Biden tax code fix needed to help Ohio's oil and natural gas drillers, guest columnist says

Kudos to Congressmen Troy Balderson, Mike Carey, and others seeking to repeal another vestige of the wrong-headed Biden-era energy policy. We’re lucky to have two members of Congress from central Ohio taking key leadership roles, including Troy Balderson, who serves on the front lines as chairman of the House Energy Action Team.

Here’s a familiar story of Biden administration ineptitude. In 2022, they included in the Inflation Reduction Act (not really an energy bill, but appropriate since the name was gaslighting) a repeal of an important economic driver for independent oil and gas producers, allowing them to deduct their operational costs for drilling up front. Mind you, most other capital-intensive industries can deduct similar expenses, just not this one critical sector. 

The oil and natural gas industry is a key driver of Ohio’s prosperity, contributing billions of dollars to our state’s gross domestic product (GDP) and supporting our local communities through taxes and job creation. Independent producers are crucial in our nation’s energy creation, supplying 90% of America’s total oil and gas output. Unfortunately, our tax code treats these businesses unfairly despite their importance to our economy.

The tax code refers to these operational costs as “intangible drilling costs” or IDCs. The name is misleading. Far from being “intangible,” IDCs include things like wages for workers, supplies, repairs, surveying costs, and more. These are all the costs you’d associate with drilling a new well here in Ohio. For example, the compensation paid to a roughneck out in the field is an IDC. Ultimately, up to 80% of the expense of drilling a well falls into this category. 

This one change to the tax code by the Biden administration means that independent producers can’t immediately deduct their drilling expenses, which results in far less capital available for creating new oil wells. Where similar industries get to deduct such expenses immediately and reinvest the money, independent producers can’t. That means less cash available to pay workers, locate new opportunities, and drill new wells. 

Independent oil and gas producers can’t afford to twiddle their thumbs. Even in the most productive shale basins, output quickly declines by around 50% after the first year, and a further 30% by the second. Producers must continue to explore, develop, and produce new wells with IDCs to keep providing jobs and energy for Ohioans. However, the current tax code makes it much harder for them to do so.   

So now we’re back to present day, with saner heads prevailing. Once again, we have a president who understands the importance of domestically produced oil and gas for our economy and energy security. We have members of Congress willing to stand with the president and right the Biden administration’s wrongs. People like Troy Balderson and Mike Carey are working to unleash America’s vast resources, starting with a repeal of harmful policies created by the Biden administration, which are strangling economic growth and energy independence.

The fix for independent oil and gas producers is passing the “Domestic Energy Production Act,” sponsored in the House by Congressmen Balderson and Carey. Now, we need the rest of the House to sign on, move the bill, vote yes, and erase this error from the list of needed Biden corrections. Let’s get to it!

Matt Dole is chairman of the Licking County Republican Party Executive Committee