Congress this week passed a sweeping tax overhaul package that includes major
wins for the domestic oil and natural gas industry.

The legislation was approved by the House and Senate Tuesday, but needed
technical corrections from the House on Wednesday. President Donald Trump is
expected to sign the bill into law by early January.

The bill opens up hundreds of acres in Alaska, off limits for decades, to
drilling; maintains tax breaks for producers, including some industry
lobbyists concede were not a priority; and calls for millions of acres to be
sold from government oil stocks.

Upstream, downstream breaks

The bill keeps numerous oil and gas industry-friendly tax breaks in place,
including deductions for intangible drilling costs, percentage depletion, or
amortization of geological and geophysical costs.

A earlier House version of the bill had proposed eliminating a credit for
producing oil and natural gas from marginal wells and an enhanced oil recovery
credit. Industry groups were not fighting the change since those credits were
so rarely used, but congressional negotiators kept them in anyway.

The refining industry successfully lobbied to keep manufacturing depreciation
and interest deductions in place in the bill, and last-in, first-out
accounting practices preferred by refiners will remain.

Senator John Cornyn, Republican-Texas, also included language that allows
income from publicly traded partnerships, including master limited
partnerships, to qualify for a 23% pass-through deduction, a change pushed for
by refiners.

ANWR drilling

The bill will allow development in the Coastal Plain of the Arctic National
Wildlife Refuge, a 1.5 million-acre section in northwestern Alaska currently
off limits to drilling without congressional approval and an environmental
impact study. The bill requires the US Interior Department to hold at least
two areawide lease sales offering a minimum of 400,000 acres each within 10
years.

The ANWR provision was included in the tax bill by Alaska Senator Lisa
Murkowski, a Republican and chairwoman of the Senate Energy and Natural
Resources Committee.

“Alaskans can now look forward to our best opportunity to refill the
Trans-Alaska Pipeline System, thousands of jobs that will pay better wages,
and potentially $60 billion in royalties for our state alone,” Murkowski said
in a statement Wednesday.

The ANWR provision was opposed by Democrats and environmentalists, who pledged
to fight it in courts and through future legislation, and it remains unclear
how much interest the industry has in drilling in ANWR.

SPR sales

The bill includes a requirement to sell a total 7 million barrels of crude oil
from the Strategic Petroleum Reserve in fiscal 2026 and 2027. The Department
of Energy would only be allowed to sell up to $600 million worth of crude from
the SPR under these authorized sales, meaning less than 7 million barrels may
be sold if crude prices exceed roughly $82/b.

Millions of barrels of crude are already scheduled to be sold from the reserve
in sales mandated by Congress through 2025. After these sales, DOE estimates
the SPR will hold between 506 million and 513 million barrels of oil.

As of Friday, the SPR held 663.3 million barrels of crude, including 257
million barrels of sweet crude and 406.3 million barrels of sour crude.

The US in 1974 reached an agreement with 29 International Energy Agency
countries to hold inventories equal to at least 90 days of net crude and
petroleum product imports. The SPR currently holds an estimated 141 days of
import protection, and if domestic commercial stocks are counted, the US holds
216 days of import protection, according to the Government Accountability
Office.

The bill also includes a change to the Gulf of Mexico Energy Security Act of
2006, which would give Gulf states an additional $300 million total in fiscal
years 2020 and 2021.

Source link

NO COMMENTS

LEAVE A REPLY