses are allowed to take.

“Repealing it would substantially reduce the cash flow available for investment among our member companies,” Smith said.

Studies of energy taxes across the West tell a different story, said Mark Haggerty of Headwaters Economics, a Bozeman, Mont.-based research group. He said tax incentives can help spur development of new technology and exploration, but have little effect on production.

“Price is such a dominating factor” in decisions to drill, Haggerty said.


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