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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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Sales Tax Dispute Could Send Billions to Texas Oil Industry

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. Related: This Could Be A Big Setback For Iran’s Oil Export Plans

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. Related: Oil Prices Tank As Chinese Economic Data Continues To Disappoint

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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  • M.DEVI PRASAD on February 01 2016 said:
    Regarding Iran gas development , the scope of increasing to large exports by by pipeline is limited. Iran will take another 10 years to produce LNG - volumes worth mentioning. No way Iran can expoit its natural gas reserves , the largest in the world.
    hovever, it can move natural gas by sea as CNG to India which can consume ove a billion cubic meters per day - in the next 10 years. The distance is short , CNG technology is available and certified by ABS, DNV and others. Iran -India CNG movement by sea will help the beleagured shipping industry in this global slowdown.

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