| about the Author |
 Joe has twelve years of professional experience and serves as an Audit Partner in the Dallas office of HEIN & ASSOCIATES LLP. He provides a wide range of audit and accounting services for both public and privately-held companies in the energy industry. Joe has significant experience with Securities and Exchange Commission disclosure and reporting requirements, and has also assisted with mergers and acquisitions as well as initial and secondary securities offerings. He has consulted with public companies for the implementation of Section 404 of the Sarbanes-Oxley Act (SOX 404) internal control and reporting. Joe also specializes in revenue recognition, share-based payment arrangements, disclosures about oil and gas producing activities, and foreign currency translation.
In addition to his energy experience, Joe has developed a focus in the distribution and technology industries, and serves as the Local Energy Practice Area Leader for the Dallas office. He is a member of the Council of Petroleum Accountants Societies (COPAS) where he has served in various capacities since 2003. He also serves as the Chairman of the 2010 North American Petroleum Accounting Conference (NAPAC), and is a frequent speaker at various energy related presentations.
Prior to joining HEIN & ASSOCIATES LLP LLP in 2003, Joe served as the Controller of a publicly-traded oil and gas company where he assisted with a merger and a private placement for the organization. He began his career as a member of the audit staff of Ernst &Young LLP after graduating from the University of Oklahoma.
Joe can be reached at 972.458.2296 or jblice@heincpa.com.
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Year in Review
By Joe Blice, CPA, Audit Partner
As we begin 2010, it is a good time to review the outlook for the oil and gas industry. With the many proposals for "change" this year, the industry may feel it is under attack from the federal government. In addition to this unsettled environment, the industry has also experienced an unsettled economic ride during the past year due to fluctuating oil and gas prices.
Unfortunately, fluctuating prices are not the most complex issue facing the oil and gas industry. As noted, the federal government is presenting the greatest challenges to the industry. These challenges seriously threaten independent producers by challenging provisions in the Internal Revenue Code that encourage investing in U.S. oil and gas development. The White House Energy Czar, Carol Browner, has stated that the administration is wedded to its rationale that industry tax deductions should be eliminated to "stop overproduction of oil and natural gas." In addition, groups opposed to oil and gas development and production are actively using every available regulatory and environmental issue to establish barriers to responsible development.
There are at least three vehicles through which negative energy policy is being developed in Washington. Consider the following:
- Cap-and-trade – H.R. 2454. Last June, the House of Representatives passed H.R. 2454, the American Clean Energy and Security Act. This "cap-and-trade" climate change bill was narrowly passed by the House (219-212) indicating that it is a hot political subject. Meanwhile, the Senate has developed its own version of climate and energy legislation, the American Clean Energy Leadership Act of 2009, leaving much debate to be heard before we see a final bill. This Senate bill proposes adjustments to the Strategic Petroleum Reserve and increases loan guarantees for a natural gas pipeline from Alaska. Both bills contain numerous policies to reduce greenhouse gas emissions.
In order for the 1200-page House of Representatives bill to succeed, Congress and the public will need to buy off on increasing the cost of energy at all stages – from discovery to production to consumer end use. It appears that H.R. 2454 would result in less energy for those who need it, and more expensive energy for those who cannot afford it.
- Government Policy – The 2010 Budget. The Administration submitted its 2010 budget request last May, specifically targeting independent oil and gas producers with higher taxes. The budget would terminate eight tax policies critical to the independent oil and gas industry, some of which have been in the tax code since 1913. The budget also includes a new tax on production coming from properties located in the Gulf of Mexico. Altogether, it has been estimated that these terminations will cost oil and gas companies $31 billion in taxes between 2010 and 2019, as well as $1 billion in fees for nonproducing properties. Since this budget is focused on independent oil and gas producers, it is expected to impact all producers throughout the U.S.
- Fracture Legislation – the third barrier facing the industry comes in the form of legislation seeking to increase oversight of hydraulic fracturing. On June 9, 2009, Democratic Representatives DeGette and Polis (Colorado), Hinchey (New York), and Casey (Pennsylvania), introduced the Fracturing Responsibility and Awareness of Chemicals Act (FRAC). This legislation is based on premises that hydraulic fracturing is unsafe, unregulated, and that it benefits from a special exemption to federal law.
FRAC’s goal is to rescind important provisions of federal law clarifying Congressional intent as it relates to the Safe Drinking Water Act of 1974 (SDWA), aimed at protecting public water supplies. In 1974, hydraulic fracturing already had been in commercial use for 25 years. At no time during Congressional hearings on SDWA, nor in debates on amendments in 1980, 1986 and 1996, did Congress consider regulating hydraulic fracturing. Hydraulic fracturing has historically been regulated by the states. Moreover, those using fracturing techniques have a strong record of safety and performance. In more than 60 years after its first commercial use, not one case of hydraulic fracturing related contamination has been documented by state or federal government analyses. In addition, a 2004 study by the EPA found that hydraulic fracturing posed "no threat" to underground drinking water supplies.
One aspect of all of these policies that favors the industry is that these bills may require a great deal of additional government spending and economic hardship. While the administration claims the costs will be borne by corporations or compensated for by new jobs, those statements do not appear to be reflected in public opinion polls.
Other articles in this newsletter:
Industry Goes on the Defense
Supreme Court Declines Oil Royalties Case
Interior Department Actively Takes Position
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1st Quarter, 2010
