White House faces a fight on oil tax break repeals

Sen. Mary Landrieu (D-La.), among the industry’s strongest allies on Capitol Hill, quickly condemned Obama’s plan, and oil-and-gas producers are already fighting it.

 “It is unfortunate that the Administration has chosen to escalate the cost of producing energy in America,” Landrieu said in a prepared statement. “American energy is already being displaced by cheaper foreign energy from OPEC nations, Russia and Africa.  Raising the costs of domestically produced energy only accelerates our dependence on lower-cost foreign oil.”

The White House argues that the subsidies distort the market and that taking them away would help boost alternative energy.

Besides, the White House plan says the subsidies don’t incentivize much production, and that the $36.5 billion over a decade they want to take away will amount to just one percent of industry revenues over that time.

But Obama might have had more luck if he was in office a couple of years ago, when oil companies were routinely posting record profits on the strength of crude oil prices that were well over $100 per barrel for months.

The huge Wall Street bailout that then-President Bush signed in October of 2008 limited the size of domestic manufacturing tax breaks that oil companies can claim (tax breaks that Obama now wants to cut entirely).

That was just a few weeks after Exxon Mobil Corp. posted what was then a record-breaking $11.68 billion quarterly profit – a record that lasted until the following quarter, when Exxon hauled in $14.83 billion.

Energy prices have come way down since then. Yesterday Exxon reported a fourth quarter 2009 profit of $6.05 billion – probably not enough to prompt another round of congressional hearings featuring lawmakers grilling industry CEOs.

But Congress is looking for revenue sources, so don’t write off Obama’s effort yet, FBR Capital Markets said in a research note Tuesday morning.

“Given the economic and political climate, we expect that many conservative Democrats will be uneager to significantly raise energy taxes, especially on domestic production,” the FBR analysts write. “However, the need for ‘revenue raisers’ to offset an ambitious 2010 spending agenda will make the energy sector prime targets throughout the year.”

FBR believes one possibility is that Congress could give Obama half a loaf on some of the plans. In one case, Obama wants to raise an estimated $7.8 billion over a decade by ending oil companies’ ability to write off “intangible drilling costs” such as labor and repairs.

“Rather than fully repealing IDCs, Congress, we believe, is more likely to scale back expensing closer to 70%, or to repeal IDCs just for the integrated oil companies (refiners) and give a pass to the smaller companies,” FBR states.