A potential windfall could wash over Texas oil and gas drillers.
According to the Texas Tribune, the Texas Supreme Court decided to agree hear a case on whether or not equipment for oil and gas companies – pipes, steel, etc. – is exempt from the state’s sales tax. The energy industry has paid those taxes, and if the court rules in the industry’s favor, a lot of money could be returned. Texas may have to pay companies an estimated $4.4 billion, a wave of much needed capital for the beleaguered oil and gas industry.
But from the state’s perspective, the case represents a huge threat to the public coffers. The payout would erase Texas’ entire surplus. It would also lose future revenue from sales tax not collected.
Still, Texas remains one of the few attractive areas for oil and gas investment at this point. The Permian Basin in West Texas, in particular, still attracts drillers. In fact, Chevron revealed its interest in Texas when it reported its fourth quarter earnings last week.
The oil supermajor said that it had scrapped a $500 million deepwater project in the Gulf of Mexico and it also deferred on another high-cost project in the Caspian Sea. “And I wouldn’t say that the project couldn’t have gone forward … But relative to our alternatives, we felt that for the foreseeable future, we’ve got better places to put our money,” Chevron’s CEO John Watson said in a statement. Instead thought the Permian Basin was a smarter place to prioritize.
Chevron is building up a “factory” model to drilling in the Permian, consisting of standardized and repeated shale drilling, which can be replicated and rolled out over multiple sites. This reduces drilling costs.
“I would hate to lose the momentum that we have in the Permian with some of the cost reduction efforts we have under way. We’ve got 3,000 locations that we think meet economic thresholds at $50. Obviously prices aren’t $50 today, but it’s indicative of the strength of the portfolio we have,” Watson added.
Chevron posted its first quarterly loss in over a decade but it probably won’t be alone. Many more oil and gas producers are set to reveal their quarterly earnings this week.
By Charles Kennedy of Oilprice.com
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