New Drill Ban as Oil Still Spews

BP is facing a slew of lawsuits and a criminal investigation as oil still gushes from their ruptured well in the Gulf of Mexico. Top Obama administration officials are also telling lawmakers in Washington that initial findings are showing definite “reckless conduct” leading up to the initial April 20th explosion.

Reuters.com reports the latest lawsuit will most likely be by investors, specifically the New York State pension fund—these investors are angry about the drop of the BP stock price. All the while, scientists estimate the oil leak is spewing up to 60,000 barrels a day!

According to reuters.com, Interior Secretary Ken Salazar said he would soon issue a new ban on deepwater drilling off the U.S. coast that would be more flexible than the suspension overturned a day earlier by a federal judge. He would like the new ban to include: when the ban would end and that it might allow oil companies to drill in certain low-risk areas. However there was no word on when Salazar would reissue this ban.

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At Risk: The Gulf's $234 Billion Economy

In addition to the devastating affect on their delicate ecosystems, states near the Gulf of Mexico will likely take a huge financial hit because of the massive oil leak. The total cost of the damage cannot be determined just yet, as oil continues to spew into the ocean, but as this article on CNN.com explains, some experts are predicting it could surpass $200 billion.

The numbers being batted around when it comes to how much the oil spill will ultimately cost BP and the local Gulf of Mexico economies are huge. $3 billion? $14 billion? One politician put it at over $100 billion.

The range is so big because two important questions remain unanswered: When will the leak be sealed, and will most of the oil wash ashore? Until those questions are answered no one will know the exact price tag of the damages. However, there have been studies done looking at what's broadly at stake and the number is quite large indeed.

The four biggest industries in the Gulf of Mexico are oil, tourism, fishing and shipping, and they account for some $234 billion in economic activity each year, according to a 2007 study done by regional scholars and published by Texas A&M University Press.

Two thirds of that amount is in the United States, with the other third in Mexico.

Top U.S. official pledges to reform ties to Big Oil

Almost one month from the day the U.S. oil rig, Deepwater Horizon, exploded and sank in the Gulf of Mexico, Secretary of the Interior Ken Salazar says he’s ready to address the problem head on, finding who is to blame for the massive oil spill and reform the way the government does business with the oil industry. Salazar seems to feel that the oil company BP should be held accountable, but others argue it is the Department of Interior agency MMS who might have “dramatically underestimated the potential risks” of drilling in the Gulf of Mexico. In fact, in an article on CNNMoney.com, Senator Ron Wyden of Oregon stated that MMS (Minerals Management Service) who is responsible for managing natural resources in the waters of the Gulf of Mexico have been in denial about safety problems for years and are the ones who may be responsible.

The horrible truth is that this massive oil explosion on April 20, 2010 killed 11 workers and continues to leak oil undersea at a rate of 210,000 gallons per day. No matter who is at fault, Secretary of the Interior Ken Salazar is still proposing legislation that would give the Department of Interior an additional $29 million to what he says, “inspect offshore oil and gas platforms, create new safety regulations, and to study the spill’s impact”. The secretary has also stated that his department, along with the Department of Homeland Security, plan to offer “robust” recommendations in a 30-day safety review as mandated by the White House.

Until then, the good news is that the government has ceased issuing any permits for new drilling projects in the Gulf until a full explanation for what caused the spill in the first place can be brought to light.

Read the full article here.

A California Tax On Oil Drilling? Why Not?

Los Angeles Times writer Michael Hiltzik recently posted an interesting article on how taxing California oil drilling could be highly lucrative for the state’s struggling economy. You can find a clip of his story below, or check out the full post here.

The most persistent misconception about Californians is that we hate to raise taxes. The truth is that we adore raising taxes—as long as someone else is paying, that is.

So nonsmokers vote to raise cigarette taxes, teetotalers to raise liquor taxes. The middle and working classes want to hike taxes on the rich, who are happy to return the favor.

Yet this only compounds the mystery of why we're so resistant to raising taxes on perhaps the biggest, fattest target of all: the oil industry.

