The following is an opinion piece by Sen. Jerry Alvord, R-Wilson. In it, he praises President Trump’s energy efforts but also says it will mean overcoming bad energy policies left behind by the Biden administration.
We in Oklahoma know the importance of American-made oil and gas. It is a crucial part of our state’s economy, providing good paying jobs and lower prices at the pump. Fortunately, America now has a President who is serious about unleashing our nation’s energy resources, but doing so will mean fixing bad policy left behind by the Biden administration. Today, I want to address a flaw in the current tax code that is hurting the ability of Oklahoma’s independent oil and gas producers to drill new wells, expand production, and create jobs. Thankfully, our own Rep. Kevin Hern (R-OK-01) is co-sponsoring legislation in the House and Sen. James Lankford (R-OK) is leading the bill in the Senate to fix Biden’s harmful tax policy on American energy.
People often underestimate the role independent producers play in our domestic energy market, but they account for over 90% of America’s oil and gas output. With that in mind, you would think our tax code would treat them fairly—but it doesn’t. Because of a Biden-era change to the tax requirements, producers are prevented from deducting operational costs upfront. This is significant, because it means these producers are being treated differently from other capital-intensive industries.
The technical name for the category of expenses I’m talking about is “intangible drilling costs” or IDCs. The name sounds abstract, but it’s not. IDCs are real world costs, and include things like wages, equipment repairs, surveying, and ground clearing. All told, these IDCs account for up to 80% of the cost to drill a new well. And the largest share of that money goes toward jobs and labor. We’re talking men and women who work hard out in the field: roughnecks, floor hands, lead-tong operators, and more.
Before the Biden administration changed the tax code through the Inflation Reduction Act, producers could quickly recover these costs through as immediate deductions. Most capital-intensive industries still benefit from such deductions. But independent oil and gas producers don’t get to quickly recover their IDCs. Instead, IDCs are considered “depletion deductions” and not recoverable right away.
Think about what that means—it means that, because of a flaw buried in our tax code, America’s independent oil and gas producers have less capital available to pay wages and dig new wells. And, it should be pointed out, having money available to dig new wells is not a luxury in this business; it is an absolute necessity. That’s because the oil produced by a new well plummets in its first year. Even in the most productive shale basins, output declines by about 50% after the first year, and by another 30% after the second. It is absolutely critical that independent producers be able to roll the early profits from one well into searching for and digging the next.
The “Promoting Domestic Energy Production Act” (S. 3381 / H.R. 5073) is a solution to this problem that is currently working its way through Congress. It would revise the tax law to let producers deduct IDCs right away—the same treatment as capital-intensive industries receive. I’m grateful that our Oklahoma congressional delegation has been fighting hard to pass this bill in reconciliation, and now we need to get this enacted into law through Congress’s reconciliation process. The future of America’s energy independence is counting on it.
Jerry Alvord represents District 14 in the Oklahoma Senate.