Independent oil and natural gas producers are non-integrated companies that operate almost exclusively in the domestic exploration and production (E&P) segment of the industry. Independents are not “Big Oil.”
More than 18,000 independent producers drill about 95% of US oil and natural gas wells and account for 67% of US oil and gas production. While there are some large, publicly-traded companies among the nation’s independent producers, the average company size is 11 employees. Independent producers typically invest more than 100% of their revenue in finding new domestic energy sources. Meanwhile, major, integrated oil companies are in all sectors of the energy industry on a global scale. Besides E&P, the majors own pipelines, refining and dominate the marketing of wholesale/retail fuels (gasoline, jet fuel, and diesel). The majors drill the majority of their wells outside the United States.
These distinctions are important because in every budget proposal since 2009, President Obama has proposed eliminating $4 billion in tax provisions for the oil and natural gas industry. He has said these provisions are unnecessary because of high profits reported by major oil companies.
But three of the key tax provisions targeted by the Administration—intangible drilling costs (IDCs), percentage depletion and tertiary injectants —are limited to drilling and production enhancement activities in the US. It is vital to understand that these key tax provisions primarily impact independent producers, not the five major oil companies.
Additionally, critical industry tax provisions have been placed on the chopping block by powerful Congressional leaders in the name of comprehensive tax reform. If any of the current tax reform drafts are passed as-is, it will put the brakes on America's drive toward energy independence.
Small independents and royalty owners will be hardest hit because of the elimination of tax deductions that have been law since the 1920s. The immediate effect of repealing the oil and gas industry’s allowance for percentage depletion is a significant tax increase for thousands of America’s smallest energy company owners, investors and partners, as well as more than eight million royalty and mineral owners - many of whom count on the time-tested tax provisions to make payroll and pay the monthly bills.