Obama seeks halt to tax subsidies for oil industry

AP

Ken Thomas

WASHINGTON (AP) — President Barack Obama is calling anew onCongress to end tax subsidies for the oil and gas industry, saying the nation needs to develop alternative sources of energy in the face of rising gasoline prices.

Obama said Saturday in his weekly radio and Internet address that he expected Congress to consider in the next few weeks halting $4 billion in tax subsidies, something he hasn't been able to get through Congress throughout his presidency. He said the vote would put lawmakers on record on whether they "stand up for oil companies" or "stand up for the American people."

"They can either place their bets on a fossil fuel from the last century or they can place their bets on America's future," Obama said.

Industry officials and many Republicans in Congress have argued that cutting the tax breaks would lead to higher fuel prices, raising costs on oil companies and affecting their investments in exploration and production. The measure is considered a long shot in Congress, given that Obama couldn't end the subsidies when Democrats controlled Congress earlier in his term.

Republican presidential candidates have accused Obama of delaying drilling for oil in the Gulf of Mexico and in a national wildlife refuge in Alaska and faulted him for not advancing the Keystone XL oil pipeline from Canada to Texas Gulf Coast refineries. They have also criticized policies pursued by the Environmental Protection Agency as inhibiting energy development.

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Chesapeake Energy is in a bind - Another oil & gas welfare recipient?

Christopher Helman
Forbes Staff
2/12/2012

Billionaire Wildcatter, Risk Addict Aubrey McClendon Has Bet It All On Shale

The company says it aims to raise $2 billion by spinning off assets from its service company and pipeline division. It expects another $2 billion from upfront sales of future flows from gas fields. And it earmarks another $6 billion or so from the sale of its largely undeveloped acreage in the oil-rich Permian basin. And for good measure, it will raise another $1 billion by issuing more senior debt. The $10-12 billion it hopes to raise is “substantially in excess of the difference between the company’s expected cash flow from operations and its planned capital expenditures.” Gosh I should hope so. Analyst Arun Jayaram at Credit Suisse pegs Chesapeake’s 2012 cash hole at $6 billion.

But with natural gas prices already at decade-long lows and set to go even lower in the months ahead, there’s no telling whether even Aubrey McClendon‘s legendary financial finagling will be able to save the day.

Desperate times call for desperate measures.

Chesapeake Energy is in a bind. It’s the second-biggest natural gas producer in the country after ExxonMobil. But with natgas prices having fallen to their lowest levels in a decade ($2.40 per thousands cubic feet), Chesapeake isn’t generating enough cash.

Chesapeake has curtailed its drilling in some plays, and in January said it would shut in production of marginal gas fields. But the company has $10 billion in debt to service and is obligated to keep drilling wells on newer oil and gas leases in order to hold the land. Over the course of 2012, if gas prices were to stay where they are now, Chesapeake would face a cash shortfall of several billion dollars.

A gift for financial engineering is part of the genius of Chesapeake Energy Chief Aubrey McClendon. For years he has driven Chesapeake hard and fast to gobble up oil and gas acreage across the country. To keep his land machine running, McClendon has continuously raised more cash from joint ventures, spin offs and by issuing debt. This wouldn’t have been a problem if gas prices just cooperated by staying around $5 or $6 per thousand cubic feet. Yet Chesapeake and other drillers have found so much new gas that what used to look like a bonanza has now turned into a glut.

A couple years ago McClendon redirected Chesapeake to focus on oily, liquids-rich plays. First the Eagle Ford shale, then newer areas like the Mississippi Lime and Permian Basin. The idea was that while gas prices were low, the cash flow from the higher-value liquids would be enough to keep Chesapeake solvent.

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Say NO to oil and gas welfare and YES to small business loans.