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FUELING AMERICA: ENABLING AND EMPOWERING 

SMALL BUSINESSES TO UNLEASH DOMESTIC 

PRODUCTION 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

AND ENTREPRENEURSHIP 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

JANUARY 21, 2014 

Printed for the Committee on Small Business and Entrepreneurship 

( 

Available via the World Wide Web: http://www.fdsys.gov 
(II) 

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED THIRTEENTH CONGRESS 

MARY L. LANDRIEU, Louisiana, Chair 

JAMES E. RISCH, Idaho, Ranking Member 

CARL LEVIN, Michigan 

MARIA CANTWELL, Washington 

MARK L. PRYOR, Arkansas 

BENJAMIN L. CARDIN, Maryland 

JEANNE SHAHEEN, New Hampshire 

KAY R. HAGAN, North Carolina 

HEIDI HEITKAMP, North Dakota 

EDWARD J. MARKEY, Massachusetts 

CORY A. BOOKER, New Jersey 

DAVID VITTER, Louisiana 

MARCO RUBIO, Florida 

RAND PAUL, Kentucky 

TIM SCOTT, South Carolina 

DEB FISCHER, Nebraska 

MICHAEL B. ENZI, Wyoming 

RON JOHNSON, Wisconsin 

JANE CAMPBELL, Democratic Staff Director 

SKIFFINGTON HOLDERNESS, Republican Staff Director 
(III) 

C O N T E N T S 

OPENING STATEMENTS

Page 

Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana .................. 1 

WITNESSES

Comstock, Stephen, Director of Tax and Accounting Policy, American Petroleum Institute ....................................................................................................... 35 

Jackson, Lee, Chairman and CEO, Jackson Offshore Operators, LLC ............... 41 

Landry, Stephen J., Partner, National Tax Practice, Ernst and Young, LLP .... 47 

Lazenby, Virginia, Managing Member and CEO, Bretagne, LLC ....................... 53 

LeBlanc, Joseph, Co-Founder and Senior Managing Director, PerPetro Energy, LLC .............................................................................................................. 60 

Stewart, Jennifer, Vice President Tax, Southwestern Energy Company, and 

Chair of the Tax Committee of the American Exploration and Production 

Council .................................................................................................................. 66 

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Comstock, Stephen 

Testimony .......................................................................................................... 35 

Prepared statement .......................................................................................... 38 

Gamble, Deanna 

Report titled ‘‘An Ethical Approach to Shale Resource Development .......... 84 

Jackson, Lee 

Testimony .......................................................................................................... 41 

Prepared statement .......................................................................................... 43 

Landrieu, Hon. Mary L. 

Opening statement ........................................................................................... 1 

Report titled ‘‘Eliminating Oil and Gas Company Tax Breaks: Independent Producers Face a Funding Gap’’ ................................................... 5 

Landry, Stephen J. 

Testimony .......................................................................................................... 47 

Prepared statement .......................................................................................... 49 

Lazenby, Virginia 

Testimony .......................................................................................................... 53 

Prepared statement .......................................................................................... 55 

LeBlanc, Joseph 

Testimony .......................................................................................................... 60 

Prepared statement .......................................................................................... 62 

Rosen, Rebecca 

Letter dated December 11, 2013, to Senators Landrieu and Risch .............. 163 

Stewart, Jennifer 

Testimony .......................................................................................................... 66 

Prepared statement .......................................................................................... 68 

(1) 

FUELING AMERICA: ENABLING 

AND EMPOWERING SMALL BUSINESSES 

TO UNLEASH DOMESTIC PRODUCTION 

TUESDAY, JANUARY 21, 2014 

UNITED STATES SENATE, 

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, 

Lafayette, LA. 

The Committee met, pursuant to notice, at 3:00 p.m., in the Picard Center—Rockhold Learning Center, University of Louisiana, 

Lafayette, LA, Hon. Mary L. Landrieu, Chair of the Committee, 

presiding. 

Present: Senator Landrieu. 

OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, 

AND A U.S. SENATOR FROM LOUISIANA 

Chair LANDRIEU. Good afternoon, everyone. I’d like to call this 

field hearing of the Small Business Committee of the United States 

Senate to order. Let me welcome all of you for this very important—and I think it’s going to be very productive—discussion. I 

thank our witnesses for being available today. 

I want to begin by thanking the University of Louisiana at Lafayette and particularly the Picard Center for allowing us to host 

our field hearing here. It’s the first time for me in this center. Of 

course, I’ve heard a great deal about it. I knew Cecil Picard personally, and I’m just so overwhelmed to be in his presence and the 

family and what they have meant to Louisiana, not in the field of 

energy but in education as one of our great leaders of early childhood education. 

So this center is just really a wonderful blessing to this university and to our state. I thank them for allowing us to hold our hearing. 

I also want to thank a few special guests from the university. 

Mark Zappi, the Dean of Engineering, is here. Randy McCollum, 

the Chair of the Chamber Energy Committee; Jerry Luke LeBlanc, 

former elected official; and Bruce Conque from the Lafayette 

Chamber are here. Thank you all for being here and others that 

have joined us. 

I want to begin by saying how pleased I am that we could have 

this hearing in Lafayette, Louisiana, today’s hearing. It’s timely 

and important on the subject of job creation, of independent energy 

gas producers, and their job creation prowess. 
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It’s only appropriate that we have this hearing in Lafayette. This 

region of Louisiana and the Gulf Coast is home to 1,300 companies 

operating in the oil and gas sector and host to the second largest 

oil and gas exposition in the nation, the Louisiana Gulf Coast Oil 

Exposition. I’d particularly like to thank, of course, Jason El Koubi 

of the Lafayette Chamber, who couldn’t be with us today, and, of 

course, the president of the university, Dr. Savoie, and others that 

I had mentioned earlier today. 

In virtually every recent public poll that asked respondents to 

name the most important issues Congress is facing today, jobs, the 

economy, and expanding opportunities for the middle class come 

out as the number one issues. Partisan bickering is slowing things 

down, but the congressional dysfunction should not stand in the 

way of efforts to create the kinds of high-skilled, high-wage jobs 

that will move our economy forward and provide the high-paying 

jobs that the middle class needs and relies on and our country relies on for energy self-reliance. 

According to the Independent Petroleum Association of America, 

as oil and natural gas jobs continue to grow, incomes associated 

with this industry are also rising in contrast to the national average of stagnant wages of the past decade. According to a recent 

paper by the Economic Policy Institute, the vast majority of U.S. 

workers, including white collar and blue collar and those with or 

without a college degree, have endured a decade of wage stagnation. However, the average hourly pay for upstream oil and gas is 

about $34.50 an hour or nearly 50 percent higher than the national 

average. Here in Louisiana, the annual wage is about $57,000, but the average wage of direct jobs in the unconventional oil and gas industry 

is almost double that at $108,000. The facts are that jobs in this 

particular industry pay more than four times the minimum wage, 

which has been pegged at $7.25 for a couple of years now. Of 

course, it’s being debated to increase, but has not yet. 

These jobs pay the kind of wages and salaries, in my view—and 

I know it’s shared by many here—that allow families to invest in 

homes, in their education, and in their futures. If Congress can 

take the steps to increase domestic energy production, we not only 

increase America’s energy independence, but we also create the 

kinds of jobs that will grow the middle class and have a major impact on reducing income inequalify in our country, which is a goal 

I believe that we all share. 

The focus of today’s field hearing is to examine the important 

role of independent oil and gas producers in supporting the small 

business supply chain and impacting our energy security and some 

of the challenges that these companies face in their ongoing operations. The facts won’t surprise anyone in this room. 

But many of my colleagues on Capitol Hill would be surprised to 

learn that the companies that primarily power our domestic production are not the mammoth, international, integrated companies 

that we’re all proud of and well aware of, but rather the 14,000 

independent producers that, on average—this is going to be shocking to some—employ 12 people full time and three part-time. In addition, this industry creates work and jobs for more than 46,000 

small businesses that are along the production supply chain. 
3 

According to testimony from the Independent Petroleum Association of America, independent producers develop 95 percent of 

America’s oil and gas wells, produce 54 percent of America’s oil, 

and 85 percent of gas. Independent producers are exploration and 

production companies that participate in only upstream activities. 

This means they explore for and produce oil and gas, but they do 

not necessarily transport, refine, or market the product. 

They are an integral part, however, of this industry. According 

to the independent producers, the average independent producer 

has been in business for 26 years, and, as I said, employs only 12 

full time employees and three part-time—quite a contrast, I believe, to the commonly held view. 

