Federal subsidies boosted US shale oil and gas profits by billions of dollars, study finds

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A new analysis from the Stockholm Environment Institute finds that federal oil and gas subsidies helped spur and sustain the US shale boom.

The US government added as much as $20 billion a year to the value of new oil and gas projects over the last two decades, amplifying companies’ expected profits during the shale booms in the Bakken, Appalachian, Haynesville, Eagle Ford and Permian basins, according to a new SEI report.

The report – How subsidies aided the US shale oil and gas boom – is one of the first analyses to estimate how much federal government policy has increased the expected value and reduced the risk of unconventional oil and gas development. Researchers focused on the three largest US oil and gas subsidies, all of which work by reducing the tax payments that the industry owes the government.

“Our findings show that these tax provisions amplified firms’ expected profit from investing in shale oil and gas. This made risky projects more desirable to investors, paving the way for a shale boom that significantly increased the country’s production of oil and gas,” said SEI Scientist Ploy Achakulwisut, who performed the modeling for the project. “In high-price years, companies would have expected $4 more per barrel of oil on average than they would have without these subsidies.”

Researchers analyzed the production and costs data of 2,450 oil and gas fields that started producing between 1998 and 2019. For each field, they estimated how three subsidies affected the expected value in the year development began: the accelerated amortization period for geological and geophysical (G&G) expenses, the expensing of intangible drilling costs (IDC), and the use of percentage depletion for oil and gas wells. Since the analysis is retrospective – and companies do not make their investment decisions public – the findings are estimates.

The study’s main findings include:

  • Two tax incentives alone – the expensing of intangible drilling costs and percentage depletion provisions – increased the expected value of new oil and gas projects by billions of dollars in most years, and over $20 billion in some high-price years (2008 and 2010-2014).
  • These two subsidies added substantial value to new unconventional oil and gas projects considered in the Bakken formation in 2005-2006, the Appalachian and Haynesville regions in 2008, the Eagle Ford play in 2009-2010, and the Permian basin in 2011-2015.
  • Some oil and gas firms benefitted more than others. For example, in 2008, subsidies boosted Chesapeake Energy Corporation’s expected project returns by $9 billion, primarily from fields under development the Marcellus Shale of the Appalachian Region and in the Haynesville region. In 2012, the three subsidies amplified Pioneer Natural Resources’ expected project returns by $8 billion, mainly from fields developed in the Permian Wolfcamp shale play.
  • Between 2007 and 2014, when oil prices were high (above $60/barrel), subsidies had relatively little effect on the decision to drill. But in low-price years, such as 2016, subsidies increased expected returns enough to push more than 30% of new oil projects into profitability, greenlighting their investment decisions.
  • Subsidies likely played a substantial role in making new gas projects in Appalachia viable, beginning in 2010, when more than 30% of new gas projects may have been subsidy-dependent.

“This analysis shows that the tax code is a powerful policy tool – one that can influence what energy projects get developed. As the Biden administration and Congress consider reforming the tax code, they can think about how to move away from fossil fuel development, using the tax code instead to support investments that lead to improved public health and cleaner energy”, said SEI Senior Scientist Peter Erickson, the study’s lead author.

Read the full report

For interviews and further information, please contact:

Peter Erickson, Senior Scientist and Climate Policy Program Director, SEI’s U.S. Center (PDT time zone)

pete.erickson@sei.org @SEI_Erickson

Ploy Achakulwisut, Scientist, SEI’s U.S. Center (EDT time zone)

ploy.achakulwisut@sei.org @_aploy

Emily Yehle, Senior Communications Officer, SEI’s U.S. Center (PDT time zone)


Stockholm Environment Institute is an international non-profit research and policy organization that tackles environment and development challenges. We connect science and decision-making to develop solutions for a sustainable future for all. Across our eight centres in Europe, Asia, Africa and the Americas, we engage with policy processes, development action and business practice throughout the world. www.sei.org @SEIresearch @SEIclimate