American Oil and Gas Reporter - May 2015 - 39

by partnerships, limited liability corporations, S corps, or individuals. Only income from C corps is taxable.
"There also was talk in the statehouse
about excise taxes on wind and ethanol
production. There are some proposals to
make them the same as the 4.33 percent
oil and gas excise tax," Cross says. "That
would generate between $27 million and
$45 million. I do not know if legislators
will go for that plan. Legislators also

talked about a 5-10 cent tax on gasoline
and diesel. My opinion is I think they
will raise sales taxes first."
There have been statehouse rumors that
some legislators were interested in removing
the low-volume exemption for oil and gas
producers, but no such bill emerged during
the regular session, Cross says.
"I have met with members of the
Senate and House who are watching for
those types of proposals. One reason state

revenues are down is because oil and gas
severance tax collections have fallen so
far. There is no need to hit the industry
harder. If oil was still at $100 a barrel
and Kansas severance tax collections
were down, then you could make that argument. But the reason collections are
down is because the industry is down."
Ì

Senate Advised Oil Exports Benefit U.S.
WASHINGTON-Soon after IHS released a study examining the potential
economic benefits of the United States
lifting its ban on crude oil exports, IHS
Senior Vice President Carlos Pascual told
Congress that eliminating the prohibition
would create jobs, increase household
incomes, stimulate economic growth, increase government revenues, cut gasoline
prices, and strengthen U.S. security and
global influence.
Not doing so, added spokesmen for upstream and downstream energy industry
segments, could hinder continued investment
in the United States' energy renaissance
and threaten the jobs it has engendered.
Testifying before the U.S. Senate Committee on Energy and Natural Resources,
Pascual pointed out arguments on exporting
crude often were visceral rather than analytical. Based on his experiences in international negotiations, he said lifting the
ban would increase U.S. leverage in convincing other nations to adopt policies
that supported U.S. interests on Iran, Russia, free trade, and the environment.
"Maintaining the ban increasingly undercuts U.S. credibility in its three-decades
endeavor to persuade other nations to
permit free flows of energy trade, and to
not constrain trade in strategic commodities
with political restrictions and resource
nationalism," Pascual said. "The United
States, for instance, has launched numerous
complaints under the World Trade Organization against China (for imposing)
exactly these kinds of restrictions on natural resources."
Pascual told the committee the dramatic
fall in oil prices since November only
made the issue more urgent, saying over
one 30-day span, on average West Texas
Intermediate sold at $49.82 a barrel against
$59.48 for global Brent. That $9.66 difference will be crucial in determining
the viability of new investments in U.S.
oil and gas production, he asserted.
According to the IHS study, Unleashing
the Supply Chain, Pascual said allowing
U.S. producers to export crude oil to in-

ternational markets would:
* Add $86.0 billion to U.S. gross
domestic product;
* Increase domestic employment by
400,000 jobs annually;
* Increase worker pay in the energy
industry supply chain by 25 percent; and
* Increase federal, state and municipal
revenues from corporate and personal
taxes by $1.3 trillion.
The crude oil export ban, which was
enacted in the 1970s to support price
controls the United States imposed on
oil, remained when those controls were
abolished in 1981, Pascual pointed out.
He said the conditions that justified the
export ban in 1973 no longer existed, especially since the United States now has
the fastest-growing oil economy in the
world.

Refinery Economics
The United States needs to eliminate
its export ban because of how the nation's
refinery system has developed and the
price discounts U.S. producers must take
in order to sell their products, particularly
along the Gulf Coast, which holds more
than half the nation's refining capacity,
Pascual testified.
More than $85 billion has been spent
over the past quarter century to reconfigure
those refineries to process heavy oil imported from countries such as Venezuela,
Mexico and Canada, Pascual observed.
He said the country's 139 operating refineries had a combined crude oil distillation capacity of 18 million barrels a
day, adding that the U.S. refining system
was characterized not only by the number
and size of its refineries, but also by the
high number of world-class, high-complexity, full-conversion refineries that
had a substantial amount of petrochemical
and specialty products integration.
"If the crude quality varies enough in
this complex refining system, the yields
no longer match the processing capabilities
of the refinery, and not all products can
be produced to a finished state, or in

some cases, the refinery's throughput capacity is reduced," he said. "In the Gulf
region, most refineries are configured to
process heavy crude oil. These refineries
operate inefficiently when using light,
tight oil."
In that situation, refineries produce unfinished products, which have lower values
because they require further processing,
he said. In some cases, the crude quality
mismatch is large enough that a refinery
would have to reduce its throughput to
process additional light, tight oil volumes.
As a result, he said there were limits to
how much of the new, domestically produced light oil the refining system could
process efficiently and economically.
To use light oil, many Gulf Coast refineries require a price discount, which
Pascual said was shown by a Brent to
WTI price differential that ranged from
$7 to $12 a barrel earlier this year.
He cited IHS estimates that eliminating
the WTI discount would incentivize nearly
$750 billion more in energy investments
between 2016 and 2030, and increase oil
production by nearly 1.2 MMbbl/d.
Pascual contended that eliminating
the crude oil export ban was even more
important when prices were low. "Many
companies will be on the margins of their
new well investment break-even point,"
he said. "In such a case, a small price
change can have a major impact on supply
because it can make or break the profitability of a significant share of tight oil
producers. Crude oil production thus
drops even more sharply when prices are
low and producers must take further price
cuts to sell to domestic refiners, if they
cannot export."
Pump Prices
Noting public fears that liberalizing
crude oil exports could raise U.S. gasoline
prices, Pascual said crude and gasoline
pricing data didn't support that conclusion.
Instead, he held, international crude oil
prices have more influence on pump
prices than do domestic crude oil prices.
MAY 2015 39

American Oil and Gas Reporter - May 2015

Table of Contents for the Digital Edition of American Oil and Gas Reporter - May 2015