The small, tight-knit, and in many instances family owned or 

family like businesses have a mighty impact on America’s energy 

economy across our country. Independent producers support over 4 

million direct jobs and indirect jobs onshore and over 200,000 offshore, according to IHS Global Insight. These jobs drive over $100 

billion in total payroll, contributing billions to local tax revenues 

and economic activity, which, in turn, supports an average of 5.2 

jobs for everyone directly employed. Onshore independent producers contribute $579 billion to the U.S. economy and, offshore, $100 billion, again, according to the 

same study. In 2010, the most recent year for which data is available, independent producers drilled 37,175 wells. These wells represent the vast new reservoirs, if you will, or findings of gas and 

oil and have driven the expansion of shale gas production. Combined independent production also drives nearly $6 billion of the $11 billion collected each year in rents, royalties, and bonuses 

by the federal government. I’d like to underscore that just once 

again. Combined independent production also drives nearly $6 billion of the $11 billion that goes to the federal treasury each year 

in rents and royalties and bonuses. Almost $6 billion of that comes 

off the shores of Louisiana and Texas in the Gulf. 

Although not all independent producers quality as small businesses, the ones that do impact our economy in a mighty way. One 

of our witnesses today representing a larger independent says in 

her testimony that her company contracts with over 3,500 small 

businesses from all over the country and paid a total of $2.7 billion 

to those businesses over a two-year period. 

To give you some perspective of what this means, the entire 

budget of the Small Business Administration, which I authorize as 

the chair of the Small Business Committee, is, for the whole nation, $1 billion a year. So this one company, a large, independent 

oil and gas, contracts with over 3,500 small businesses. That’s how 

long and powerful this small business supply chain is. 

Independent contractors drill the majority of wells associated 

with new production. As you will hear from the producers today, 

one of the most significant economic drivers supporting investment 

by the industry is access to cash flow. Cash flow from operations 

drives the next investment and helps mitigate some of the industry’s real financial risks, especially in the exploration and production stage. 

One of the primary cash flow strategies independent producers 

employ is entering into partnerships with their major industry 
4 

counterparts to finance exploration and offset risks with new ventures. For example, in practice, offshore operations often begin with 

small operators exploring new fields, which are then developed 

through partnerships with larger operators. Offshore independent 

producers are the largest shareholders in 66 percent of the 7,521 

leases in the entire Gulf of Mexico and 81 percent of the producing 

leases. They are also partners to major companies on the remaining leases and provide necessary support for offshore development. 

In addition to partnering with well-funded investors, independent producers rely on longstanding provisions of the U.S. tax 

code to facilitate these important cash flow requirements. As every 

witness here today will tell you, the current tax code includes a 

number of provisions that independent producers count on to recover substantial investment costs quickly for tax purposes, 

amounts that are immediately reinvested into additional domestic 

production, which drives contracts with small business, drives our 

economy, and drives job creation. 

Not withstanding these obvious and proven benefits, some of 

these tax provisions have come under fire in recent years as being 

unnecessary or excessive industry subsidies. As part of this hearing, I would like to enter into the record a 2011 Bloomberg government report entitled ‘‘Eliminating Oil and Gas Company Tax 

Breaks: Independent Producers Face a Funding Gap’’ that concluded that repeal of these tax provisions would reduce the drilling 

activity of independent producers. 

[The information referred to follows:] 
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Chair LANDRIEU. If these beneficial tax provisions had not been 

included in the current code, independent producers would have 

spent $2.1 billion less to drill new wells. About 1,558 fewer wells 

would have been drilled in the United States at a time when we’re 

trying to increase domestic production for obvious reasons. Revenue 

loss and job loss would have resulted. 

So I would like this hearing to be an opportunity to set the 

record straight, to hear from independent producers here today 

how proposals to eliminate these longstanding provisions in the tax 

code would impact their operations and ability to fund new projects 

and the ability to expand their operations. We have an impressive 

list of panelists today. They each bring with them their own individual experiences. 

I’d like to first start with Stephen Comstock. I’m going to introduce all of them for a five-minute opening, and then we’ll go to 

some questions to the panel. 

First, we have Stephen Comstock, who is the Director of Tax and 

Accounting for the API, formerly the Chair of the Energy and Environmental Tax Committee for the American Bar Association. 

Stephen, thank you for being here and for your testimony. 

Next we’ll hear from Lee Jackson, who is a majority shareholder 

of Jackson Offshore and an offshore services operator with more 

than 20 years in the maritime industry. Mr. Jackson is a former 

river boat pilot, and has been appointed to the Louisiana River 

Pilot Oversight and Review Board. 

Thank you, Mr. Jackson, for your attendance. 

Joe LeBlanc is Co-Founder and Senior Managing Partner of 

PerPetro Energy, LLC, which is a privately held independent oil 

and gas company headquartered right here in Lafayette. Formed in 

2011, it has a plan to maximize the value of Gulf Coast Basin legacy properties. Joe has more than 30 years of experience in the industry. 

Joe, thank you very much for being here. 

Jennifer Stewart is Vice President of Tax of Southwestern Energy. She is also here in her capacity as the Chair of the Tax Committee of the American Exploration and Production Council. 

And, finally, Stephen Landry, who is a Tax Partner with Ernst 

and Young. From 2007 to 2013, Steve served as VP of Tax for Marathon Oil. 

And, Gigi, I didn’t want to pass you up. 

Gigi Lazenby is Managing Director and CEO of Bretagne, an 

independent oil and gas company with properties in the Big Sinking Field of Kentucky that she founded in 1988. She is formerly the 

Chair of the Independent Oil and Gas Producers. I had the pleasure of hosting Gigi in my home, I think, in Washington. 

So it’s wonderful to see all of you here. 

Stephen, why don’t we start with you. I think the staff has directed a five-minute introduction, and then we’ll go into a series of 

questions. 

STATEMENT OF STEPHEN COMSTOCK, DIRECTOR OF TAX AND 

ACCOUNTING POLICY, AMERICAN PETROLEUM INSTITUTE 

Mr. COMSTOCK. Thank you, Senator Landrieu, for the opportunity to testify today. I’m Stephen Comstock, Director of Tax and 
36 

Accounting Policy at the American Petroleum Institute. API is the 

national trade association representing over 550 member companies of every size and representing every segment of the U.S. oil 

and natural gas industry. 

America’s oil and natural gas industry has been a bright spot in 

our economy, as you said, with benefits felt across the country. Innovation, many times spurred by small businesses and entrepreneurs, has helped generate a domestic energy revolution 

through the development of hydraulic fracturing and horizontal 

drilling techniques. This revolution, in turn, has sparked new life 

into domestic manufacturing, is supporting 2.1 million jobs, and 

has raised the average household’s disposable income by $1,200 a 

year. 

Large and small companies work together to meet America’s energy demand. According to the recent census data, there are over 

46,000 small businesses supporting the production of oil and natural gas in the United States and directly employ over 300,000 

workers. Every day, they provide a vital aspect to the generation 

of America’s energy. 

One area where this is clearly seen is something familiar, as you 

noted, offshore development. Due to the cost involved in offshore 

energy exploration production, larger companies are more likely to 

develop these areas. But to make those investments work, larger 

companies must rely upon a vast nationwide supply chain that includes and supports countless small businesses. 

As an example, opening up the Atlantic Outer Continental Shelf 

to oil and natural gas development could create 280,000 new jobs 

along the East Coast and across the country and contribute up to 

$23.5 billion per year to the U.S. economy, according to a just-released study by Quest Offshore Resources. Many of those jobs 

would be directly in the oil and natural gas industry, but the impact would extend to a wide range of businesses in our robust supply chain to provide food, transportation, retail, healthcare, and 

other services to our employees and their families. 

Of course, small businesses are also involved in finding and producing oil and natural gas. This has always been and will continue 

to be a risky, time consuming, and expensive process. Industry operators must spend significant time and money before generating 

a return on their investments. Therefore, the ability to generate 

and preserve cash flow is vitally important to the industry. 

The current tax code allows exploration and production companies to recover costs quickly so that investment profile is maintained. Specifically, ordinary costs involved in drilling a well which 

have no salvage value, such as wages, fuel, and maintenance, can 

be deducted when incurred. The resulting improvement in cash 

flow means operators have more money to invest and can perform 

more exploration and drilling, produce more energy, and create 

more jobs. All of that helps grow our economy. 

Changes to cost recovery would force small producers to shut 

down older domestic oil and natural gas wells and cut back on 

drilling new ones. These economic changes would impact larger 

companies as well. Accordingly, the result would be reduced domestic oil and natural gas production and fewer U.S. jobs. The economic ripple would adversely impact the job growth and revenues 
37 

of many small businesses in our domestic supply chain and those 

that depend on a secure energy supply. 

In short, changes to the tax code in cost recovery could unintentionally hit the brakes on America’s energy and manufacturing renaissance and have a devastating effect on jobs, the economy, and 

revenue to the government. The domestic oil and natural gas industry, both large and small, supports 9.8 million jobs in the 

United States. Manufacturing jobs are coming back to the U.S. in 

droves thanks to the abundance of affordable U.S. energy. 

