Analysis by Energy Workforce SVP Government Affairs & Counsel Tim Tarpley
Now that both the House and Senate have passed the budget reconciliation package, the committees of jurisdiction have been directed to fill in the gaps and find ways to pay for the spending. The procedure, while always important because it sets forth spending levels on particular projects each budget cycle, is of vital interest to the energy services and technology sector and the greater energy industry this year because many of the proposed “pay fors” directly target our industry.
If the proposals make it through the House and Senate as proposed, they could be some of the most detrimental and significant policy changes the industry has faced in decades.
First, and perhaps most significantly, is the pace at which the legislation is moving. In the House for example, the committees expect to complete the markup process by mid-September, which could mean a floor vote in late September.
The House Committee on Natural Resources markup, scheduled for September 2, could provide a significant signal of how things will proceed in the committee process.
Also of interest is the House Ways Committee markup, which begins September 9. This committee will determine tax changes affecting our industry, and these changes could be quite significant. Although the U.S. oil and gas industry currently receives the same tax treatment as every other industry, the proposal aims to eliminate many of the provisions commonly used by oil and gas companies to recover expenses. If the package moves forward as proposed, the industry would no longer be able to use these tax provisions as other industries do. Expect a full analysis of these proposed provisions and a look ahead to the September 9 markup in next week’s column.
The impending challenge is the House Natural Resources Committee, which is considering a recently announced proposal to raise revenue by increasing fees and royalties on onshore and offshore oil and gas production on federal lands.
Gains from oil and gas leasing on federal lands could be reversed by the new fees and royalties that would make production on federal lands more expensive.
The proposal would hike the onshore royalty rate floor by more than half from 12.5% to 20% on new leases and the offshore royalty rate to 20%. In addition, new royalties would be imposed on gas produced for the benefit of the lease or lost due to venting, flaring or fugitive emissions.
The bill would also significantly increased bonding requirements with onshore federal lease bond minimum increased 15 times and statewide bonds climbing 20 fold. In addition, the proposal adds a host of new fees that will raise the cost of producing a well on federal lands significantly.
These include a “resource” fee of $4 per acre, a “leasing” fee of $6 per acre, a severance tax fee and a new “idle well” fee of $500-$7,500 a year that will all be added on top of existing fees. Additionally, the proposal would limit access and terminate existing leases in Alaska and the Eastern Planning area of the Gulf of Mexico.
Unfortunately, while House Republicans on the Natural Resources committee plan to vehemently oppose these measures, the Committee is likely to approve the proposal with minimal changes.
Whether it can pass in a full House vote is murkier because the reconciliation package will need broader support to pass. With margins so tight, opposition from only a few pro-energy Democrats could have these provisions stripped before final passage. The votes will be close.
The Council Government Affairs team is working closely with allies in both the House and Senate to prevent these provisions from becoming law. It is imperative that all Council Members familiarize themselves with this proposal and speak to their individual members of Congress.
The Council has also been working with other affiliated trade organizations to oppose these provisions and the group submitted this letter for the record at the markup.
For more information on the Council’s advocacy efforts or to get involved, contact SVP Government Affairs & Counsel Tim Tarpley.
Tim Tarpley, SVP Government Affairs & Counsel, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Council’s newsletter, which highlights sector-specific issues, best practices, Council activities and more.