Dave, Your response has been niggling at me for months, so I’ve finally tried your argument with my expert. No clear answer yet, but here’s the exchange.

jj mollo wrote:

Rob, I’d like to know how credible this argument is. I’ve always believed that taxes imposed discourage associated activities. Incentives matter. For instance, it can reasonably be argued that progressive income taxes discourage work among the most productive members of society. I don’t necessarily agree with that argument, but I can’t dismiss it either. Whatever this guy, Dave, is saying about petroleum incentives is too deep for me. Can you tell me what he’s saying? -jj

Rob wrote:

ok…i understand. you can call me but the bottom line is that he might be right, but probably only partially right. It is very difficult for oil companies to get all of the taxes (royalty payments deemed to be taxes) as credits.

There are special rules for oil and gas companies regarding the amount of foreign tax credit that they can get (i.e., there is a limit on the amount of tax allowed as a credit against U.S. tax) and my experience with conoco and in general is that these companies have “excess” credits (i.e., exceed the limit and therefore can’t get credit for all the taxes paid).

Also, it isn’t always true that the royalties paid will qualify to be treated by the U.S. govt as “tax” payments….which is necessary in the first place to get the potential benefit he is talking about. And I think there was something recently that would make it even more difficult for the royalties to be treated as tax payments.