Just by allowing our industry to do what we do best, the federal 

government collects revenues averaging $85 million a day in taxes, 

rents, royalties, and bonuses. In short, energy is working in America. 

Thank you, and I welcome your questions. 

[The prepared statement of Mr. Comstock follows:] 
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Chair LANDRIEU. Thank you very much. 

Mr. Jackson. 

STATEMENT OF LEE JACKSON, CHAIRMAN AND CEO, JACKSON 

OFFSHORE OPERATORS, LLC 

Mr. JACKSON. Thank you, Senator Landrieu. And one clarification: I’m still a very active and proud river boat pilot. 

Thank you for this opportunity today to discuss how we can work 

together to improve the commercial environment for small businesses and entrepreneurs in Louisiana through the growth of domestic energy production. Obviously, I’m no expert when it comes 

to tax law, but, surely, I can testify to the trickle down effect of 

such incentives and the effect on companies such as mine. 

Jackson Offshore Operators supplies fast crew supply boats and 

platform supply vessels to the offshore oil and gas industry in the 

Gulf of Mexico. We currently have two 175-foot fast crew supply 

vessels in operation under long-term contracts with super majors. 

In addition, we have two 210-foot fast supply crew boats under construction at a shipyard in Harvey, Louisiana, and four 252-foot 

platform supply vessels under construction at a shipyard in Florida. 

The fast crew supply vessels are utilized to carry industrial 

workers and general oil field cargoes between shore based locations 

and the drilling rigs and production installations offshore. The four 

platform supply vessels are much larger vessels that are specifically built to support deep water drilling, development, and production. These four vessels are also on long-term contracts with super 

majors as well. 

Jackson Offshore Operators was formed in 2011 when I purchased two fast crew boats which had previously been built in Louisiana two years earlier. By this time next year, Jackson Offshore’s 

employment will grow to approximately 136 personnel once our expanding effort reaches its peak, and that represents eight ships in 

operation with an annual payroll and benefit costs of about $30 

million. 

While Jackson Offshore Operators is a young company, we have 

been blessed to have loyal support from our customers, the domestic and international oil and gas companies. Without these large 

companies being active in Louisiana and the Gulf of Mexico, my 

company and its growth would simply not be possible. 

Jackson Offshore is involved a capital-intensive industry. We 

have to build state-of-the-art vessels to support deep water drilling, 

and these ships are very costly. Currently, the six ships under construction will cost in excess of $180 million. Without the long-term 

contracts issued to Jackson Offshore by the majors, I would not be 

able to secure the equity capital which is over $35 million and obtain the necessary debt financing to build these ships contracted by 

the offshore oil and gas companies. 

The major oil and gas companies find investments in the United 

States to be attractive for several reasons. The U.S. is a stable 

country. It is a country with fair and well-established laws and tax 

regulations that make drilling, development, and production for oil 

and gas in the U.S. economically attractive. 
42 

In addition, the U.S. has been blessed that oil and gas has been 

found here in abundance. However, there are many other countries 

around the world where oil and gas has been found and that also 

offer attractive alternatives for the investments of capital dollars to 

the oil and gas industry. As a result, it is of critical importance 

that the environmental laws and the tax regime in the U.S. remain 

competitive with those found in other countries around the globe. 

I’m not suggesting that we should reduce our commitment to 

having high environmental protection for our country, but that the 

environmental laws and the regulations sometimes represent a less 

transparent and a less fair and balanced way. Using environmental 

laws and regulations and with new and more punitive interpretations to punish the oil and gas companies will unnecessarily raise 

the cost of safe and clean drilling, and development and production 

of oil and gas will certainly result in the capital of these companies 

moving to other countries. 

While our tax laws are and have been used to incentivize and direct investments of capital throughout the history of our country, 

I would argue that they are not giveaways. And changing existing 

tax laws and regulations for the oil and gas industry at this time 

would have a very detrimental effect on the future growth of Jackson Offshore and the oil and gas industry in general. 

The administration proclaims it wants an all-of-the-above approach to energy policy in the U.S., and it has taken many actions 

to encourage production of renewable energy. I believe that the 

focus on renewable energy is good for our country. But an all-ofthe-above approach to energy policy in the U.S. should not include 

any changes in the current tax laws and regulations that discourage oil and gas exploration, development, and production. 

Changing the existing tax laws and regulations to increase taxes 

and fees and create high costs to the detriment of the oil and gas 

industry in the U.S. will only cause the oil and gas companies to 

move their future capital spending to other countries that provide 

a better economic return to the investors. We should all remember 

that investment capital always flows to the venue where it is best 

treated. 

Raising the cost of drilling, developing, and producing oil and gas 

in the U.S. will only result in reduced capital dollars being invested 

here at home. Without the commitments from the oil and gas companies to the deep water of the U.S., Jackson Offshore would not 

exist today. Without those continued investments by the oil and 

gas industry in the U.S., our future growth will be ended. 

We must all realize that the U.S. is in a competition with other 

countries for investment dollars. We need to encourage and not discourage additional investments in the U.S. by both domestic and 

international oil and gas companies. 

Thank you for this opportunity to provide you with my views on 

this topic that is critical to my company, Louisiana, and, frankly, 

the U.S. 

[The prepared statement of Mr. Jackson follows:] 
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Chair LANDRIEU. Thank you, Mr. Jackson. 

Mr. Landry. 

STATEMENT OF STEPHEN J. LANDRY, PARTNER, NATIONAL 

TAX PRACTICE, ERNST AND YOUNG, LLP 

Mr. LANDRY. Senator Landrieu, thank you for inviting me to testify in today’s hearing. My name is Stephen Landry. I am a partner 

in the National Tax Practice at EY. I serve in the oil and gas industry group, and the opinions I express are my own and not those 

of the firm. 

Growth in domestic production of oil and gas in the last five 

years has been well documented. The production growth is a direct 

result of increased capital spending. A recent American Petroleum 

Institute publication indicates that capital spending for U.S. 

projects in 2013 was approximately $350 billion. 

This capital spending was by businesses of all sizes. And according to the Independent Petroleum Association of America, the overwhelming majority of wells drilled in the U.S. were drilled by independent producers, most of which qualify as small businesses. 

Current law allows a deduction for independent producers of 100 

percent of intangible drilling costs. These costs, though labeled 

with the term, intangible, are clearly not. These costs are for 

wages, fuel, repairs, hauling, supplies, and similar expenses without salvage value that are incident to and necessary for the drilling 

of oil and gas wells. 

Having these deductions allows for rates of return that have created the capital spending we discussed. Changes on these rates of 

return for oil and gas wells will be directly influenced by changes 

in the tax law. It has been estimated that a change to amortization 

of IDCs over five years could change the rate of return by as much 

as 8 percent for independent oil and gas producers and their wells. 

This reduction in the cost recovery value of IDCs, using conservative discount rates, will raise the cost of capital for investments 

in oil and gas. A change in the expected return of this magnitude 

is significant enough to change investment decisions and could 

make investments in some oil and gas wells uneconomical. 

Large integrated producers that are choosing among alternative 

investments might simply allocate their capital to other projects 

and jurisdictions that offer better rates of return. Small companies, 

for whom cost of capital is a larger barrier to entry, might not 

enter at all or be forced to grow at a slower rate. 

Because more than 60 percent of IDCs are wages, such a reduction in the rate of return on investments in oil and gas wells could 

have an immediate impact on workers in oil producing states. IDCs 

relate to jobs because the ability to deduct these expenses in the 

year in which they occur provides the capital used by independent 

producers to drill the next well. The negative economic impact of 

their repeal could be substantial. States may see a decline in the 

creation of new jobs and could experience a lower wage base for existing jobs. 

Over the next 10 years, the industry could also experience significant job loss relative to what would occur under present law. 

The effect will be felt eventually by the entire economy, given the 
48 

importance of low cost energy throughout the country, especially at 

this point in the country’s economic recovery. 

There are other provisions in the tax code that also affect the 

cost of developing oil and gas. The industry already has a reduced 

percentage in the deduction for domestic manufacturing activity 

costs. Depletion and amortization of geological and geophysical 

costs, like IDCs, are also capital cost recovery allowances. Depletion is simply a form of depreciation for oil and gas and mineral 

resources that allows for a deduction from taxable income to reflect 

the declining production of reserves over time. 

Tax policy reforms that increase the cost of capital for America’s 

oil and gas could have several negative effects for the overall economy. Fewer wells drilled and decreased energy investment will 

cause domestic oil and gas production, one of the bright spots in 

our economy over the last several years, to fall significantly below 

current projections, making the goal of attaining U.S. energy independence over the next decade much more difficult to reach. 

