API worries about chilling effect of massive US House energy bill

If seismometers in the Washington, DC, area registered a slight tremor July 30, it may have been caused when the Democratic leaders of the US House of Representatives dropped a massive 786 page energy bill into the legislative hopper.

The leadership is finally delivering this elephantine bill after hammering out compromises with conservative and moderate Democrats who were concerned about its adverse impact domestic energy production. The bill is expected to be on the House floor August 3, the last day the House is scheduled to be in session before departing for a month-long summer recess. Which doesn't allow much time for careful deliberation and thoughtful debate, although that would hardly set a precedent.

However, the possible saving grace may be that many of the members should be familiar with at least some portions of the legislation since it was cobbled together from several bills worked on by about a dozen House committees this spring. The House Energy and Commerce Committee alone was responsible for six separate bills.
House leaders also filed a separate tax package that is particularly painful for the oil and gas industry because it eliminates $15 billion in industry tax breaks.

Red Cavaney, president and CEO of the American Petroleum Institute, said during a conference call with energy bloggers that the legislation will have a "chilling effect" on long-term investments in energy development.

"In the energy business we deal with long-lead time investments, long-lived assets and predictable planning," Cavaney said. "It's one of the prerequisites for getting maximum investments in both energy production as well as energy infrastructure. And here we are, less than two years after the passage of EPACT, and we're already revising the rules."

Jim Ford, API vice president for government affairs, said the negative impact of the legislation, "far outweighs anything that might be considered positive."

The legislation would make the oil and gas industry ineligible for deductions for domestic manufacturing that was included in 2004 tax legislation. It would redefine how US-based multinational oil companies report their foreign oil and gas extraction and refining income, requiring companies to report more of their income in the extraction category. Ford said this would increase the tax bite and subject some of the income to double taxation.

The bill includes language included in legislation already passed by the House that would bar companies that hold controversial 1998-99 Gulf of Mexico leases from acquiring new leases, or to pay a conservation fee, unless they agree to accept price thresholds in the existing leases.

The industry did see some gains. Responding to protests from Democrats from oil and gas producing states, House leaders dropped a provision that would have required companies to pay cash royalties instead paying royalties in kind. However, the legislation includes language prohibiting surface occupancy for exploration or development on Colorado's Roan Plateau, where the Bureau of Land management has approved more than 1,500 natural gas wells. The ban would not extend to directional drilling.

"When you look at the proposals, a lot of them grow out of a lack of understanding about energy issues," Cavaney said.

Republicans are largely opposed to the bill, so it remains to be seen if a sufficient number of conservative and moderate Democrats will support its passage.