Democratic senators are set to propose a bill that would force U.S. oil companies to pay more tax at a time when they're raking in record profits in a sign that the war of words between the party and the energy industry will continue even after the midterm elections.
Seven senators led by Bob Menendez of New Jersey are proposing to remove key tax provisions enjoyed by oil producers such as drilling cost deductions, deep water royalty relief and carbon capture credits for enhanced oil recovery, according to a draft of the bill seen by Bloomberg. The "Close Big Oil Tax Loopholes Act" would also tighten up rules around deducting foreign taxes and the "depletion allowance" for oil and gas wells.
Similar legislation has been advanced since at least 2010, with limited success. But Democrats believe public opinion is shifting against Big Oil after this summer's record nationwide gasoline spike to $5 a gallon and following a string of record profit announcements, largely due to oil and gas price gyrations in the aftermath of Russia's invasion of Ukraine.
Separately, Menendez is co-sponsoring a bill — the "Use It or Lose It Act of 2022" — with Rhode Island Democratic Senator Jack Reed that would incentivize explorers to develop oil and gas leases more quickly by putting a $10 an acre annual fee on non-producing federal leases. The Department of the Interior made recommendations for some changes to leasing provisions as part of its Biden-ordered review earlier this year.
The bills signal that some Democrats, emboldened by their success at the midterm elections, are unlikely to ignore public pressure on oil producers over the past few months, during which President Joe Biden frequently attacked executives for not investing enough in new production and enjoying a "windfall from war."
"The American people shouldn't have to subsidize Big Oil CEOs and shareholders while families are hit with high prices at the pump," Menendez said. The tax loophole bill puts "American taxpayers ahead of the corporate oil industry who for far too long have been enjoying economic windfalls on the backs of hard-working Americans."
The timing of the bill proposals is notable given there is little time left in the current Congress. Republicans have been broadly opposed to such legislation and some GOP support would be needed to pass through the Senate. The legislation would likely stall in the House, where Republicans will have a majority next year.
Exxon Mobil Corp. and Chevron Corp., along with many domestic peers, posted record earnings in the second and third quarter of this year when oil prices averaged more than $100 a barrel. Prices have since declined due to demand concerns in China and economic slowdowns elsewhere, but the relationship between the Biden administration and the oil industry remains tense.
Chevron Chief Executive Officer Mike Wirth spoke out against a prior threat from Biden for a windfall profits tax. Such measures go against the administration's stated goal of more, not less oil production, he said at the Economic Club of New York earlier this month.
"Most things you want more of, you don't add taxes to," he noted. Earlier this year, Wirth said "mixed signals" coming out of the administration, especially regarding climate change, were in part to blame for companies being conservative with their future investment plans.
U.S. oil production has been growing steadily over the past two years, but still remains about 1 million barrels a day below its peak of 13 million barrels a day before the pandemic. Industry executives point to Biden's anti-oil rhetoric in part for the slow rebound. But the administration frequently cites the thousands of leases oil companies are sitting on but not using as evidence the industry favors pocketing the proceeds from high prices rather than reinvesting in new production.
Menendez's "Use It or Lost It Act" proposes to tackle this problem. The bill "is intended to disincentivize oil companies from holding onto non-producing leases in order to inflate the reserves that they boast to shareholders, while limiting supply and gouging consumers at the pump," the statement from the senator's office said.
"The oil industry is utilizing less than half of the federal land that they already have, all while declining to increase production and raking in record profits."
— With assistance from Jennifer A. Dlouhy