Taxes paid by the industry to the federal government could fall 

significantly. In addition, the effects would include lower earnings 

and fewer jobs for America’s small businesses and oil field laborers. 

[The prepared statement of Mr. Landry follows:] 
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Chair LANDRIEU. Thank you. Very well said, Mr. Landry. 

Ms. Lazenby. 

STATEMENT OF VIRGINIA LAZENBY, MANAGING MEMBER AND 

CEO, BRETAGNE, LLC 

Ms. LAZENBY. Chairman Landrieu, thank you so much for inviting me to testify and to participate in this very important hearing 

on independent producers and oil and natural gas provisions. My 

name is Gigi Lazenby. I am the Managing Member and Chief Executive Officer and 100 percent shareholder of Bretagne, LLC, an oil 

and gas production company that I founded in 1988. 

Bretagne’s properties are in the Big Sinking Field of Kentucky 

which produced over 100 million barrels since it was found in about 

1917. Unfortunately, I didn’t produce all those barrels, but there 

are still a lot left. My company’s operations include primary and 

enhanced recovery operations as well as development and field extension drilling. 

I am also the immediate past chair of the Independent Petroleum 

Association of America. IPAA represents, as you quoted earlier, 

thousands of independent oil and natural gas explorers and producers as well as the service and supply industries that support 

their efforts. These would be significantly affected by changes to 

the tax code. 

Independent producers develop 95 percent of American oil and 

natural gas wells, produce 54 percent of American oil, and produce 

85 percent of American natural gas. The average independent has 

been in business for 26 years and employs 12 full time employees 

and three part-time employees. Additionally, IPAA is the primary 

national trade association representing smaller independent natural gas and oil producers, many of which are marginal operators, 

like myself. 

Since independent producers’ revenues are derived from the selling of produced natural gas and oil, federal government actions 

that reduce this revenue thereby reduce the investment capital 

independents can make in production activities which would result 

in significant reduction in American energy production and the economic machine it fuels. Tax reform proposals being contemplated 

in Congress pose serious risks to independent producers’ ability to 

develop oil and natural gas in Louisiana and across the United 

States. 

Much of the discussion surrounding tax reform in Congress has 

involved eliminating business deductions in order to lower marginal rates. While there has been talk of comprehensive tax reform, 

reforming both the individual and corporate sections of the tax 

code, nearly all of the congressional focus has been on corporate 

taxation and the need to lower corporate marginal rates. Tax reform along these lines poses big risks for independent producers. 

First, independent oil and natural gas producers are not tax rate 

driven. Instead, independent producers are concerned with the 

need to generate capital and recover costs to reinvest in American 

operations. 

Second, a substantial majority of IPAA’s producer members are 

not organized as C–Corporations. As such, these businesses would 

see no benefit to only lowering corporate tax rates. 
54 

Three key issues that affect independent producers are the expensing of intangible drilling costs, IDCs; the percentage depletion 

deduction; and the passive loss exception for working interests in 

oil and gas operations. IDCs generally include any costs incurred 

that have no salvage value and are necessary for the drilling of 

wells or the preparation of wells for the production of natural gas 

or oil. 

Information provided to IPAA by its members indicates that 

drilling budgets would be cut by 25 percent to 40 percent if the 

ability to expense IDCs was eliminated by Congress. This could result in nearly one-quarter fewer wells being drilled per year. 

The percentage depletion deduction is truly a small producer 

issue. While percentage depletion is available to all extractive industries—that’s all mining, coal, gravel, gold mining—it is highly 

limited for oil and natural gas and is only available to independent 

producers and only on the first 1,000 barrels per day of production. 

Percentage depletion is critical for smaller independent producers’ 

ability to maintain existing production and to finance drilling operations from cash flow. 

Finally, the passive loss exception for working interests in oil 

and gas properties is also an important smaller independent producer issue. The Tax Reform Act of 1986 provided an exception for 

working interests in natural gas and oil from being part of the passive income basket, and if a loss resulted from expenditures for 

drilling wells, it was deemed to be an active loss that could be used 

to offset active income as long as the investor’s liabilities were not 

limited. That’s an important point—not limited. 

Most American wells today are drilled by small and independent 

companies, many of which depend on individual investors. So far, 

only the administration has formally proposed eliminating all oil 

and natural gas provisions for all producers. 

Recently, Senate Finance Committee chairman, Max Baucus 

from Montana, released a discussion draft regarding cost recovery 

provisions in the tax code. The Baucus draft proposes substantial 

changes to IDC and percentage depletion to the detriment of American oil and natural gas production. 

Further, the Baucus draft only proposes changing cost recovery 

tax provisions. There is no discussion of rate reduction or impacts 

to individual filers. To date, there has not been a proposed tax reform formulation that would not result in a tax increase for independent producers. 

In summary, independent producers invest their American cash 

flow back into new American production projects. Reinvestment is 

essential to maintain and grow U.S. production. Without it, U.S. 

production would decline rapidly because wells deplete as they are 

produced. 

If the United States wants to continue to increase national energy security and further the economy, more drilling will be required, not less. I would urge Congress to support those actions 

that enhance the future and reject the ill advised calls for adverse 

restrictions to capital. 

I look forward to further questions. 

[The prepared statement of Ms. Lazenby follows:] 
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Chair LANDRIEU. Thank you very much. 

Mr. LeBlanc. 

STATEMENT OF JOSEPH LEBLANC, CO-FOUNDER AND SENIOR 

MANAGING DIRECTOR, PERPETRO ENERGY, LLC 

Mr. LEBLANC. Thank you, Senator Landrieu, for allowing me the 

opportunity to speak to you today. I know that I had some prepared notes, but what I’ve heard is a great dissertation by all the 

previous members on the tax law, and I’m not going to talk about 

it. 

But I do feel that when they mentioned the concept of an independent producer in Louisiana, they’re talking about me. My name 

is Joe LeBlanc. I am the Co-Founder and actually the CFO of 

PerPetro Energy, which is a startup independent oil and gas company headquartered in Lafayette, Louisiana. 

We started the company in 2011 as a company that was focused 

on going back out into the Gulf of Mexico. It should be no surprise 

that most of the companies that are currently operating in the Gulf 

Coast, shallow Gulf of Mexico, in this region are seeking an exit. 

They’re seeking an exit because there are better rates of return and 

regulatory environments in other areas of the U.S. and around the 

world. 

One of the things that you should know is I’ve been in the independent Louisiana-based world for most of my career. I was recently the Associate Director of the Tulane Energy Institute and 

Clinical Professor at the A.B. Freeman School of Business at 

Tulane University. 

Prior to joining Tulane, I served as the Principal Financial Officer, Treasurer, Planning and Marketing Director of EPL. I was the 

Manager of Finance and Business Development at McMoRan, Exploration Company, a derivatives trader of Shell Oil products. 

And I’ve worked for, I feel like, most of my career now at the 

Louisiana Land and Exploration Company as their Planning Coordinator, Derivatives Trader, Audit Coordinator, et cetera. So I’m 

very familiar with what it’s like to be an independent producer. I 

am also a CPA, but I’m not going to talk too much about taxes. 

But where we are right now is we have been working extensively 

on a number of transactions. We’re negotiating to actually acquire 

the properties of people who are exiting. We have spent a tremendous amount of time trying to find the contrarian capital that was 

interested in investing when everyone else was leaving. 

So where we are right now is we’ve arranged a $500 million commitment to come back into the Gulf of Mexico. And you wouldn’t 

believe that the comments and the questions that I’m getting as 

we’re finalizing all these negotiations to buy these properties are: 

I think I may need to raise your cost of capital because there’s talk 

in Washington about changing the rules. 

What you’re effectively talking about is changing the law so that 

I need to start capitalizing my payroll. That’s not creating jobs. 

That’s actually impacting us. 

When we went around the Gulf Coast, looking at arranging a 

new model, a new way of going back into the Gulf of Mexico, we 

went around to the different service companies, the companies 

you’re talking about up and down the corridor here in Louisiana 
61 

that would be our service providers. What we found was that these 

companies were sitting on about 40 percent to 70 percent of their 

fleets here in the Gulf Coast idle. 

These are large independent service companies that have grown 

up in this area. They love their people. They love their business. 

They want to stay, and they’re looking for creative ways to stay. 

We’ve created partnerships with them to put those people and that 

equipment to work in this region, and they’re willing to put their 

capital at risk. If we start changing the tax laws, will it affect all 

of those decisions? 

So as we’re going into this venture, the next consideration is that 

in order to go back into this region you need to be able to post collateral with the BOEM and all the other players to be able to handle the abandonment liability. Of a typical transaction, it’s probably 80 percent of the capital that’s required. So we need to post 

capital that says we have the capacity to handle the abandonment. 

