So far I have seen nothing mentioned in the media that I would call “subsidies” or tax credits for the oil companies. What they have so far proposed has to do with how quickly money spent on assets are depreciated (depleted in the oil business), something all businesses do (whether epensed or depreciated). All things being equal (oil prices, production, operating expenses, etc) the taxes paid to the government over an asset’s life is the same under these cases, only the timing changes when it gets paid to the government (in this case the government wants the money sooner). In fact, a case can be made that the government and consumers will actually be hurt by this because lengthening depletion times results in reduced rates of returns on investments resulting in once marginal wells not being drilled. This means less royalties paid to landowners (whether the government or private individuals), less taxes paid on the oil production, and fewer people hired.
1) Percentage depletion versus cost depletion. The proposals want to make all oil companies use cost depletion which is what all large oil companies must do. As mentioned before, this results in longer depletion times for small producers which typically drill for smaller production wells, does not increase government revenues over an asset’s life, and reduces rates of returns. Under certain circumstances percentage depletion can result in more than 100% of an asset being depleted over a number of years which I think is a legitimate criticism. I doubt this would result in more than $100 million dollars over a 20 year period.
2) Intangible drilling costs. Currently, up to 70% of a well drilled can be expensed and 30% depreciated over 5 years. The proposal is to depreciate 100% of the costs over 5 years. Again, no additional tax money goes to the government, just the timing of it being paid. This impacts small companies more than the larger companies because the larger companies tend to have more money spent on infastructure to produce the oil, things such as platforms, pipelines, barges, etc. (all these items are depreciated over long periods of time). The reason so much of a well is expensed upfront rather than depreciated is because the only long lived asset resulting is the wellbore casing, tubing, and christmas tree.