Texas Alliance of Energy Producers

Federal Issues

Click here to download pdf of memo to House Ways & Means

Alliance Presents Comments to House Ways & Means on harmful tax provisions to employment

** The following analysis was prepared in September of this year at the request and for the benefit of several Members of Congress from Texas as the House Ways and Means Committee was preparing for its markup of the Reconciliation Bill. **

Re: Negative Employment Effects of Eliminating Intangible Drilling Costs and Percentage Depletion

The Texas Alliance of Energy Producers has prepared an employment impact estimate that would result from the repeal of Intangible Drilling Costs (IDCs) in its current form, and the elimination of the percentage depletion deduction. The methodology in terms of the ten-year time frame of the estimates is employed to make the data consistent with a study conducted by Rystad Energy for the American Petroleum Institute (API) that quantifies the potential negative employment impacts of repealing IDCs and raising the corporate tax rate. However, the estimates calculated herein focus on IDCs and the elimination of the percentage depletion deduction.

The Rystad/API study considered a base case in 2031 that would result from no changes to the tax provisions under analysis, and then estimated the negative employment impacts to that base case from repealing IDCs, as well as raising the corporate tax rate to 25%. The study was conducted by basin (production region), however, rather than at the statewide level. The Alliance estimates also consider the base case employment scenario 10 years out, in 2031, that would result from no change in the tax provisions, and then estimate the negative employment impact at the statewide Texas level of repealing IDCs and eliminating the percentage depletion deduction.

The Rystad/API study calculated negative employment impacts for IDC repeal and a corporate tax rate hike for three crude oil price scenarios – $40/barrel (“low”), $60/barrel (“mid”), and $80/barrel (“high”). The Alliance estimates contained herein are consistent with a $60-65/barrel crude oil price. Current crude oil prices are in excess of $70/barrel.

Texas direct upstream (crude oil and natural gas exploration and production) employment consists of (1) crude oil and natural gas extraction employment, which is employees on the payrolls of operating and producing companies, (2) oilfield service companies, and (3) drilling companies. These three categories totaled approximately 240,000 employees at the height of the last cyclical peak in December 2018. That comprised about 1.9% of total statewide employment in Texas at that time. As of July 2021 there are approximately 166,000 direct upstream oil and gas employees in Texas, which is roughly 1.3% of total statewide employment in Texas.

The negative employment impacts that would occur as a result of eliminating IDC expensing and the percentage depletion deduction take two forms: (1) direct industry jobs actually lost on company payrolls beginning at the time the elimination of the provisions takes effect, and (2) direct industry jobs not added over the next ten years that would otherwise be added under the current set of tax circumstances. The numbers must also be considered in terms of the indirect and induced effects of the direct negative employment impact. For purposes of calculating these “ripple effects”, we have used a conservative multiplier of 2.5 to estimate the negative impacts of repealing the current method of expensing intangible drilling costs.

The estimates for employment impacts resulting from eliminating the percentage depletion deduction come directly from a study completed earlier this year by the National Stripper Well Association for which the Texas Alliance of Energy Producers was a partner association (and for which I served on the steering committee). That study looked at negative employment impacts of eliminating the percentage depletion deduction, which affects both operators/producers as well as royalty owners, and is a 15-year look into the future. The information presented herein simply pulls the employment impact for Texas at the 10-year mark from that study.

Considering a base case of 252,000 direct upstream jobs in Texas in 2031 given no change in IDCs and percentage depletion, the following negative employment impacts are estimated:
97,750 jobs – direct upstream sector negative employment impact – IDCs
22,500 jobs – direct upstream negative employment impact – percentage depletion
120,250 jobs – direct upstream negative employment impact – TOTAL
244,375 – direct, indirect, and induced negative employment impact – IDCs
56,250 – direct, indirect, and induced negative employment impact – percentage depletion
300,625 – direct, indirect, and induced negative employment impact – TOTAL

In addition to the negative employment effects detailed above, the repeal or elimination of intangible drilling costs and percentage depletion have other negative repercussions as well, including:
• Disadvantaging the US domestic oil and gas exploration and production industry in favor of foreign producers/suppliers of crude oil, and
• Disadvantaging smaller independent operators in Texas and the US in favor of larger publicly traded US companies.

As less capital is invested in Texas and US oil and gas development and production, production will inevitably decline, creating a likely combined scenario of higher prices to US consumers and increased imports into the United States to meet demand.