The interesting component about it is that it’s probably one of 

the few, if only, places that all the capital is required to be placed 

up front with no tax basis. I will have no basis for that liability 

that I’m having to fund in advance. It is causing this region to be 

completely noncompetitive with the rest, and that’s really one of 

the other reasons people are exiting. 

So as we talk about these issues, they’re affecting us. We’re trying to bring capital back in. Right now, we have it to where we’ll 

be creating and/or retaining jobs right here in this area of 100 people within probably the next 30 to 60 days, plus all the other transactions that we have. The changes that we’re talking about, the 

ones that are proposed, would dramatically affect us. 

[The prepared statement of Mr. LeBlanc follows:] 
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Chair LANDRIEU. Thank you, Mr. LeBlanc. I’m trying to help you, 

too. So thank you very much. 

Ms. Stewart. 

STATEMENT OF JENNIFER STEWART, VICE PRESIDENT TAX, 

SOUTHWESTERN ENERGY COMPANY, AND CHAIR OF THE 

TAX COMMITTEE OF THE AMERICAN EXPLORATION AND 

PRODUCTION COUNCIL 

Ms. STEWART. Thank you. Senator Landrieu, thank you very 

much for the opportunity to testify today. I’m Jennifer Stewart. I’m 

the Vice President Tax of Southwestern Energy, an independent 

energy company primarily engaged in the exploration of natural 

gas and crude oil. I’m also here in my capacity as the Chair of the 

Tax Committee of the American Exploration and Production Council, which represents 32 of the nation’s leading independent natural 

gas and oil exploration companies. 

I trust you’ll agree with me that the domestic oil and natural gas 

industry has been one of the few business sectors instrumental in 

providing new jobs and spurring growth in all sectors of our economy. The contributions of the industry during the recent recession 

demonstrate that current tax policy has proven ties to developing 

a stronger economy. 

But how does that work? One of the most significant economic 

drivers supporting investment in our industry is access to cash. 

Cash flow from operations drives the next investment and helps 

mitigate some of our industry’s real risks in the exploration and 

production stage where upfront investment is extremely large. The 

key component in this cash flow model is the ability to recover 

these large investment costs quickly for tax purposes, and the tax 

code has a number of provisions currently reflecting this policy. 

For example, as many of my colleagues have attested to, independent energy companies are currently permitted to deduct their 

business expenses as they are incurred. These expenses are primarily wages, fuel, transportation, repairs, and other costs necessary to construct a well pad, drill a well, and complete a well. 

To limit the ability of these companies to deduct these expenses 

as they are incurred is to limit cash flow from operations, which 

limits capital investment, which we have all spoken to this afternoon, and to limit or even eliminate jobs. 

Southwestern Energy is actively exploring now in northern Louisiana, and we have a very large position in our sister state to the 

north, Arkansas. So I want to share with you some data from a 

2012 study conducted by the University of Arkansas. It concluded 

that for every direct job created by the oil and natural gas industry, an additional two jobs are created in the energy services sector 

and in the industries that support them. 

I can illustrate this further using 2012 data of my own company, 

Southwestern Energy. Based on the university’s study, every well 

we drill creates about 20 direct and indirect jobs. If current expensing of our ordinary and necessary business expenses was no longer 

permitted, we estimated that 243 wells would have been eliminated 

from our drilling program in 2012. 

This would have translated into 4,900 jobs lost in Arkansas, 

1,700 direct jobs and 3,200 indirect jobs. The negative impact on 
67 

any local economy, not just the Arkansas economy, of 5,000 jobs 

cannot be overstated. 

But what are these jobs? As you mentioned in your opening remarks, they are high paying. Based on a University of Arkansas 

study, the average annual pay in Arkansas in the oil and gas industry is $75,000, twice the average salary in that state. 

Then there are the indirect jobs that follow the supply chain, of 

which most are generated by small business. Think of the contractor that hauls gravel to the well pad construction site. Someone 

has to sell him—and then I added, or her—diesel, sell him or her 

tires, repair his trucks, provide his insurance, clean his office, and 

prepare and sell him food when he stops for lunch. 

But why am I testifying today? Southwestern Energy and most 

of the AXPC membership are not small businesses. To answer that, 

permit me to provide one last statistic. In the years 2012 and 

through this year to date, my company contracted with 3,532 small 

businesses from all over the United States and paid a total of $2.7 

billion to these small businesses over this brief time. And we are 

just one energy company out of the thousands across the United 

States. 

I would like to share with you a remarkable conversation that I 

learned of recently as I was preparing my testimony. This represents the perspective of one small business owner in the energy 

sector that, in my view, in very few words, speaks volumes. 

The small business owner started his business in 1985 with one 

bulldozer. In 2005, he approached Southwestern Energy to do well 

pad construction work for us. We granted him a contract to do so, 

and in that same year, he went from 10 employees to 100 employees. 

Before his work with the oil and gas industry, he was digging 

ponds for farmers and, in his words, struggled to make ends meet. 

And, in his words, and I quote, ‘‘My company has grown. We have 

a stop light, a Sonic, and a Subway, and these wouldn’t be here if 

it wasn’t for the gas companies.’’ 

In closing, our nation needs a strong domestic energy policy, and 

I am confident that a change in tax policy would only weaken the 

industry at a time when we can ill afford it. The American energy 

renaissance was created as a result of development of our domestic 

resources. Anti-growth tax policies will only weaken our domestic 

energy industry and inflict harm on small business by limiting economic growth and the advantages that come with ample supplies 

of secure domestic energy. 

Thank you very much. 

[The prepared statement of Ms. Stewart follows:] 
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Chair LANDRIEU. Excellent. Thank you all for that excellent testimony. And, as you know, this is the Small Business Committee, 

but the intersection of tax policy, business, and energy is clear. I’ve 

had the pleasure to serve not on the Finance Committee, but on 

the Energy Committee for many years now and, hopefully, in the 

next few weeks, will actually assume the chairmanship of that 

committee. So I’m excited about that. 

I am very pleased to be holding what probably will be—I didn’t 

realize this when we scheduled it—but the last field hearing that 

I’m going to conduct as the chair of the Small Business Committee 

on this subject. That’s how important it is, I think, not only to our 

region, but to the nation. I think your testimony that will be submitted and filed in the congressional record will be extremely helpful in this debate that will occur in the Finance Committee and 

then in Congress. 

Ms. Stewart, I was really struck by the tremendous impact that 

just your one company has had—business with 3,500 small businesses. And I know that you work with or are knowledgeable of 

other companies similarly situated as yours. 

Could you give one or two other examples of other companies 

that you know? Do they do the same kind of work with small business, or do you think you are in a unique situation? Or do you 

think the kind of work that you do is done by other companies of 

similar size, whether in this region or somewhere else in the country? 

Ms. STEWART. I think for any domestic producer—and not necessarily for domestic independent producers, but your majors as 

well that have large plays in the United States—the trickle-down 

effect is the same. So, you know, I can’t speak for any other producer, but to me, when I think about our guys that are working 

on the rig, working 12-hour, seven-week shifts, you know, they 

have to eat lunch. 

So someone in the local community has to prepare the food and 

sell them the food. And someone sells to the person who is preparing the food the ingredients to cook the food. And then someone 

else sells them their napkins, and someone else sells them cleaning 

supplies. That’s all local business. 

So I think what I was trying to impress with my testimony is, 

as you mentioned, the supply chain implications. It’s not just the 

direct jobs. You know, my statistic of, basically, three jobs for—or 

20 jobs for every well—that’s just within the energy sector. That’s 

not including all the periphery that goes into supporting the energy 

sector. 

Chair LANDRIEU. I think the reason that that’s important—and 

I’d like some of you to comment if you want to on that particular 

question—is that I think in Washington, you always hear the 

phrase, big oil, big businesses. I think people get a little disconnected in their thinking about what is actually happening on the 

ground in places like Lafayette, the Gulf Coast, Arkansas, North 

Dakota, Pennsylvania, Texas. 

With the opening up of so many basins in the energy renaissance 

that we’re—you know, there’s something big about it, all right. It’s 

moving this economy in a big way. But there are very small parts 

that make up that big punch, and I think that’s what we’re trying 
72 

to communicate. At least, that’s what I’m going to try to do, to use 

this field hearing to communicate to my colleagues and to inform 

this debate as it moves forward to push back against this idea that 

these tax breaks are special interest. They really are broadly used 

and strongly used to create the kinds of jobs that I think we want 

in our economy. 

Stephen, did you want to add anything to that? 

Mr. COMSTOCK. Yes. There was a report that API did in 2011 

looking at the economic impacts associated with offshore development. As part of that, we did an informal survey of the members 

and people who gave information to that study and found that 

there were 2,500 contractors that were associated with just—like 

I said, an informal analysis of people who help support the operations offshore. 

Chair LANDRIEU. Does anybody else want to comment on that 

question to Ms. Stewart? I have a few others. 

