In 2008, Escopeta Oil President Danny Davis lamented the tax code changes that affected the drilling industry in an open editorial. This editorial was written in 2008, an era when oil prices were spiking as high as $140 per barrel. At that time, Danny Davis wrote, “Congress passed new tax laws in 1982 that reduced the tax write-off available to oil companies and investors for initial drilling investment expenses from 100 percent to just 65 percent. Our elected officials also chopped the tax credits known as depletion allowances from 27.5 percent to a cap of 15 percent. “ This was his rationale for explaining the 60% decline in domestic drilling between 1981 and 2008. This was also a period when there were a large number of bills before Congress for economic stimulus and energy subsidies.
Not to parrot Sarah Palin’s, “Drill, Baby, Drill” stance, but domestic oil production certainly plays a part in energy independence for the United States. At a time when a company like BP – granted a major player in the oil and gas industry – is posting a quarterly profit of $7.7 Billion, it would seem impertinent to suggest it is not profitable to drill an oil well without tax write-offs.
While the U.S. should be supporting domestic oil and gas production, as well as alternative energies, it should not be at the expense of other U.S. domestic enterprises. In 2006, Escopeta Oil applied for and received a waiver to the Jones Act to allow the shipping of a jackup oil rig from the Gulf of Mexico to Alaska on a foreign flag heavylift ship. Due to operational considerations, said shipment did not occur and the Jones Act waiver subsequently expired. Despite assurances from Crowley Maritime Corporation to the Maritime Administration (MARAD) that they had the U.S. flag resources available, Escopeta Oil shipped their oil rig from the Gulf of Mexico to Alaska on a Chinese flagged vessel in March 2011.
Many maritime companies, organizations and advocacy groups such as Strong Ships for America decried this willful violation of the Jones Act. In October 2011, U.S. Customs and Border Protection (CBP) assessed a fine of $15 Million against Escopeta Oil for this violation. Despite attempts to mitigate this fine, CBP’s Chief of Penalty Branch, John Connors recently wrote, “we find the facts of the case support the conclusion that the Jones Act violation was deliberate, and thus aggravated.” He also acknowledged that Escopeta Oil was under pressure to get the rig to Alaska in order to receive a $25 Million tax credit.
In the end, it would appear that Escopeta Oil stands to profit $10 Million from this violation of the Jones Act – a profit made at the particular expense of the U.S. Merchant Marine. Not only have U.S. mariners lost the opportunity for employment in this case, but $10 Million of their tax dollars will be going to Escopeta Oil.