American Oil and Gas Reporter - August 2017 - 115

are important to companies looking to
relocate or expand, Chadsey reflects, the
available workforce is often a deciding
factor. And here, he reports, the MidOhio Valley has the people with the work
ethic to get the job done.
"We have a lot of college and public
school campuses around the region that
are doing a great job of training everyone
from petroleum engineers to welders to
CDL drivers, and all of that helps," Chadsey says. "It is all part of a larger conversation being had about whether college
is right for everyone. I don't believe it is,
and there are many opportunities for good
jobs and good careers in these industries
right here in the Mid-Ohio Valley."
Moreover, he considers, Shale Crescent
USA also sees an opportunity to bring
workers home to the region. "We have a
lot of people who went to the Carolinas
or to Texas for job opportunities, and we
know they would love to come back
home," Chadsey considers. "Grandparents
want to see their grandkids, and that's
what we all are working toward."

Rust Belt Comeback
For Kozera, it's about hope for a longtroubled region.
"When you think about my area-about
West Virginia-what do you think about?"
he poses. "Coal mining. And that's what
we do here; we dig holes in the ground,
then send our coal to Pittsburgh for steel
and to Detroit for cars. We are left with
holes in the ground. This is an opportunity
to make the value-added products here.
And that changes the game."
The jobs that the industry can bring
will be the kind of high-paying, dependable
jobs that every region wants.
"I know it can happen-the Rust Belt
can begin to come back. It's also critical
to our country," he considers. "The jobs
left, but we can bring them back. All we
have to do is bring one major petrochemical company here. Hook one whale, and
that will start everything."
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VENUE. . . . . . . . . . . .
FROM PAGE 109

was the expected flood of tourists coming
to Casper for the Wyoming Eclipse Festival,
a week-long celebration of astronomy, music, history, outdoor recreation, food and
the arts organized by Casper business interests. The festival offers the opportunity
to view the total eclipse of the sun that
passes directly over Casper on Aug. 21.
"The city's population will nearly double for the eclipse, so we decided to just
get out of the way," Hinchey observes.
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IPAA, Industry Groups Protest
Senate Committee's Tax Plans

WASHINGTON-The Senate Committee on Finance faces a key question
as it considers reforming the U.S. tax
code, the Independent Petroleum Association of America poses: should policymakers promote increased U.S. oil and
gas production or return the country to
the days of relying on imported energy?
In comments to the committee, filed
on behalf of itself, industry trade groups
including the Domestic Energy Producers
Alliance and National Stripper Well Association, as well as more than 35 state
oil and gas associations, IPAA asserts an
attempt to cut tax rates is not necessarily
the best solution for businesses more affected by capital recovery issues.
"Similarly, removing impediments and
disincentives for savings and investment
are important goals. But, it is equally
important not to create new impediments
and disincentives for savings and investment," the comments state.
IPAA points out while the number of
publically traded independent producers
numbers in the hundreds, the overwhelming majoring of the country's 9,000 independent producers are small, privately
held businesses. It cites a 2012 survey of
its membership that shows the median
IPAA member employs 12 full-time and
two part-time employees.
"The complexity of the federal tax
code exists because different taxpayers
are affected differently, and a single solution does not address all problems,"
IPAA concludes. "As sound as the benefits
of lower tax rates are, for industries like
American oil and natural gas production
that is driven by recovering capital and
reinvesting it in America, no likely lower
tax rate can be developed in tax reform
that would offset the loss of the capital
recovery provisions that have so effectively
encouraged American production."
Shale Threatened
Tax reform legislation that limits independent producers' access to capital
by changing oil and gas tax provisions
could end the American shale revolution,
the industry groups' comments warn,
urging legislators to preserve current tax
treatments of capital formation and recovery provisions, including expensing
of intangible drilling costs, the percentage
depletion allowance and the passive loss
exemption for working interests.
Only independent producers can fully
expense IDC on U.S. production, IPAA
points out, and changing that provision

may have broad implications.
"Unlike larger oil and natural gas companies, smaller independent producers are
unable to attract financing from institutional
investors or even community banks," the
comments say. "The advent of DoddFrank has increasingly made lending to
smaller producers impossible. As such,
smaller producers must finance their
drilling operations with cash flow generated
from the wellhead. Changing the ability
to immediately expense IDC will drastically
curtail drilling budgets for all independent
producers and will be especially impactful
for smaller producers."
According to IPAA, federal tax policies
allow for the expensing of similar costs
for a number of industry activities outside
the oil and gas sector, including research
and experimental expenditures and expenditures by farmers for fertilizer.
Eliminating the percentage depletion
deduction could jeopardize nearly 20 percent of U.S. oil production and 12 percent
of natural gas output, IPAA predicts. Unlike tax provisions for all other natural
resource production, gas and oil percentage
depletion is limited to domestic production
of the first 1,000 barrels a day or 6,000
Mcf/day, and is restricted to the net
income of a property and limited to 65
percent of the taxpayer's net income.
Percentage depletion also is available
for oil and gas royalty income, which
benefits many small mineral owners without significantly impacting overall tax
revenues, IPAA describes. Most royalty
owners are in tax brackets below 25 percent, and reducing that tax rate with a
loss of percentage depletion will increase
their income taxes, the comments note.
Until Congress choses to end distinctions between active and passive incomes,
maintaining the passive loss exception
for oil and gas working interests is crucial
to independent producers' ability to raise
capital, the comments say. By counting
any working investment losses as active,
investors in oil and gas operations are
able to treat the normal business deductions
from their investments in the same way
a corporation would.
"Input to IPAA from its operators
who take percentage depletion indicates
that the combined effort of eliminating
IDC and percentage depletion would reduce drilling budgets in some cases by
as much as half," IPAA calculates. "Lowering the tax rate to 25 percent alone
likely will not offset the impact of losing
these provisions."
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American Oil and Gas Reporter - August 2017

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