The
bill, which has already been approved by the House and is expected
to pass the Senate on Friday, provides $14.5 billion in tax breaks
and incentives over 10 years to encourage domestic production of
oil, coal, natural gas and nuclear energy. Nearly $9 billion is set
aside for oil and gas, electricity and coal companies, while about
$5 billion will go towards energy efficiency and renewable energy
programs.
Large oil producers stand to benefit, said Rick Mueller, senior
oil analyst at Energy Security Analysts. He said companies such as
Exxon Mobil (Research),
ConocoPhillips (Research)
and
BP (Research)
are among the winners of the bill, given their strong exploration
presence in the Gulf of Mexico, which produces 1.5 million barrels
of oil a day.
The bill will provide an elimination of royalties that oil and
gas companies pay the government for drilling in the deep water in
the Gulf of Mexico. While details still need to be finalized,
those companies that drill deeper will receive more relief, said
KeyBanc vice president Kim Pacanovsky.
The American Petroleum Institute, an industry group, estimated
that the oil industry pays upward of $5 billion in royalties to the
U.S. government for oil and gas production, much of which comes from
its deep production in federal waters.
Oil services firms such as
Schlumberger (Research)
and
Halliburton (Research)
-- once headed by Vice President Dick Cheney -- could also see some
gains from the bill down the road, Mueller added.
But don't expect the market to have a knee-jerk reaction to the
bill's passage, KeyBanc's Kim Pacanovsky said. She said that while
tax incentives may provide a boost for deep-water exploration in the
Gulf of Mexico, the process remains expensive. And she added that
the bill does nothing to curtail the volatility in oil prices, which
remains a concern for industry executives and investors.
The oil industry won't be alone in reaping the benefits of a
revamped energy policy. Investors may want to take a look at coal
stocks, said David Pursell, partner at Pickering Energy Partners, an
energy research firm.
"There will be more interest in clean coal technology, which
should help the coal guys more than anyone else," he said.
He said the incentives to promote drilling are largely contained
to the Gulf of Mexico, leaving potentially oil-rich areas such as
the Arctic National Wildlife Refuge in Alaska and some areas in
California virtually untapped.
That should rev up the need for more efficient forms of coal for
fuel, and that should boost coal stocks such as
Peabody Energy (Research)
-- the world's largest coal producer, which counts U.S. power
companies for 90 percent of its sales.
The revamped bill also calls for the U.S. to nearly double is
usage of ethanol to 7.5 billion gallons by 2012 and provides tax
incentives for the creation of ethanol plants -- a move that will
help big ethanol producers such as
Archer Daniels Midland (Research)
and closely held Cargill, said John Eichberger, director of motor
fuels at the National Association of Convenience Stores, an
international trade association.
He said the new focus on ethanol -- a corn-based additive that
allows gasoline to burn more cleanly -- could eventually phase out
the use of methyl tertiary-butyl ether (MTBE), a fuel additive also
meant to reduce pollution from auto emissions that has been
criticized for contaminating ground water and possibly being a
carcinogen.
MTBE makers may feel the heat if the energy bill passes into law,
analysts said. The energy bill omitted a limited liability provision
for manufacturers of the substance, which opens the door to possible
litigation down the road.
That could potentially hurt companies such as
Lyondell (Research),
which are among the largest producers of MTBEs and
Valero Energy (Research),
which produces MTBEs for use in its own oil production.
But ultimately, analysts said the only losers to the bill remain
consumers.
"It's more of a feel-good bill than anything else," said
Pickering Energy's Pursell. "The bill does nothing to reduce our
dependence on imported oil and the only winners will be those that
benefit from high energy prices."
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