Big Oil sees plenty to work with in climate bill

The biggest climate bill in US history has won the qualified support of some of the nation's top oil producers. Although the ground-breaking $369bn in funding for energy and climate measures is intended to speed up efforts to slash emissions, fossil-fuel interests have not been ignored thanks to concessions needed to win the support of influential Democratic senator Joe Manchin.

As well as reviving federal oil and natural gas lease sales, albeit at higher costs to industry, the landmark budget bill also boosts incentives for carbon capture and sequestration (CCS) and hydrogen. That is a welcome development for ExxonMobil and Chevron, the top US oil producers that have made such technologies the cornerstone of their low-carbon initiatives in response to rising shareholder pressure to plan for the energy transition. "It's a net positive for some of their ancillary activities outside of fossil fuels," research firm CFRA analyst Stewart Glickman says. Expanded tax credits "put a bit of wind in their sails".

ExxonMobil is championing a $100bn US Gulf coast CCS hub, which would capture CO2 emissions from refineries and industrial facilities along the Houston Ship Channel. Chief executive Darren Woods describes the climate package as a "step in the right direction", and welcomes the growing recognition that a broad range of solutions will be needed to tackle the challenges of a decarbonising world. "The discussion evolving from just wind and solar and EVs to carbon capture, storage and biofuels and hydrogen is really important," Woods says.

Occidental Petroleum, which is building the world's biggest plant to take CO2 direct from the atmosphere and store it underground in the Permian basin, hails the legislation as a "very positive bill". As well as the reinstatement of a Gulf of Mexico lease sale from last year that had been held up in court, chief executive Vicki Hollub also welcomes moves to shore up CCS credits, which will expand eligibility and extend construction deadlines.

Moreover, the sale of wind and solar rights on federal land will be dependent on oil and gas leasing being carried out in advance. "This is very good for our industry," Hollub says of the legislation. "It will provide jobs and help the country meet the goals the president has set out for emissions reductions."

And given that some of the largest independent producers — Devon Energy, ConocoPhillips and Pioneer Natural Resources — recently signed up to an industry-wide effort to curb methane emissions, they may be shielded from the bill's efforts to tackle leaks of the potent greenhouse gas.

Size matters

Smaller independent drilling firms that lack the resources of their bigger peers may bear the brunt when it comes to additional costs related to the legislation. These include a 15pc tax on corporations with profits over $1bn from 2023, a first-time fee on excessive methane emissions, and higher minimum bids and rental fees for leasing new tracts on federal land.

Such measures "will raise energy costs for the American people, hurt our nation's competitiveness, and threaten our nation's energy security", American Exploration and Production Council chief executive Anne Bradbury says. And the American Petroleum Institute says much needed permitting reforms were "glaringly absent" from the bill and should be passed as soon as possible.

ConocoPhillips chief executive Ryan Lance voiced scepticism that there was ever a good time for governments to be raising taxes and spending, but he also struck a more conciliatory tone. "At least the agreement recognises that natural gas and oil are an important part of the energy transition and they're going to be here for decades," he told analysts recently. "So that's a positive."

By Stephen Cunningham