For the second year in a row, President Obama has his tax sights set on the oil and gas industry. In the proposed fiscal 2011 budget submitted by the Obama Administration this past week, the President has included $36,500,000,000 (zeros included for emphasis) of oil and gas taxes.  For an analysis of the breakdown of these taxes, see Nick Snow’s article in Oil & Gas Journal.

The President continues to believe that a good way to grow our economy and spur job growth will be to cause businesses to send more money to the federal government than to spend it in the free enterprise system.  The tax increases for the oil and gas industry are the same as the ones I wrote about last March and include:

• Repeal of percentage depletion,
• Eliminate expensing of intangible drilling costs,
• Extend the amortization period for geoligical and geophysical costs,
• Repeal the domestic manufacturer’s deduction (only for oil and gas companies),
• Remove the exception to passive loss limitations for working interest owners in producing properties, and
• Repeal the enhanced oil recovery credit and the credit for production from marginal wells.

It seems to me these proposals will have the opposite of the President’s stated desired impact. These types of policies will most likely result in fewer jobs, reduced government revenue, a shift away from domestic production to foreign production, and more reliance of foreign sources of energy.

Drillers throughout the U.S. are searching for unconventional natural gas deposits in areas like the Barnett Shale of North Texas.  It is expected that similar searches will become pervasive worldwide in the near future. 

Vello Kuuskraa, president of Advanced Resources International and known for his work in energy economics and petroleum recovery technologies, commented at a recent energy conference in Fort Worth that he believes “unconventional gas is the future, both in the U.S. and overseas.”  Unconventional gas includes shale gas, tight gas and coal-bed methane.  Such deposits require measures such as horizontal drilling and hydraulic fracturing to enhance their recovery and make then economically feasible.

Kuuskraa expects his end-of-the-year calculations to show that the Barnett Shale has become the biggest gas-producing area in the U.S., outpacing the San Juan Basin in New Mexico and Colorado.  Further, Kuuskraa said that future unconventional gas recovery worldwide could significantly expand supplies helping make gas increasingly attractive as a fuel for transportation and electric power generation.