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Congressional Republicans have already called the proposed budget a political non-starter

President Obama released his proposed federal budget, asking Congress to eliminate billions of dollars in tax breaks to the oil and gas industry in order to fund a $4 trillion budget for fiscal year 2016. The budget comes as part of a broader push to overhaul U.S. business taxes, which includes lowering the corporate tax rate to 28% from 35% today, while hitting untaxed foreign earnings that U.S. companies have accumulated overseas with a one-time, 14% tax, according to Argus Media.

Obama’s budget for the fiscal year beginning October 1, 2015, will eliminate a series of “oil and natural gas preferences” that the White House Office of Management and Budget (OMB) estimates would “raise” $4.1 billion in 2016 and $45.5 billion from 2016 to 2025, all of which would go to the government.

The plan would repeal expensing of drilling costs like wages, fuel repairs, hauling and supplies needed to drill a well. The OMB estimates that those alone will raise $2.3 billion in 2016 and $15.5 billion over the next ten years. The plan would also do away with the percentage depletion allowance for oil and gas wells and producers’ ability to take the Section 199 deduction for domestic manufacturers.

The repeal of Section 199 alone could compromise more than 10% of U.S. oil and gas productive capacity by 2017 – or roughly $10 to $17 billion in direct upstream investment per year, reports Oilprice.com.

Along with repealing a number of tax breaks, the plan proposes reinstating a Superfund tax, which once included a $0.07/barrel excise tax on crude and refined products, and increasing the funding for the Oil Spill Liability Trust Fund.

The American Petroleum Institute estimates that the new tax plan in Obama’s proposed budget would cost the oil and gas sector about $95 billion over the course of a decade.

Republican leaders have already dismissed the proposed budget, but it will still lay the ground work for negotiations with lawmakers over simplifying the tax code moving forward.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.