Avi Salzman

There are various goodies for the oil, gas, and coal industries in the big tax and spending bill that passed the House of Representatives on Thursday. It guts funding for fossil fuel alternatives such as solar energy; opens up more land and water to drilling; sets aside money to buy oil for the strategic petroleum reserve; and creates a new fund to compensate energy projects that are adversely impacted by new laws.

All told, the bill looks positive for fossil-fuel companies, and its passage through the House was celebrated by the American Petroleum Institute, a trade group. "By preserving competitive tax policies, beginning to reverse the 'methane fee,' opening lease sales and advancing important progress on permitting, this historic legislation is a win for our nation's energy future," the group said in a statement.

The bill didn't help oil stocks on Thursday or Friday, though it could be positive for them in the longer term. Oil stocks have been falling along with crude prices for the past couple of days, on news about possible OPEC production hikes. West Texas Intermediate crude, the U.S. benchmark, was down 1.3% to $60.41 per barrel on Friday, and has dropped more than 15% this year. The decline in prices is a bigger factor now for oil company earnings than many of the policy changes, even though those changes will help.

If the House bill makes it through the Senate with these provisions intact, it should give oil-and-gas companies more places to drill, and institute changes that boost their bottom lines.

The bill says that the Department of the Interior must hold at least 30 lease sales in the Gulf of Mexico in the next 15 years, with each sale aiming to lease at least 80 million acres. By comparison, the Biden administration planned a maximum of three least sales over the five-year period starting in 2024. The bill also mandates annual oil and gas lease sales for federal land in at least nine states.

The bill also sets aside $1.32 billion to purchase oil for the strategic petroleum reserve. At oil prices around $60 per barrel, that could fund about 22 million barrels of oil. Currently, the reserve has about 400 million barrels of oil in it, about 300 million barrels below full capacity. Depending on how quickly the Department of Energy buys those barrels, it could boost the price of oil by creating a new source of demand.

The bill also creates a fund designed to compensate oil, coal, critical minerals, natural gas, and nuclear companies whose projects "suffer unrecoverable losses" because of a regulation, administrative decision, or executive action -- even if they're taken in response to a court order. The fund could act as a kind of regulatory insurance program for favored fossil-fuel industries. It will be seeded with $10 million, "in addition to amounts otherwise available."

Perhaps most important, fossil-fuel producers will benefit from a rollback in tax credits to clean-energy industries, which would otherwise eat into how much fossil fuels Americans use. The end of tax breaks for purchases of electric vehicles, for instance, will make them less competitive with gasoline-powered cars. And less solar energy is likely to result in more demand for natural gas, an alternate source of electricity.

A few provisions might be negative for fossil-fuel companies. The downside of the bill is that areas such as clean hydrogen -- which some oil companies had begun to invest in -- will lose tax credits and will have a much harder time getting off the ground. But those changes could still be reversed in the Senate.

Write to Avi Salzman at avi.salzman@barrons.com

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May 23, 2025 09:54 ET (13:54 GMT)

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