Eliminating both provisions changes the math to US oil and gas producers by raising the tax burden and lowering the effective price received for domestically produced crude oil and natural gas. With regard to IDCs, labor cost itself is an intangible drilling cost and is often the greatest share of total IDCs. Attaching a higher tax burden to labor cost will without question reduce the amount of labor demanded. In other words, jobs lost and/or not created going forward are unavoidable consequences of repealing

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Click here to download pdf of letter to Lanelle Wiggins, EPA Office of Policy

Alliance Presents Comments To EPA Small Business Advocacy Review on Methane Proposal

Ms. Wiggins:

Thank you for the opportunity to provide written comments to the “Pre-Panel Outreach Meeting” conducted by EPA on the rulemaking, “Oil and Natural Gas Sector New Source Performance Standards,” on Tuesday, June 29, 2021. I sincerely appreciate EPA’s invitation to participate, and the information provided to participants to evaluate potential rule changes and the process for their amendment.
The Texas Alliance of Energy Producers represents over 2,600 individuals and member companies in the upstream oil and gas industry; our members are oil and gas operators/producers, service and drilling companies, royalty owners, and a host of affiliated companies and industries in Texas and beyond. The majority of our members and board of directors work for, or own and operate small businesses as defined by the Small Business Administration.
We applaud EPA’s use of the Small Business Advocacy Review Panel to gather feedback from Small Entity Representatives to minimize negative impacts of regulation that would tilt the playing field in favor of larger corporations. This is particularly important for small businesses in the oil and gas industry who are producing a globally traded commodity. American small businesses are competing directly with international competitors, who in many cases, are operated by sovereign nations.
The cost estimates provided by EPA were helpful to guide discussions with Alliance members. In many cases, operators reported that those cost may be higher because the internal operations to adapt and conduct new regulatory requirements has been limited due to the contraction of the industry in 2020. The Alliance created and tracks a Texas upstream oil and gas economic index, and the employment data contained within indicates the loss of about 36% of direct upstream jobs in Texas in the 2019-2020 industry contraction. These limitations skew the cost estimate higher due to operators being more reliant on third-party contractors to facilitate revisions to emission controls not already required by state and federal law.
Finally, we would ask that EPA and SBA consider a forthcoming study conducted by the Department of Energy’s National Energy Technology Laboratory entitled “Quantification of Methane Emissions from Marginal (Small Producing) Oil and Gas Wells”: Project Number DE-FE0031702. The project is anticipated to end September 30, 2021 and we think the study’s finding will be beneficial to EPA in evaluating new controls for potential emissions from marginal wells.
Thank you again for the opportunity to provide comments on the Pre-Panel Outreach Meeting. The Alliance looks forward to helping EPA in the full Small Business Advocacy Review Panel process.

Sincerely,
Jason Modglin
President, Texas Alliance of Energy Producers

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Click here to download pdf of written comments

Alliance Presents Comments To US Senate Finance Committee on Percentage Depletion, IDCs

The US Senate Finance Committee met in Washington in late May to consider Chairman Ron Wyden’s (D-OR) Clean Energy for America Act which, among other things, seeks to change various tax provisions for US independent oil and gas companies, both small and large.  Most notably, the bill would fully eliminate the percentage depletion deduction for small independent operators, and would change the deduction for Intangible Drilling Costs (IDCs) from full 100% deduction for those costs in year one, to spreading them out over a five-year period of time.  The Alliance made the point to the Committee that eliminating percentage depletion and altering the treatment for intangible drilling costs would cost Texas jobs, reduce industry investment, lower production, reduce tax revenues and economic activity to Texas and its producing regions, and reduce the level of energy independence we worked so hard to achieve.  Our comments can be found here on our website.

June 9, 2021

To: The US Senate Committee on Finance
From: Karr Ingham, Petroleum Economist and Executive Vice President
Texas Alliance of Energy Producers

Statement by the Texas Alliance of Energy Producers to the United States Senate Committee on Finance for the record on the hearing, Open Executive Session to Consider an Original Bill Entitled The Clean Energy for America Act, held Wednesday, May 26, 2021

On behalf of our members and our Board of Directors, the Texas Alliance of Energy Producers appreciates the opportunity to comment on the Clean Energy for America Act, and the hearing that took place on Wednesday, May 26.