[No verbal response.] 

Ms. Lazenby, your testimony states that independent producers 

are not tax rate driven. Instead, independent producers are concerned with the need to generate capital, recover costs, reinvest in 

their operations. Independent producers historically have reinvested as much as 150 percent of the American cash flow back into 

projects right here in America. 

Supporters of proposals to eliminate the current oil and gas tax 

provisions claim that any tax increase from the elimination of these 

provisions will ultimately be offset by lower tax rates. You hit that 

in your testimony, but can you underscore or explain why lowering 

tax rates, once again for the record, does not necessarily help the 

kind of reinvestment and capital reinvestment that is so important 

and critical to the expansion of this industry and to the creation 

of jobs? 

Ms. LAZENBY. Well, I think—and you all can help me on this. But 

I think the proposals are to try to get the tax rate down to approximately 25 percent, something like that. For the oil and gas industry, you start with a tax rate of 39 percent or something, and you 

deduct your intangible drilling costs, your percentage depletion. 

You come down with an effective tax rate lower than 25 percent— 

10, 15. You pay that tax, and you take the additional cash flow between the 35 percent tax rate and the 10 percent or 15 percent tax 

rate that you have, and you reinvest it in drilling. 

If you were not able to take those deductions and got a 25 percent tax rate, flat, you would be paying more tax and wouldn’t have 

the cash flow to invest back in the oil and gas. So it’s not a benefit. 

There is no proposal that proposes to reduce the tax rate lower 

than about 25 percent. 

And when you have tax policies that were put in place for the 

express purpose of encouraging capital formation to develop industrial products and industries in this country—and that’s why those 

deductions were allowed, to reduce the rate so that you could put 

your money in. But if there are no deductions allowed and they reduce it down to 25 percent, then there’s no encouragement to form 

capital. You’ve lost that 10 to 15 percent of additional rate that you 

would have available to invest. 

Chair LANDRIEU. Does anybody else—Mr. Landry? 
73 

Mr. LANDRY. Congress has recognized several times over the last 

10 years the importance of economic stimulus of accelerated cost 

recovery. The 2012—I think it was called the American Taxpayer 

Relief Act, which was the last big tax act in the summer of 2012. 

It included an extension of bonus depreciation of 50 percent for all 

asset acquisitions in 2013. That’s been extended several times. 

We’ve had the GO zone credits as part of the help for Katrina 

back—it’s in several relief areas. 

If you liken that policy which says if we take capital cost recovery maybe quicker, that’s an economic stimulus—50 percent bonus 

depreciation with a seven-year MACRS in the first year results in 

about a 64 percent write-off. The integrated oil companies right 

now get 70 percent for IDC and some might get 100. So what we’re 

talking about here is to simply finance a reduction in rate by increasing recovery and allowances can have an adverse impact on 

the economy. 

One of the things that several studies have mentioned is if we 

look to some of the major jurisdictions in the world that have lowered their tax rate, much like we’re talking to, like the U.K. and 

Canada, those tax rates don’t have to be lowered in one fell swoop. 

The tax rates can come down over a period of three to five years, 

which is what Canada and the U.K. have successfully done in the 

last decade. If we do that, then you don’t have to hit capital cost 

recovery allowances so quickly to get there and do the type of damage we’ve talked about and Ms. Lazenby talked about. 

Mr. LEBLANC. Could I add a comment to it? 

Chair LANDRIEU. Yes. 

Mr. LEBLANC. There’s a precedent in a large number of the other 

countries that are trying to attract capital, which has been going 

on for about the last 15 or 20 years. An oil company looks and says, 

‘‘I’ve got a certain amount of money. I’ve got all of these particular 

options around the globe. Where would I like to invest?’’ 

When you look around the globe, you’ve got to be able to say, 

‘‘Well, in this country I might be faced with 1,000 percent inflation. 

I might need to look at all of the different particular items.’’ 

But there’s a structure that people are using called a production 

sharing contract. And, basically, other countries are saying, ‘‘Come 

in and invest, and before we impose a tax structure on you, we’ll 

allow you to get all your money back and a rate of return before 

we come in with a tax structure.’’ 

Here’s what occurs: The actual decision making that occurs at 

the E&P level is we would rather continue to reinvest than get exposed to the tax implications of taking the money out. So while 

you’re there, you are generating a very large economic engine for 

those countries by doing that. 

Chair LANDRIEU. So they lure you in. 

[Laughter.] 

Mr. LEBLANC. They lure you in. But what I’m saying is—— 

Chair LANDRIEU. And then they make you so happy you don’t 

want to leave. 

Mr. LEBLANC. Well, that’s right. But what we’re talking about 

here is if you contrast that to ours—they don’t ask for any royalties, nothing, until you get your money back. 
74 

But what the U.S. does is on day one, you get a royalty check. 

I haven’t collected all my money back yet. And then as I go to reinvest, now you’re telling me that I don’t get a deduction for it. So 

you’re actually making it currently very noncompetitive with other 

basins. 

If we want to attract the capital here, that’s a model that’s out 

there. It’s not a new model. It’s very creative, and it’s what we’re 

looking at. If you’ve got access to international investments, those 

are very attractive. 

Chair LANDRIEU. And let me ask you this, Mr. LeBlanc. Is there 

anything that you’ve testified today that has a bearing on either 

pre-Macondo or post-Macondo? What you referred to as having to 

put up 100 percent of your liability—was that always the case, or 

is that just post-Macondo? 

Mr. LEBLANC. It’s a new factor, basically because—what the government requires is that you either put up money directly with 

them, or you post capital to a surety company, and then they issue 

a bond. Because of the people that are exiting, the sureties are asking for—what used to be 20 percent to 30 percent capital to be able 

to post this bond is now 70 percent to 100 percent. I’ve even heard 

some companies faced with 125. 

There are current discussions right now where most independents were exempt from supplemental bonding, that there’s talk in 

the industry right now by the BOEM that they’re looking at changing the rules so that 85 percent of the current independents will 

lose their exempt status and would have to start posting bonds. 

That means that a lot of the companies we’re talking about have 

$2 million, $3 million, $5 million, $100 million of abandonment liability—that that would be capital coming out of the engine and 

sitting in a trust somewhere for the benefit of the government 

without any tax breaks on it at all. 

Chair LANDRIEU. It doesn’t sound like a good idea to me. 

Mr. LEBLANC. It’s not. So I’m just sharing those different models. 

Chair LANDRIEU. Mr. Jackson, do you have anything to add, or 

Mr. Landry? 

Mr. JACKSON. Well, one of the things that we were talking about 

is the large super majors. Another part of that trickle-down effect 

is that these larger companies—they divest these assets. And when 

they divest these assets, they’re not economically feasible anymore 

for these large organizations. Then you see those properties tend 

to venture off into places like your small independents. 

So it’s always—it’s an engine that keeps on going. So I think, you 

know, those tax breaks are all—they just don’t represent those big 

companies. I think they’re incentives for the smaller ones as well, 

when those divestments happen, when these things occur, when 

these larger companies are no longer seeing the economic model 

making sense anymore in these particular properties. 

Chair LANDRIEU. Let me ask this. I think you all have hit this, 

generally. But if you could be a little bit more specific—and maybe 

some of the CPAs could—when I hear in Washington—now, I do 

not agree with this, but I hear, again, this is just special interest 

for the industry, et cetera, et cetera. 

How do some of these intangible drilling costs or tax treatments 

correspond to similar industries that are either extractive in nature 
75 

or important in terms of building jobs, et cetera, so that we can do 

a better job of advocating for why these provisions—they’ve been 

longstanding, they’ve been helpful, they should not be changed. I 

don’t know who wants to take that question. 

Gigi. 

Ms. LAZENBY. I’ll start. We just made some comments to Senator 

Baucus as they requested that we do. This was basically about percentage depletion. That’s one example. Here are the people that 

signed on for us: American Institute of Iron and Steel, Building 

Stone Institute, Indiana Limestone, IPAA, Iron Ore Association, 

Lime, National Stone, Portland Cement, Fertilizer. 

So, basically, what’s happening is that the cost recovery—this is 

percentage depletion, which I’d like to say a little bit about in a 

minute. But, basically, the provisions that they’re talking about 

changing are really anti-manufacturing. It’s not just oil and gas. 

We have formed associations and gotten together with a lot of 

manufacturing companies. And they’re taking away deductions for 

actual expenditures, which those companies are all using to create 

jobs, and you’re not able to have the cost recovery, all for reducing 

the rate on maybe some finance companies or something. And it 

doesn’t make sense because they aren’t creating jobs. They’re not 

adding payroll, et cetera. 

Chair LANDRIEU. It just doesn’t make sense. 

