From a newsletter I get weekly:
In the budget, there are a number of programs that are very detrimental to the energy industry that is centered in Houston, Texas. The most expensive and far reaching program put forward being the Cap and Trade system for carbon that is explained later in the Report. Below is a list of some of the programs aimed at the oil & gas industry in the United States.
Obama’s 2010 Budget Programs affecting the Oil Industry
1. New excess taxes on oil & gas production in the Gulf to rollback royalty relief
Ironic that it was the Clinton adm that provided most of the royalty relief in the GOM.
2. Repeal of domestic manufacturing deduction for oil companies
3. New fees of oil leases in the Gulf that are not being drilled on
4. Higher drilling fees on Federal land
5. Higher royalty rates on Federal lands
I presume the last three above relate to future leases. How do you change the terms of past lease agreements, unless you go Hugo Chavez?
6. Ending Deep Drilling Research Funding
Big deal. They should do this anyway. Big companies do their own research ... course the results are proprietary assets.
7. Adding Super Funds taxes to chemical production
8. Repealing expensing intangible drilling costs
This and a lot of the above will only hurt US domestic drilling. So the net effect will be to make us more dependent on imports.
9. Forcing companies to stop using LIFO for tax accounting
One time gimmick.
10. Instituting a massive Cap and Trade program for CO2 production
A massive hidden regressive tax on every American that will drive plants and jobs overseas.
Taking together these proposals represent a punitive attack on the oil, gas and chemical industry. This will hurt Houston’s competitiveness on the worldwide energy stage and will result in job losses.
Cap and Trade
The Cap and Trade program is of particular concern as it is nothing more than a thinly disguised carbon tax that will raise energy costs for every American. It is a way to reduce carbon dioxide emissions and prevent so called global warming. Under the plan, oil, chemical, and utilities companies would have to pay for permits for carbon dioxide production as a by product. This would cost $80 billion per year. In addition, if there were not enough “permits” then they would need to be purchased in the open market. For instance, if you shut a factory or plant down costing jobs, the company could profit by selling the carbon credits in the open market.
Get that? More direct financial encouragement to shut down US plants and move them overseas. Man, this is evil.
They could also be purchased from alternative energy sources that do not produce carbon dioxide. This will raise money for the government by making energy more expensive.
The Cap and Trade system in Europe raised the cost of electricity in Germany 25% to ordinary Germans. So much for the tax cuts for 95% of Americans. This program is designed to raise energy costs across the board to make solar, wind and alternative energy profitable and reduce energy usage and thereby, CO2 emissions. We believe that the Cap and Trade program will reduce both jobs and the standard of living in the United States if it is enacted.
LIFO?
This goes back to your college accounting courses where you learned about LIFO vs. FIFO. The elimination of the use of LIFO accounting is an interesting idea and seems rather benign. LIFO accounting is simply last in first out accounting; in a rising market, it forces you to use your lowest cost material first, thereby raising earnings. This will generate much higher taxes when oil prices rise. Exxon’s Chairman, Rex Tillerson, called the idea a “back door windfall-profits tax” back in April of 2006.
This is why we have seen the large drop in energy stocks in the last week. The positive is the energy companies have good cash flow and low debt levels. Hopefully we will see Congress defeat many of these draconian energy programs. Otherwise we will see more layoffs in Houston and weaker stock prices.
Market Lows
The stock market has now broken under 7000 on the Dow something we wrote about in our last MaxOut Savings Report. This has broken a massive double bottom in the investment averages dating back to 2003. We believe the plunge in the stock markets over the last two weeks is the result of a lack of confidence by savers and investors in the Administration’s economic policies. We believe we are seeing a run on hedge funds and mutual funds. The key will be how much liquidation we will see from the hedge funds for the first quarter. ..... |
