|
 |
| The Case for Natural Gas |
The Case for Oil and Gas
These are good times for those of us who have waited patiently for the American public to become aware of the absolute responsibility we have for energy security, development and independence and what history will show, was shortsightedness as we are faced with our critical energy shortages.
As the head of Dow Chemical says the United States is facing the worst energy crisis in its history, not in fuelling cars but in home heating. “American consumers worry about oil and the price of gasoline,” the chief executive of Dow Chemical, Andrew Liveris, said. “They should worry that there may not be enough natural gas to heat and cool their homes". He said replacing petrochemicals with alternative energy sources such as wind or solar energy was not a solution because the world was not ready to pay the full cost of developing alternative fuels and ingredients. “I want Congress to declare a national emergency, educate the American public about the crisis and unshackle industry”, he said. Andrew N. Liveris is President, Chief Executive Officer (CEO) and Chairman of The Dow Chemical Company, a $49 billion global chemical and plastics manufacturer based in Midland, Michigan.
“The United States should allow drilling in the outer continental shelf and elsewhere, and speed up the permitting processes for building terminals that accept liquefied natural gas. There are only four terminals in the country. We need 20 or 30 times as many”.
Businessmen share the hope that the energy resting beneath the deep blue waters of the central Gulf of Mexico might bring relief from high natural gas prices and they wonder why it isn’t being pumped. The Senate was expected to vote to expand oil and gas drilling to 8.3 million acres of Gulf waters off-limits to energy development for a quarter-century. The House has passed a broader bill dealing with offshore drilling.
Watching the developments closely are the many businesses that face this widespread problem. Natural gas prices have soared and companies are feeling the pain. The answer is more production, including in the restricted coastal waters.
The USA is the only industrialized country that is not actively pursuing more natural gas resources. It makes no sense and it’s about to change soon. |
 |
Natural Gas and Technology
Over the past thirty years, the oil and natural gas industry has transformed into one of the most technologically advanced industries in the United States. New innovations have reshaped the industry into a technology leader, in all segments of the industry. US Oil & Gas Corporation will play a role both in the services and as a new technology provider in the evolution of the natural gas industry, focusing on technologies in the exploration and production sector, as well as a few select innovations that have had a profound effect on the potential for natural gas.
Time is Ripe: Get Ready for the Change
Hundreds of business owners, in letters to members of Congress, have urged an end to the freeze that has barred oil and gas drilling off 85 percent of the country's coast. Lobbying powerhouses such as the Washington-based National Association of Manufacturers, U.S. Chamber of Commerce and National Chemistry Council have led the drive.
“The cost of the raw plastic pellets has doubled in the past two years because those pellets are made of natural gas and oil”. Raimondo Bender says. For the first time in a decade he has been forced to raise the price of the plastic components his plant molds into parts for such things as electronic scoreboards, medical equipment and printer cartridges. Heating the warehouses by gas, Bender says, "costs two or three times what it did three years ago." At his four metal fabricating plants, Raimondo's annual cost for natural gas has gone from $530,000 in 2000 to nearly $1.3 million, an expense that is hurting his business. Costing about $2 per thousand cubic feet only a few years ago, natural gas soared to as high as $15 late last year.
The natural gas bill for chemical companies has jumped from $7.5 billion in 1999 to $32 billion last year, and some companies are expanding overseas where gas is cheaper, says Jack Gerard, president of the American Chemistry Council, the industry trade group. Other energy-intensive business sectors including forest and paper, pesticide, aluminum and makers of carpets, bedding and furniture are being hit hard, he says.