At least twice since 1981 Californians have considered proposals to impose a so-called severance tax on oil -- a levy on every barrel that drillers take out of the California ground. Both times they went down to defeat -- most recently in a $150-million initiative campaign that set a new standard for obscenity in campaign finance, thanks to Chevron and its fellow oil companies. The 2006 defeat of Proposition 87, which would have steered the tax proceeds to alternative fuel programs, preserved California's status as the only one of the 22 major oil states to give the industry a free ride. And we're the third-biggest producer in the country.

How embarrassing is it for California to be hanging out there alone? That outstanding anti-tax crusader, Alaska Gov. Sarah Palin, in 2007 raised her state’s tax to 25% of the value of extracted oil and gas. Proposition 87 would have capped California's levy at 6%. So even if it had passed, we'd still be suckers.

With the state's fiscal disaster having concentrated the minds of political leaders as never before, the oil severance tax is back on the table in Sacramento. We can expect the oil industry to trot out the same arguments it employed to defeat the tax the last time, so to save time it might be helpful to deflate them now.

At the current world benchmark price of about $70, the 6% tax contemplated by Proposition 87 would have generated more than $1 billion a year from that haul.

Consider some "what if" scenarios: At last year's peak benchmark price of $130 for California crude, the take would be nearly $2 billion. Palin's tax rate of 25% would generate $4 billion at a $70 price and nearly $8 billion at the top.

An important aspect of the severance tax is that we'd better collect it now, while there's still something to tax. California oil production has declined steadily from its 1985 peak of 424 million barrels. Since 2002, according to federal statistics, the state’s known reserves have been depleted to about 3.3 billion barrels from more than 3.6 billion.

The severance tax might be offset by reductions in property and corporate income taxes paid by oil companies. But an analysis of Proposition 87 prepared in 2006 by the nonpartisan Legislative Analyst's Office found that such offsets would amount to a mere fraction of the severance tax, so the state would still come out way ahead.

Let's be candid about the rationale for the severance tax. States levy it because they can: The oil's not going anywhere. Oil companies can't pack it up and move it to a state where rates are lower. It creates wealth -- enormous wealth at times of elevated market prices, like now -- and any jurisdiction in need of funds to cover services it provides to its residents has a perfect constitutional right to claim a piece of it, as it claims a percentage of the value of real estate and income (earned, unearned and inherited).

Let's Drill Our Way To Lower Taxes

From the Wall Street Journal:

“As the tide of public opinion seems to shift in favor of House Republicans' demand for a vote on domestic energy exploration, one supporting argument has yet to be discussed: drilling as a way to lower your taxes.

Opening our vast domestic resources, both on and offshore, to responsible oil and gas development would produce an influx of tax revenue from additional lease sales and royalties, as well as from income and excise taxes. These additional collections could be used, for example, to offset the alternative minimum tax (AMT).

The Congressional Research Service recently estimated the potential federal revenue from Arctic National Wildlife Refuge (ANWR) oil development at $191 billion over 30 years -- roughly $18.36 per barrel, based on projections of recoverable reserves. Applying that formula to the 107 billion-plus barrels of recoverable oil that federal agencies estimate is in ANWR, the nearby National Petroleum Reserve and offshore tells us that sensible drilling could yield nearly $2 trillion in overall revenue over 30 years, or an average of about $65.5 billion per year.

Meanwhile, the ‘cost’ in lost tax collections of protecting 22 million families from the AMT this year stands at about $62 billion. That figure is sure to balloon in the future as more and more Americans are ensnared by the complex system. Tax-hungry politicians defend the AMT by pointing to all the federal revenue that would be lost by ending it. (Never mind the fact that AMT revenue is ill-gotten in the first place, or that the estimated ‘costs’ of its repeal to the federal budget ignore the benefits to economic growth and resulting additional revenues.) While oil and gas development won't fill government's coffers overnight, it will provide a down payment in the near-term, and big windfalls in the out-years that can help deal with some of the most intractable tax problems we face.

We helped create our energy supply problem by putting resources off-limits. Let's develop those resources and use the revenue to help alleviate tax burdens in this difficult economy. More supply, lower gas prices, greater energy security, and lower taxes. What are we waiting for?”