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August 31, 2008


Choke, I agree with you that we are taxed heavily. However, the oil industry has political power and we pulled off some scandalous moves in the tax area. One example is the Section 29 tite gas credit. I have taken this credit, and it was one hell of a tax credit, in some instances, worth almost as much as the gas.

In this regard, I am a hypocrite, because I knew it was “fixed”. My recollection is that the TRRC acted as the agent for FERC in determining which reservoirs where subject to the tax credit. Well, politics trumped science, as usual at the TRRC, and that rubber stamp was on fire, approving anything that floated through the door, to include fractured Austin Chalk, one of the most permeable reservoirs I have ever seen in my life. I remember fighting lost circulation and kicks for days, and then taking a huge section 29 credit on a well with a sky high IP. As I remember, a firm named Holdich filed the application for section 29 in Giddings, based on the native perm of non-fractured Austin Chalk.

If my recollection is wrong, and it could be, feel free to set me straight.

Funny you should bring that up. I was at an invited meeting of producers to the DOE a couple of years back and the DOE brought up that tax policy as one that worked! First, it was meant to increase US gas supply, NOT enrich big oil. Second, it was time limited, so that after it achieved its effect, it went away, by design. It was exactly this policy that brought us the Barnett, and, thus the Bakken, Marcellus, Haynesville and others as the technology developed during the Tax Credit days spread. Lastly, Big Oil did NOT particularly benefit... instead it brought us the NEW domestic super-independents--- Chesapeake, Devon, Anadarko (via UPR).

That said, I prefer NOT to have specific tax benefits or burdens. We are the most taxed industry in the US. When efforts are made to achieve parity, it is called Corporate Welfare. That, in and of itself, is disingenuous, otherwise called a lie.

Alternatives are being supported in similar ways as the Tight Gas credits, and will be gamed similarly. That is the Human Way. I just wish those credits had a ten year life to them. If they can achieve for alternatives what they did for gas supply, then I vote YES.

Choke, I am not knocking Section 29 tax credits. I am pointing out the abuses in the application, and how the TRRC is controlled by special interests. In my opinion the TRRC’s role in handing out Section 29 credits was corrupt as hell. A UT professor named Prindle wrote the definitive book on the TRRC (in my opinion) called Petroleum Politics and the Texas Railroad Commission. It is a great read, and speaks to the corruption of this agency by special interests. I do not see anybody denouncing this book as fiction.

There are two sides to every story. I agree we are taxed at an unreasonable rate, but we also prostitute the system. Section 29 tax abuses are but one example of how the oil business corrupts government for economic gain.

The RRC objective is to manage and optimize hydrocarbon production in Texas... at least that was the original reason. The environmental policing came much later. From a practical point of view, the RRC would like to increase production because it increases state revenues via severance and school district revenue via ad valorem taxes. Section 29 increase state production from the Austin Chalk dramatically, thus serving that purpose. I guess I can understand your POV of "making evil oil companies richer" as the purpose of that action, but my experience is that if the State helps you, there is something in it for the State.

As I remember, Texas had a severance tax exemption that was automatic if a property qualified for Section 29, so Section 29 abuses cost the state hundreds of millions. As you can tell, I am not a fan of the TRRC. The mission of protecting correlative rights, conserving natural resources, and preventing waste has long since been forgotten, replaced by “anything goes” so long as it inures to the benefit of political contributors, in my opinion. The State of Texas does not help the Commissioners get elected, cash contributors do. Who are the cash contributors? Primarily, the regulated parties.

I have watched this agency closely over the years, and I can back this position up with a boatload of facts.

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