American Oil and Gas Reporter - January 2015 - 45

you will be able to argue those points
after a listing. As frustrating as it is, I
strongly encourage you . . . if you have
information that will be helpful to have
on record, go through the exercise of
submitting that data and responding."
He particularly called for information
about conservation and mitigation programs, voluntary guidelines, and population data. "In the minimal case law that
upholds decisions not to list or to delist,
the number one factor the courts turn to
is conservation mitigation strategies and
their documented impacts on population,"
Barron imparted.
According to McDonald, activity on
Capitol Hill offers reasons for optimism
for industry advocates. She noted that
during the 113th Congress, Representative
Richard "Doc" Hastings, R-Wa., had
formed a working group to scrutinize the
ESA's evolution, including the sue-andsettle tactics that environmental groups
had used to force USFWS to move on
hundreds of listing petitions.
Hastings' working group concluded
that a piecemeal approach offered the
best potential for ESA reform, McDonald
explained. Therefore, she recounted, in
July the House passed HR 4315, which
she described as a combination of four
ESA bills. "These were relatively small,
yet meaningful reforms such as capping
attorney's fees and allowing some of the
decision criteria to be posted online to
add additional transparency to proceedings," she detailed. "The environmental
groups said these efforts were gutting
the ESA. That is the kind of PR campaign
we are dealing with, but it was reassuring
(the bill) passed by a bipartisan vote in
the House."
Tax Load Comparisons
During discussions about federal tax
reform and the fate of the tax code's provisions affecting oil and gas production,
Fuller issued a call for companies to provide IPAA with specific information that
compared their tax burdens under the existing code with the proposal unveiled in
April 2014 by then House Ways and
Means Chairman Dave Camp, R-Mi.
Fuller indicated the Camp tax proposal-
which would eliminate the percentage
depletion allowance but continue to allow
independent producers to deduct intangible
drilling costs-could provide the 114th
Congress' starting point for discussions
about deductions and rates.
Fuller said the hard-rock mining industry was upholding the value of percentage depletion, but he said lawmakers
wanted to know how oil and gas companies
would fare without it under the Camp
proposal's lower rates. "It also will be

useful for us to have a much better handle
on the passive loss provision (for working
interest owners)," he related. "Revenue
estimates score it as very small, compared
with percentage depletion.
"As capitalization becomes more challenging for small producers, the potential
of using a passive loss type of capital
generation for an individual could be
much more significant than projected,
but we do not have any tangible information on that," Fuller stated. "The IDC debate will continue also, but I think the
fact that Camp made a hard choice not to
go after IDCs in a package that lowers
rates and eliminates a lot of deductions
will cause House Republicans to have
serious second thoughts about changing
that position. That probably will carry
over to the Senate."
Even so, Fuller allowed that Washington could be losing momentum on
the whole issue as various would-be tax
reformers realized the difficulty of making
the numbers compute. "The enthusiasm
has been suppressed somewhat from
where it was a Congress ago," he assessed.
"Some of the enthusiasm was a reflection
of the administration saying it needed to
eliminate the Bush tax cuts and congressional Republicans saying they did not
want to go after a specific slice of the
revenue stream, but (preferred) to change
the whole tax code to make it fair. Also,
there is still the fundamental question

Depending on the way in which federal
regulators redefine waters of the United
States that are subject to the Clean Water
Act, it is possible that thousands of well
sites in arid areas such as the Permian
Basin suddenly will face obligations
under the Environmental Protection
Agency's Spill Prevention, Control and
Countermeasure program, warns IPAA
Tax and Environmental Counsel Matthew
Kellogg. The considerable cost of implementing those measures could threaten
some wells' profitability, he added.

about whether tax reform is going to be
revenue neutral, which is what the Republicans want, or if it is going to be revenue-generating, which is what the administration and Democrats will want."
Defining Terms
The comment period for the proposed
rule making authored by the EPA and
U.S. Army Corps of Engineers redefining
"waters of the United States" under the
CWA closed in November 2014. According to IPAA Tax and Environmental Counsel Matt Kellogg, it may take close to
two years for EPA and the Corps to issue
a final rule based on all of the response
comments submitted. He noted that IPAA
was among many other impacted stakeholders to submit comments to the docket
on the proposed rule making (see story
page 220).
Kellogg also predicted that attention
from Congress could impact the process
and, potentially, the substance of the rule
making. "We have heard the incoming
Senate majority leader talk about using
appropriations to reel in regulatory issues,"
he noted. "I suspect this could be near
the top of the list."
Depending on the extent to which CWA
jurisdiction expands the waters of the
United States definition, one of the greatest
potential impacts to oil and gas centers on
questions of permitting obligations, he
said. "That is going to be a really big
question, as will be whether the agencies
have the capacity to deal with that (permitting volume)," he related.
"The other principal issue deals with
arid areas, such as the Permian Basin,
where the operator has made an election
that the site is not near navigable water
and so he does not have a Spill Prevention,
Control and Countermeasure Plan nor
secondary containment," Kellogg continued. "If, suddenly, an area is classified
as having waters of the United States,
there is significant retroactive cost in
having to add those."
Kellogg said IPAA was coordinating
on the issue with a coalition of potentially
impacted stakeholders, but was willing
to let other sectors be at the forefront.
"Agriculture, municipalities and other
land-use industries are aggressively responding to this proposal," he related.
"From a political standpoint, it is much
better if people understand this is a private
land-use issue rather than looking at this
issue through the lens of industry versus
the environment."
Other oil and natural gas regulations
are also under development at EPA, Kellogg observed. Specifically, EPA is seeking to regulate methane emissions from
the upstream oil and natural gas sector.
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American Oil and Gas Reporter - January 2015

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