Stephenie Scialabba: It’s time to fix the flawed tax policy hurting independent oil and gas producers
Oil and gas production is a critical part of our Pennsylvania economy, providing tens of billions of dollars in wages to Keystone State workers every year. Research has shown that each direct job created by Pennsylvania’s oil and gas industry generates close to four indirect jobs — everything from truck drivers to construction workers and more.
As a state representative from Butler County, I care about promoting any industry that brings good-paying jobs to our district. For that reason, I want to draw attention to a flaw in the federal tax code that is making it harder for Pennsylvania’s independent oil and gas producers to realize President Trump’s energy agenda. With one simple but crucial fix, we can help unleash domestic production and promote American energy security.
Despite President Trump’s support for independent oil and gas production, the industry is still grappling with the lingering effects of Biden-era policies. Among them is a seemingly innocuous change to the tax code that was slipped into 2022’s Inflation Reduction Act. The new law made it so independent oil and gas producers can no longer immediately deduct the operational costs that come with drilling wells, known as “intangible drilling costs” or IDCs. This small revision had major consequences for this industry. The result was that, unlike nearly all other capital-intensive industries, independent oil and gas producers have to wait to recover these kinds of deductions.
This is a big deal, because independent producers are responsible for 90 percent of America’s oil and gas output. And IDCs account for up to 80 percent of the cost to drill a new well. In other words, the Inflation Reduction Act put a massive burden on much of the independent oil and gas industry with a single stroke of Biden’s pen.
These operational costs are more than mere lines on a spreadsheet. They include things like workers’ wages, equipment repairs, supplies needed for drilling wells, surveying, ground clearing costs, and more. They often represent dollars that flow into the community, especially here in Butler County. Denying these producers access to accelerated cost recovery — which, again, most similar industries still benefit from – leaves less capital readily available for companies to reinvest.
Reinvestment is the name of the game when it comes to oil and gas. The moment a new well comes online, the clock is ticking. Most people don’t know this, but the output of a well falls very quickly in the first year. In fact, even in the best shale basins, production falls by 50 percent after the first year, and continues to decline in the years following. That’s why it’s so important for companies to reinvest their capital into looking for new drilling opportunities. There is no time to waste.
Pennsylvania’s independent oil and gas producers need to be able to recover their operational cost deductions quickly. Otherwise, they have much less capital available for this kind of reinvestment. By forcing them to wait, Biden’s sneaky change to the tax law made American domestic energy production more difficult.
By fixing this flawed tax policy, we can level the playing field for our independent oil and gas producers. The “Promoting Domestic Energy Production Act” (H.R. 662/S.224) making its way through Congress would do just that. I encourage our elected representatives in Washington, and particularly my friend Representative Mike Kelly (R-PA-16), to help pass this legislation. Doing so will mean a brighter future for America’s energy independence.
Rep. Stephenie Scialabba represents the 12th District, which includes parts of Butler County, in the Pennsylvania House of Representatives.
