New York, 21 July (Argus) — Improved incentives for carbon capture linked to crude production and lower royalty rates were among the key wins for the US oil sector in a mega tax and spending bill recently signed into law by President Donald Trump.
Expanded oil and gas leasing for federal offshore and onshore acreage reflects the administration’s focus on bolstering US energy security and drawing in new investment to domestic industry. The largest producers stand to gain the most from lower royalties and production costs on federal land — measures that should help sustain output from regions such as the Gulf of Mexico, where investment has typically lagged other parts of the US, although there has been a revival of interest of late. Meanwhile, smaller operators may benefit more from new tax breaks.
Trump’s One Big Beautiful Bill Act is unlikely to significantly move the needle for a sector that is facing headwinds from lower crude prices and Trump’s trade wars at the same time as shale oil production is nearing its peak, but it is still welcome news. In particular, the bill offers an improved carbon capture tax credit for oil producers engaged in enhanced oil recovery (EOR) — the practice of injecting CO2 into aging wells to squeeze out more crude — placing it on an equal footing with other carbon utilisation methods. This will benefit companies including Occidental Petroleum and ExxonMobil — which bought EOR specialist Denbury for $4.9bn in 2023 — as well as pipeline operator Kinder Morgan. “It could marginally shift some interest into EOR assets — which are small compared to shale — but there are some in areas like the Permian that could see a slight increase in activity,” consultancy Wood Mackenzie corporate research director Alex Beeker says.
Occidental’s assets in the Permian basin of west Texas and southeastern New Mexico account for almost 40pc of the US’ total EOR production, according to Wood Mackenzie. The US could tap into another 50bn-70bn bl of oil by using EOR techniques with CO2 pulled in by direct air capture (DAC) technology, Occidental chief executive officer Vicki Hollub said earlier this year. That could potentially extend US energy independence by more than a decade, Hollub said. Occidental is developing DAC facilities in Texas and the technology will benefit from a sweetener in the new bill.
Oil companies can also take advantage of an expansion to federal leasing provided by the bill. Not only does the bill mandate quarterly lease sales in nine states from Alaska to Wyoming, it additionally calls for 30 sales in the Gulf of Mexico up to 2040, as well as others in the Arctic. “ExxonMobil will be more impacted by the carbon capture and storage angle, given that’s a bigger piece for them,” Beeker says. For Chevron, which has recently been very active in the Gulf of Mexico, with a spate of project start-ups and others in the pipeline, the legislation “could incentivise picking up some added blocks there at a better cost”, he adds.
Other tax benefits in the bill include the restoration of a full deduction of intangible drilling costs for companies subject to the 15pc alternative minimum tax. And on the regulatory front, companies can now pay for accelerated environmental reviews, permits to drill were extended to four years from three, and the onset of a methane fee on oil and gas producers’ emissions has been delayed by 10 years.
Smaller producers that would have been hit hard by the methane fee may now have more time to either curb their emissions or reshuffle their portfolios, while the enhanced tax deductions could help some operators become more competitive in terms of costs compared with larger rivals with bigger supply chains, Wood Mackenzie says. And bonus depreciation expansions could benefit projects with longer lead times in Alaska and the Gulf of Mexico.
By Stephen Cunningham