The U.S. uses about 22 trillion cubic feet a year for everything from making plastics and fertilizer to producing electricity and heating homes. Supplies have struggled to keep up with demand. Large amounts of gas are beneath offshore waters. But for 25 years lawmakers have feared tampering with the freeze on oil and gas drilling that Congress has put in place every year, covering 85 percent of the country's coastal waters, almost everywhere outside the western Gulf of Mexico. |
Change Is Coming Soon
Senators planned to vote on whether to expand oil and gas development in the east-central Gulf, opening up 8.3 million acres for drilling. Last month, the House approved an even broader measure that would lift the quarter-century drilling freeze in Pacific and Atlantic coastal waters, although states could prohibit drilling if they choose to do so. "In a nutshell, this bill is good for the people who are burdened with high cost of natural gas, the high cost of oil. It is their property. We ought to develop it and do it now," says Sen. Pete Domenici, R-N.M., the Senate bill's main sponsor.
|
| Huge Demand: A Case for Urgent Development |
The rational case for investing now in Oil and Gas drilling is further strengthened when weighing the government incentives. One benefit provided by the tax code is an upfront tax deduction. "Often, a large portion of your investments may be deducted in the first year," said Ronald Rutherford, a certified financial planner in New York. In other types of business, more of the costs must be written off over long time periods.
The amount you can deduct would vary according to details of the transaction. But suppose you invest $25,000 in a drilling deal this year. Say you get to deduct $18,000 from your 2008 income. In a top 39.6% federal tax bracket, that deduction would save you more than $7,000 in tax payments. State tax deduction might increase your total savings. |
 |
|
Depletion Allowance
If your drilling investments find oil or gas, you may get revenue starting in late 2007 or 2008. Then your taxable income will be reduced by depletion allowance. That's a second tax break to encourage energy exploration. It assumes the well in which you've invested loses value as the energy resource is pumped out. You can threat part of your revenue as a nontaxable refund of your original investments rather than as taxable income. Imagine you're paid $4,000 in 2008 for your 2007 investments. Because of the depletion allowance, you might have to report only, say, $3,000 as taxable income. The exact amount will vary each year, depending on factors such as the amount of oil and gas produced and income reinvested. This shelter can go on as long as the oil and gas keeps flowing.
Oil and gas drilling programs are specifically designed to generate various tax deductions from drilling, completing and producing oil and gas wells. These deductions include intangible drilling cost (IDC), depreciation, and operating costs. In addition, when production is achieved, our ventures claim a depletion deduction against their share of the venture's income from oil and gas produced.
Our ventures drill and at times operate oil and / or gas wells. We are defined as being engaged in a "trade or business" and therefore claim as a deduction, for federal tax purposes, all ordinary and necessary expenses paid in carrying on our "trade or business," such as costs of operating well, general and administrative costs of the venture, and certain fees paid to the managing venturer.
These IDC costs include expenditures for wages, fuel, repairs, hauling, supplies and other items that have no salvage value and are necessary for the drilling of wells (i.e. hiring the drilling contractor) and the preparation of wells for the production of oil and gas. Intangible costs generally represent a majority of the total cost of drilling, testing and completing an oil and / or gas well.
The joint venture drilling a well may elect to deduct intangible drilling costs, so its investors can get an immediate benefit from the expenditure. When the well drilled proves to be commercially productive, an election to deduct IDC's will generally result in a tax benefit to ventures (in the form of tax deductions) in the year the well is drilled. However, if the oil and gas property or an interest in the venture is later sold at a gain, all or a portion oft hat gain may be classified as ordinary income because of the recapture of these deductions. |
Natural Gas Technology Resources
The natural gas industry is joined by government agencies and laboratories, private research and development firms, and environmental technology groups in coming up with new technologies that may improve the efficiency, cost-effectiveness, and environmental soundness of the natural gas industry. |
Conclusion
It would be hard to imagine a better time to participate in Natural Gas and Oil investments. The shift into a responsible development of America’s resources is eminent and the current demand is ever increasing. Technology has brought all aspects of the industry into the 21st century with 3D seismic modeling and composite micro drilling components. The financial rewards are galvanized with government incentives and tax benefits. |
| America has no shortages of oil or natural gas and will inevitably become tired of unnecessary blackouts and run away costs due to under development which has lead to a huge demand …with little supply. I believe that as the world grows smaller through technological inclusiveness, the energy necessary will become directly relative to the investment we make in development rather than the level of development dictating what energy is available. |
|
| |
|