Ms. LAZENBY. In terms of percentage depletion, which all of these 

companies, extractive industries that I talked about—they all get 

percentage depletion. It was put in the code because it was recognized that depletion—the limitations on cost depletion led to the 

early closure of these resources and they needed to be protected. 

In terms of oil and gas, it’s really become a small producer issue, 

a marginal well producer issue, of which I am a good example. But 

the significance—it’s not just me as a producer. Marginal production reflects 20 percent of all the oil and gas produced in this country, and it is a lot of little biddy wells. 

Now, that is a massive base of the oil and gas production in this 

country, and it is blessed with a low decline rate. If you take away 

the ability of the marginal producer to create cash flow to keep 

drilling the marginal wells and keep the wells producing or reworking them, you’re going to have a larger decline rate in that base. 

There’s already a big decline rate in the newer big wells being 

built. 

So I’m not just one marginal producer. We’re 20 percent of the 

base, and it’s very important. We don’t have access to capital like 

the larger companies do. No community bank is going to loan a 

marginal small producer money anymore on a bunch of little biddy 

strip oil reserves. We have to rely mostly on our own internal cash 

flow and some outside investors, and that’s why that is so imperatively important. 

Chair LANDRIEU. That was beautifully said. I’m going to get Mr. 

Landry and then Mr. LeBlanc. 

Mr. LANDRY. Senator, you asked for some of the other provisions 

related to other industries. First of all, let’s talk about Section 199, 

which is a manufacturing deduction that Ms. Lazenby referred to 

a little bit. 
76 

Right now, the manufacturing deduction for the oil and gas industry is one-third less than it is for other manufacturers. That’s 

one-third less—some companies creating big jobs like movie producers and newspaper publishers are still getting a 9 percent number and it’s 6 percent for the oil and gas industry. So the oil and 

gas industry already has a reduced, vis-a ́-vis, other industries that 

are providing jobs in manufacturing. It’s Section 199. 

For intangible drilling costs, which is probably the single biggest 

indication, the closest analogy that I’ve heard is that new drug 

companies under Section 174 write off the cost of discovering a new 

drug. Again, this is something that’s wages, science, and something 

without salvage value if that drug ends up not being permitted. 

Well, that’s much the same as drilling an oil and gas well. If you 

get a dry hole, there’s nothing there. As a matter of fact, there’s 

cost. There’s a negative impact to that, to remove the cost of that 

dry hole. 

So there are other industries and there are things analogous. 

And as I mentioned earlier, bonus depreciation is capital cost recovery. That, again, is very much—— 

Chair LANDRIEU. I think people would be surprised in our state 

to understand that in the current tax code drug companies get 100 

percent write-off for their costs. And if they produce a drug that 

has absolutely no value or effect, they just move on, because 

they’ve written it off, to try something new. 

But the same benefit does not hold for the oil and gas industry 

that, obviously, has a huge impact on the small business supply 

chain, which is a very important principle of our economy—small 

business and entrepreneurship—and has such a dynamic impact on 

energy security, and then manufacturing renaissance. I mean, 

those are three really powerful reasons. 

You could probably think of others, but, immediately to mind, the 

positive impact on small business and entrepreneurship, the independence of energy, self-reliance of the U.S. or at least North 

America, and then the manufacturing renaissance. You would 

think that this would be more easily understood in Washington. 

Joe, let me get to you. 

Mr. LEBLANC. I just wanted to add a little color to what they’re 

talking about here. If you just think about a company, and it has 

a certain amount of production, which is important to all of us to— 

when you hear about the availability of production, it helps stabilize prices and everything else associated with that. 

The contrast—just a point about the decline. In this region here, 

in the Gulf Coast, we’re talking about 40 to 70 percent decline. So 

if I bring on a new well, a new strong gas well, I’m anticipating 

a 70 percent decline rate. That means that in order for me to stabilize production for my company and continue just staying flat, if 

I don’t reinvest those dollars (and we saw that post-Macondo), most 

oil companies started to have a really hard time because they 

weren’t able to reinvest at the rate that they needed to because 

there was a pause in permitting. 

That cost companies—and in some ways, if you drop very low or 

drop very quickly, you may never get back up to the level that you 

had. It’s going to create risk with your credit facilities and et 

cetera, and you may lose your access to capital. So what you’re 
77 

talking about is taking money out of that reinvestment engine 

needed to be able to continue to keep production flat. 

And just as another note, those other countries that we’re talking 

about allow you to recoup even your dry hole cost against that mix. 

So it’s actually a big ring fence around the entire investment window. 

Chair LANDRIEU. Stephen? 

Mr. COMSTOCK. I really don’t have anything to add. We’ve done 

a lot of research into the intangible drilling cost discussion—— 

Chair LANDRIEU. Can you speak up a little bit? 

Mr. COMSTOCK. I’m sorry. We’ve done a lot of work in the intangible drilling cost deduction, the history of it, where it came from, 

just to make sure that we provide education to the policy makers 

as to why it’s there. Back in 1954, when it was put into the code, 

it was originally put in as an R&D deduction. It was part of the 

R&D. Then through the committee action, it was taken out and 

given its own section. 

So in many respects, the policy makers, when they codified it, actually were thinking of it as an R&D deduction, that we need to 

do this, that this represents a huge capital investment that’s at 

risk that needs to continue on a current basis in order to continue 

to produce either a drug or a new technology or whatever, but, in 

this case, energy. So the analogy that Steve drew was actually 

pretty apt. It was, in fact, what happened back in 1954. 

Chair LANDRIEU. Ms. Stewart. 

Ms. STEWART. Senator, I’d like to add—I’ll play devil’s advocate 

to Stephen. In my role with AXPC and on behalf of my own company, I’ve made some Capitol Hill visits, and I’ve heard from some 

contrarians that say, ‘‘Well, really, you’re saying this is equivalent 

to a research and development expense, but you guys—this isn’t experimental. This is a manufacturing operation. There’s no risk anymore. You go, you stamp a hole in the ground, the hydrocarbons 

come out. Where’s your risk? So why should we incent you for this 

risk? So put that argument aside. It’s not valid. This is not a risky 

exploration.’’ 

My counter to that would be, well, let’s not call it intangible drilling cost anymore. Let’s call it—how about wages. Are wages deductible? Is interest—are rents deductible? Is transportation of 

crushed concrete deductible for everyone else? Well, yes, it is. So 

why shouldn’t it be for us or for the industry? 

I think part of the problem is this misnomer with intangible 

drilling cost, that it’s some secret special thing that no one understands when it’s just the cost to do business. 

Chair LANDRIEU. Which every other business gets to do. 

Ms. STEWART. Right. So going to your point, if you’re saying 

we’re not at risk anymore, then how are we different than any 

other company doing business in the United States. 

Chair LANDRIEU. And for states like Louisiana and Texas, where 

a great percentage of our economy is based on energy and energy 

related, this is a huge issue for us to make Congress understand. 

That’s part of why this hearing—this isn’t the only hearing that’s 

occurred, but it’s the most recent. It’s very, very important to get 

this testimony to Washington. 

Gigi. 
78 

Ms. LAZENBY. The other argument you hear sometimes, especially from the renewable fuel people is, first of all, they call it subsidies. But the point is that they say, ‘‘You’ve had these deductions 

for years, and, therefore, it’s our turn to have them. You don’t need 

them anymore, because it’s a fully developed—you know, you’ve developed your thing.’’ It’s like you created a medicine, and you’ve 

gotten deductions for it. 

Well, we create a medicine every day—a new well, at risk, every 

time we drill a new well. And we produce in this country out of fossil fuels about 70 to 77 percent of our energy needs. For the foreseeable future, we’re going to still be relying on fossil fuels for 

those energy needs. Renewables and wind and air and solar—that’s 

fine, and they need to grow also. But to say, ‘‘You’ve already done 

yours and you don’t need deductions anymore’’—we need those deductions in order to keep doing what we’re doing so we can grow 

at the rate we need to grow to provide energy for this country. So 

that’s chimerical argument as far as I’m concerned. 

Chair LANDRIEU. Excellent. Anyone else? Let me check with the 

staff. I think we’ve gotten all the questions on the record. 

To get a little bit more on the record, if each of you could just 

take a minute—in your experience—and some of you said this in 

your opening statement—how would these proposals affect not only 

our ability in this region, but in America—what impact would it 

have if these proposals went into effect, which I’m going to fight 

and others will as well—some of the things that have been suggested by the administration and members of Congress. 

But if they did go into effect, what impact would it have on small 

business in terms of the wages that are paid? I’d like for you all 

to underscore a little bit about the industry and the kinds of wages 

that are paid. 

I think, Jennifer, you talked about that. 

Ms. STEWART. Yes. 

Chair LANDRIEU. You know, these are just not any jobs. These 

are not minimum wage jobs. They’re not low paying jobs. This is 

about entrepreneurship, business ownership, and wages that are— 

how much above the average? Could you all put a little bit more 

of that on the record? 

