Energy firms benefit in US tax bill signed by Bush

Energy firms benefit in US tax bill signed by Bush
Fri Oct 22, 2004 02:58 PM ET

WASHINGTON, Oct 22 (Reuters) - Both big energy companies and small independent energy producers will benefit from the $140 billion corporate tax cut bill that President George W. Bush signed into law on Friday.
For the mom-and-pop oil and natural gas well operators, the bill contains a tax credit when energy prices drop sharply.

There are 400,000 oil and 250,000 gas "stripper" wells in the United States that each produce less than 15 barrels of crude and no more than 90,000 cubic feet of gas daily.

They collectively account for 25 percent of domestic oil production and 10 percent of natural gas output. However, when energy prices fall significantly, many of these wells become too expensive to operate.

To provide some relief, the bill allows a $3 a barrel tax credit on the first three barrels produced daily from an existing well and a tax credit of 50 cents per 1,000 cubic feet of gas on the first 18,000 cubic feet of daily output.

Other provisions in the tax bill permit small refiners to immediately deduct up to 75 percent of the cost for upgrading their facilities to comply with new government requirements for making low sulfur diesel fuel.

The bill also repeals the 4.3 cent federal excise tax on diesel fuel used by trains and barges on designated inland waterways.

For big energy companies, the legislation allows the firms planning to build a multi-billion-dollar pipeline in Alaska to write off the depreciation of the project over a much quicker 7-year period.

The 3,500-mile (5,630-km) pipeline would transport Alaska's vast natural gas supplies to the lower continental United States. Alaska's north slope holds an estimated 32 trillion cubic feet of gas (Tcf), compared with total U.S. gas demand which is expected to hit 22 Tcf this year.

The pipeline project is being pushed by ConocoPhillips (COP.N: Quote, Profile, Research) , BP Plc (BP.L: Quote, Profile, Research) and Exxon Mobil Corp. (XOM.N: Quote, Profile, Research) , all of which have extensive oil holdings in Alaska.

Congress approved separate legislation before it adjourned earlier this month to provide up to $18 billion in federal loan guarantees to cover 80 percent of the project's costs.

This should make it easier and cheaper for private energy companies to get financing for the pipeline, because if the companies cannot repay the loans the government will do so.[/u]