Liability Caps and Tax Increases ... Not the Answer

By Burt A. Adams, Chairman, National Ocean Industries Association (NOIA), President & CEO, OGRS, LLC
Wednesday, July 07, 2010

NOIA and its members welcome a thoughtful and rational discussion of our Nation’s energy needs and energy supply; however, such a discussion should not be an emotional knee jerk reaction to the ongoing crises in the Gulf of Mexico. First and foremost, our collective attention, that of the industry, Administration and Congress, should be directed to the immediate need to stop the flow of oil and contain and clean up the oil in the Gulf.  Next comes finding out what caused the discharge and how to prevent a reoccurrence in the future. Once those facts are known, then policy makers are in an informed position to discuss options.

Legislation resulting in unlimited liability for offshore accidents will devastate many offshore exploration and production companies. The companies involved in the Deepwater Horizon tragedy have indicated their intent to pay for damages and economic impacts, including loss of income to affected businesses, beyond the current liability cap of $75 million, so calls for limitless liability may be a solution in search of a real problem.  In fact, BP recently established a $20 billion fund to satisfy all legitimate claims arising from the Deepwater Horizon spill, and has also set up a $100 million fund to compensate oil rig workers laid off as a result of the drilling moratorium in the Gulf of Mexico.

One thing that is clear is that raising the liability caps as high as $10 billion or beyond will drive most non-international producers out of the Gulf of Mexico.  This means less domestic energy production and more imports of oil from politically unstable regions, along with increased transportation of oil. The resulting concentration of domestic offshore energy production will be in the hands of a few multinational or nationalized companies.  The smaller, often independent, companies provide an increased opportunity for competition, jobs and a diversified exploration strategy.  We need more companies willing to risk capital to safely develop the OCS, not fewer.

NOIA encourages the Obama Administration and Congress to not throw out the baby with the “no drill” rhetorical water.  The Administration’s renewed call for a broad elimination of certain tax deductions is actually a tax increase and should be carefully examined, with a thorough evaluation of whether the specific deduction has resulted in more jobs for Americans and more home grown energy.

Of particular concern is that Congress, in an effort to provide life for many government programs that currently lack funding, is rushing through wide sweeping tax increases on the oil and gas industry.   While justifying such actions by using the term “Big Oil”, the result will affect not only major companies, but also the much smaller service supply industries that provide thousands of jobs for Americans.

It is also important to look at the total picture of the various administrative, regulatory and Congressional actions taken in the aftermath of the Deep Water Horizon incident.  Once you tally up the impact of the six month moratorium, the cancelled exploration plans in Alaska, and the cancelled lease sales in the Gulf of Mexico and Alaska, the bottom line is a significant loss of jobs and an increase in dependence on foreign countries for fossil fuels.

Despite the tragedy in the Gulf, America’s need for domestic energy has not changed and OCS development remains a vital part of our overall national energy picture.  Nearly a third of our domestic oil comes from the Gulf of Mexico.  Approximately 80% of that comes from wells located in water deeper than 500 feet.  Over 10% of our Nation’s natural gas is produced in the Gulf of Mexico.  No one can argue the fact that demand for energy will only continue to increase for the foreseeable future.

Our economy, our families and many jobs depend upon a reliable, secure and a reasonably priced supply of energy.  Energy to heat our homes, provide transportation and to manufacture many of the goods we use, eat and wear is essential to our way of life.  Energy is energy, and we will need all forms, both traditional, such as oil and gas and the nontraditional such as wind, wave and current. 

Those who are totally opposed to offshore drilling are attempting to garner the events in the Gulf to result in broad changes in energy and tax policies that will likely increase our dependence on foreign oil, cost more jobs at home and dramatically increase the overall price of energy. Since energy is a global market, those companies that can find energy development off foreign shores, will do so, taking thousands of American jobs with them.

 

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