Ms. STEWART. Yes. I mentioned that briefly, that the average oil and gas wage in Arkansas is $75,000. And, actually, we were having this discussion at lunch today. A young man—and I will say 

man because it’s 99.9 percent men who work in the field—without 

even a high school diploma, as long as he can pass a drug test, can 

go right now in my company and be a roughneck or a roustabout 

on a rig and easily make over $100,000. 

It’s hard work. He would earn every dime that he gets. But these 

are the jobs that would be lost. So, yes, we employ physicists with 

Ph.D.s and geologists and reservoir engineers, people with very advanced degrees from the top technical schools in the country. But 

we also employ those with just a high-school education, and even 

less, that are making wages, like I said, close to and even over 

$100,000. 

You can’t replace that anywhere. I’ve been to Capitol Hill, and 

they’ve told me, ‘‘Well, if you look at the efficient allocation of capital within the United States, if we change the tax law with respect 
79 

to the oil and gas industry, and your capital dries up, that capital 

will be efficiently allocated over here.’’ And my argument is, ‘‘Really? What’s that guy in Conway, Arkansas, who is now making 

$100,000 a year’’—— 

Chair LANDRIEU. Where is he going to go to work? 

Ms. STEWART. With a high school education, where is he going 

to go? And then I get angry and we stop talking. 

[Laughter.] 

Chair LANDRIEU. Don’t stop talking, Jennifer. You’re doing very, 

very well. You’ve got to keep going. 

Joe, do you want to add anything to that? 

Mr. LEBLANC. Well, I think what you’re talking about is these 

changes would raise the cost of capital and reduce the availability 

of capital available for companies to invest. It will lower the value 

of the properties that are out there to companies that are holding 

them which might end up in tripping some financial covenants and 

put those companies and jobs at risk. 

It will have the same impact when you start to pull capital out. 

Let’s talk about what we felt during the moratorium, when everyone started talking about, ‘‘My jobs are leaving the country. My 

equipment is leaving the country.’’ That’s going to be the impact. 

So what that will do is destroy companies and jobs. 

Chair LANDRIEU. So if we keep the capital flowing, the jobs will 

be flowing, and they’ll be jobs that are $50,000, $60,000, $75,000, 

$100,000, $150,000 a year jobs. 

Mr. LEBLANC. Yes. I would agree with what she’s saying, that 

the guys out in the field have an opportunity to make quite a bit 

of money, in the six figure range. 

Chair LANDRIEU. Gigi. 

Ms. LAZENBY. I’m probably the third largest employer in the 

county—Lee County, Appalachian, a very rural Appalachian area. 

And if you took away my ability to have percentage depletion and 

intangible drilling costs and the deductions for capital—because I 

have my own drilling rigs and drill my own wells, shallow wells— 

I would have maybe a 25 or 30 percent reduction in my drilling 

program. 

The guys that work for me—I have 40 employees. I have my own 

rigs. We do everything ourselves, except for fracking. We don’t do 

that. But, basically—and logging. But we do it all ourselves. We’ve 

trained these people. A lot of the people, just like you said, can’t 

read and write. But they know how to use an iPad now. We’re up 

to snuff on high technology, and even these guys are learning how 

to do these things. 

They have healthcare, premium healthcare. One of the policies 

I’ve put in place over the years—I’ve probably paid almost 100 percent of their healthcare insurance. I know larger companies can’t 

do that, but that’s the way my small company went on. I just decided that it was more important, really, for them to have a higher 

raise. I provide healthcare, dental care, eyeglasses care, whatever. 

And because we’ve been able to drill these wells and have had 

success, and they’ve worked very hard, we have a bonus program. 

We have a nice 401(k) for these guys, and they’re all into their 

401(k). We have cash bonuses for them. 
80 

And just to top it off, this Christmas, I must have gotten 15 personal Christmas cards back from these guys and their wives, and 

they said, ‘‘We can’t tell you how important it is that you have this 

company and that we can work for you.’’ I mean, it made me cry. 

It did, you know, for them to write that and say, ‘‘We really appreciate your company and what you’re doing.’’ 

Chair LANDRIEU. Because it’s not just a minimum wage. It’s a 

living wage, a saving wage, and something they can build a future 

on. 

Ms. LAZENBY. Right. And, you know, you have a company picnic 

and all the kids come, and you look at it and say, ‘‘Look, this industry created this.’’ And I’m going to go down fighting before I let 

somebody take away the ability for an industry such as ours to create jobs so much across the board for good, good workers. 

Chair LANDRIEU. Thank you. 

Mr. Landry. 

Mr. LANDRY. To expand a little bit on the wage impact, not only 

are these good paying jobs, as has been testified, but what we’re 

looking at is an increase in the number of jobs in the industry and 

a trajectory that’s going forward. Many of these jobs are math, 

science, and engineering. Petroleum engineers in this country when 

they walk out of school have high demand. 

And the communities that—if you look at the Eagle Ford area in 

Texas, the Bakken area in North Dakota, and you look at those 

communities, not only are all the people that have been there employed, but into those areas you’re bringing a lot of highly educated 

people to help develop those reservoirs. That also has resulted in 

new roads, new schools, and those schools—some of them may have 

been in impoverished areas. They’re building new schools with 

highly educated people and their children in those schools and raising the school districts in those areas. 

So not only do we take the impact of a local wage and bring it 

up, we bring in new people that help grow the community in the 

right way. And not only is the production in wages, but it’s the 

ability to grow those wages and to maybe give some hope to communities beyond. 

Chair LANDRIEU. My friends, Heidi Heitkamp and Senator 

Hoeven, Senator Heitkamp, would be happy to hear that testimony. 

I’ll be talking with them shortly. 

Mr. Jackson. 

Mr. JACKSON. Basically, what everyone said—it’s no different in 

the vessel business. It’s all centered around supply and demand. I 

think mariners today do very well. For example, a captain on one 

of my vessels probably makes about $200,000 a year. Now, contrast 

that to a not so busy industry. That same guy was probably making about $90,000 a year. So it’s incumbent that we stress that 

when oil and gas does well, everyone does well. 

We’ve seen where mariners—they’re doing things they haven’t 

been able to do in many, many years, and they have a comfort 

level. They’re buying homes, and as she spoke to—bonuses. We’re 

getting to a point now it’s becoming a very competitive marketplace 

to attract employees, but that’s a good thing. That’s a good, healthy 

thing, and we’re doing incentive programs like bonuses and things 
81 

like that, tangible things that families can grab ahold of and say, 

‘‘This industry is where I really want to be.’’ 

For so many years, the oil and gas industry as a whole has had 

its peaks and its valleys for many, many years. Some mariners, 

particularly, have been burned. And, unfortunately, when the business isn’t well, the first thing—you have to go where your biggest 

cost is, and, for me, it’s my salaries. It’s an unfortunate thing that 

happens, but those mariners, once they’re burned they go to other 

industries, they’re not coming back. 

So we’ve got to continue to focus on that to allow them to see 

that this is a very stable place to work. And the thing that makes 

that happen is very simple. We’ve got to create an environment 

where my clients, the oil and gas companies, are willing to reinvest 

those dollars, as was spoken of here, and to continue that process. 

So that, in turn, enables us to continue to pay a great wage. 

Chair LANDRIEU. Mr. Comstock, last word. You had the first 

word, so we’ll give you the last word. 

Mr. COMSTOCK. I’ll be very quick. 

I was going to say was that the oil industry is in a period of 

changeover. A number of the people who are operating in some of 

these high-paying jobs are going to be facing retirement soon. So 

there’s going to be a lot of opportunity for the young to come in and 

participate in the oil and gas industry and partake of these wages, 

and not only for just sort of the traditional. 

But, also, we’ve done some reports with respect to minorities and 

the potential for jobs there in that community and to have these 

high-paying, good, stable work environments as well and take advantage of that. So I think that across the board—as you sort of 

alluded to, the high wages, the school benefits, the potential for 

new jobs coming forward—there’s a lot there to really sort of take 

in and to realize that it’s not just the large businesses. 

It’s really the small businesses as well. It’s felt all the way down 

the supply chain. And the jobs are there, and they’ll be there as 

long as we have good policies to support it. 

Chair LANDRIEU. I couldn’t think of a better way to conclude. So 

this meeting will adjourn. The record is going to stay open for two 

weeks. Anyone can submit testimony for this hearing. 

I thank you again for your really very well prepared statements 

and also for your very off-the-cuff and sincere comments about the 

industry that you all have helped to build. And you’ve got my commitment. Whatever committee I land on or am running will have 

my strong support in the future, because it’s important to this 

state, but it’s very, very important to our country. 

Thank you all. The meeting is adjourned. 

[Whereupon, at 4:20 p.m., the hearing was adjourned.] 

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