The Texas Alliance of Energy Producers (“the Alliance”) represents about 2,600 member companies and individuals. The Alliance represents primarily the “upstream”, or exploration and production sector of the oil and gas industry in Texas, including operators and producers of crude oil and natural gas, oilfield service companies, and drilling companies. Our direct membership is approximately 2,600; however, we represent thousands more than that in terms of the total employment of our member companies. More broadly, we represent an industry that presently directly employs approximately 160,000 Texans, on the payrolls of oil and gas extraction (operating and producing) companies, oilfield service companies, and drilling companies. That number is climbing as the US and global economies recover from the COVID pandemic of 2020 in which nearly 62,000 upstream jobs were lost in Texas alone between February and September of last year. What this means is that the present 160,000 jobs total is not the ceiling for upstream oil and gas employment in Texas. Thousands more stand to be added as the industry recovers from the deep downturn of last year, perhaps tens of thousands in a sustained period of recovery in which presumably a great many of those 60,000 jobs lost last year may be added back. That means, of course, that the number of jobs potentially at risk from harmful US domestic energy policies is considerably higher than the current upstream employment levels would indicate.

Further, those are not the only jobs in Texas dependent on the upstream oil and gas sector. The upstream companies engage in purchases from a second tier of suppliers – pipe, pumping equipment, compressors, office supplies, automobiles, sand, tubing, drilling rigs, transportation services, etc. – and these jobs are at risk as well, along with jobs elsewhere in the economy dependent on wages paid to direct upstream companies and their suppliers of goods and services. A conservative estimate would be to multiply upstream jobs by 2.5 to approximate the number of jobs that may be affected by movements in direct upstream employment. For example, were upstream employment in Texas to increase to, say, 200,000, a very real possibility as industry activity expands in the post-COVID recovery, the total number of jobs connected to oil and gas exploration & production activity would actually be 500,000 or more.

Click link above to view entire comments.

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To: The US Department of the Interior

From: Jason Modglin, President, Texas Alliance of Energy Producers

Re: Oil and Gas Production on Federal Lands and Waters

Comments submitted to: energyreview@ios.doi.gov.

Click here to view comments presented to the Dept of Interior on April 15, 2021

The Texas Alliance of Energy Producers (the Alliance) and our members appreciate the opportunity to provide comment on the management of oil and gas leasing and production on federal lands and waters. The Alliance represents approximately 2,600 member companies and individuals, primarily in the upstream (exploration and production) segment of the oil and gas industry. While there is relatively little in the way of federal oil and gas production in Texas, we remain concerned about a potential permanent moratorium on future federal oil and gas leasing.
First, even though Texas oil and gas production accounts for very little of total US production from federal lands and waters, the state stands to suffer significant damage by such a moratorium in terms of employment loss and state revenue. This is because a number of the companies who engage in production on federal lands are headquartered in Texas, have a substantial employment presence in Texas, and/or produce on federal lands in neighboring states. Further, Texas supplies a significant portion of labor and other resources for federal offshore production in the Gulf of Mexico.

(click link above to see complete comments by the Texas Alliance of Energy Producers)

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The Alliance is proud to support the culmination of work on HB 2771 from the 86^th Texas Legislature seeking delegated authority to the TCEQ of the National Pollutant Discharge Elimination System (NPDES) Program Authorization for Oil and Gas Discharges.

Click here to download Alliance NPDES comments.

A link to the full docket can be found here: https://www.regulations.gov/document?D=EPA-R06-OW-2020-0608-0001

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Docket PHMSA-2019-0131; Pipeline Safety: Farm Taps Frequently Asked Questions

The following comments are submitted by the Independent Petroleum Association of America (“IPAA”), with the input and support of the Independent Oil and Gas Association of West Virginia (“IOGAWV”), the Kansas Independent Oil & Gas Association (“KIOGA”), Kentucky Oil & Gas Association (“KOGA”), Michigan Oil and Gas Association (“MOGA”), The Ohio Oil & Gas Association (“OOGA”), the Pennsylvania Independent Oil & Gas Association (“PIOGA”), and the Texas Alliance of Energy Producers (“Texas Alliance”), in response to the April 20, 2020, Federal Register notice, Pipeline Safety: Farm Taps Frequently Asked Questions (“FAQs”).

Click here to view comments