Energy Tax Incentives Proposed by Herrington/including 27.5 Percent Depletion Allowance

By Robinson, Robin | THE JOURNAL RECORD, March 17, 1987 | Go to article overview

Energy Tax Incentives Proposed by Herrington/including 27.5 Percent Depletion Allowance


Robinson, Robin, THE JOURNAL RECORD


Tax incentives to spur domestic oil exploration and check imports will be recommended to the Reagan administration, Energy Secretary John Herrington told a group of lawmakers Monday.

The incentives would include a 27.5 percent oil depletion allowance, he said.

Local energy industry representatives expressed satisfaction and surprise in response to those reports, made one day before the secretary was to issue the U.S. Department of Energy's report.

"Restoration of the percentage depletion allowance is a positive move," said Sam Hammons, an energy analyst and Oklahoma City lawyer. "Indeed, oil and gas reserves are depleting and, in order to provide incentives to explore for oil and gas, the tax code needs to recognize that very real fact - that the revised tax code under which we are now operating hurts the oil and gas sector's ability to raise the capital to explore.

"The depletion allowance will help attract some of that capital back," Hammons said.

Lew Ward, Gov. Bellmon's representative to the Interstate Oil Compact Commission, said restoration of the depletion allowance would be very beneficial to Oklahoma's oil and gas industry.

The recommendations are options to counter the national security threat posed by increasing oil imports, which reached 40 percent of U.S. demand late last year, Herrington told the legislators.

"If these are the recommendations, I'm a little surprised, because I was told the report would not make specific recommendations, but leave options for the president to study," said Raymond Hefner of Oklahoma City, chairman of the Independent Petroleum Association of America.

However, some spokesmen said the recommendations would not have as far-reaching an effect as an oil import fee, which Herrington told legislators the tax incentives would replace because the oil import fee was determined to be too costly when compared to the benefits of placing the fee.

"I think the incentives would help, but they're not nearly as effective as the oil import fee, because the oil import fee would have had the effect of increasing the price," said William Dutcher, senior vice president of the RAM Group Ltd., in response to the recommendation.

"Without a change in the price, though theoretically the taxes will be lower, producers still have a harder time economically justifying drilling," Dutcher said.

Other recommendations from the report include repeal of the "transfer rule," a tax law provision that makes independents who purchase land from majors subject to the same tax liabilities as majors, and increased leasing of the outer continental shelf and opening the Alaskan National Wildlife Refuge to drilling. …

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