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Clinton proposes tax relief to spur U.S. oil output

WASHINGTON: The incentives that President Bill Clinton unveiled on Saturday to increase domestic oil production includes better tax treatment for energy companies' exploration costs.

But the president stopped short of endorsing tax credits for low-volume oil producers, while indicating that he will continue to examine relief for those well operators.

"We need to take action now for both the short and the long term, to protect consumers and strengthen America's energy security," Clinton said in his weekly radio address.

Under Clinton's proposal, firms would be able to deduct geological and geophysical costs, as they are defined under the tax code, in the year they are incurred even if oil exploration activities are successful.

Currently, these costs may be deducted if no oil if found.

The policy change would encourage firms to search for new oil reserves and should add 126,000 barrels of oil a day to domestic production, the White House estimated.

Separately, the president proposed allowing energy firms to deduct the "delay" rental payments made to the federal government for postponing oil or natural gas drilling on federal leases.

The payments are intended to compensate the government for royalties not received while production is delayed. "Allowing producers to expense delay rental payments will lower the costs of doing business on federal lands," the White House said.

Clinton failed to propose relief for so-called "marginal" well producers, and instead said he will study the issue.

These low-volume operators run wells that typically produce just a few barrels of oil a day. Collectively, marginal well producers account for 20 percent of the oil output in the lower 48 states.

Lawmakers from oil-producing states have pushed for legislation giving marginal well producers a tax credit when oil prices dip below certain levels for an extended period of time.

U.S. oil production averages about 6 million barrels a day, the lowest level in half a century. -Reuters