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AAPL President  James T. Devlin, CPL, Delivers Letter to U.S. Senators on Build Back Better Act 

 

December 1, 2021

Dear Chairman Manchin, Ranking Member Barrasso, and Hon. Senators:

On behalf of the over 11,000-members of the American Association of Professional Landmen and our 40 affiliated local associations across North America, I am writing to you to express our strong opposition to numerous provisions of the nearly 2,500-page, multitrillion-dollar Build Back Better Act (H.R. 5376), which narrowly passed the U.S. House of Representatives on November 19, 2021.

While there are many provisions in this bill that put our country and economy at risk, AAPL urges you to specifically strike the methane fee, and the other detrimental provisions noted below. These provisions represent a never-before-seen assault on critical American industry, workers, and our profession, at a time when our nation is already suffering from crippling inflation and runaway gas prices. If these misguided provisions remain in the Senate version of the bill, the consequences for American consumers and our economy will be even more devastating than what we’ve see this past year under the Biden administration’s targeting of traditional energy, especially oil, natural gas, and coal.

As passed in the House, “the methane fee would be specifically targeted at the natural gas and petroleum industries and charge a $900-$1,500 fee per ton of methane. The fee would result in an annual cost between $39 billion and $65.8 billion, and as much as $337 million in fees per facility but would address only 2.6 percent of total annual reported greenhouse gas emissions.”[1] Most of those costs are anticipated to be passed on to American businesses and consumers at the very time when our economy can least afford further obstacles to our growth and prosperity. And the mandated reporting requirements will further increase burdens on the traditional energy sector, which will hamper domestic production and harm the American consumer.

Simply put, the “methane fee is intended to address climate change by charging those who participate in the natural gas supply chain. Yet while it would add billions of dollars in additional cost to natural gas prices, it would address less than 3 percent of emissions.”[2]

According to the Independent Petroleum Association of America, “A tax on methane is unnecessary. The U.S. Environmental Protection Agency (EPA) and several states already directly regulate methane emissions from the oil and natural gas sector, and the EPA is planning additional regulations on the oil and natural gas sector later this year. An approach that doubles down on the oil and natural gas industry, regardless of its compliance with federal regulations, in the form of a tax penalty is duplicative and unnecessary. Reducing methane emissions is a priority for the oil and natural gas industry to address the risks of climate change. As a result of technology and efficiency measures, emissions relative to production in five of the seven largest producing basins were down nearly 70% between 2011 and 2019 and are expected to continue to trend downward. The oil and natural gas industry remains committed to the development and deployment of new technologies and practices through industry initiatives to better understand, detect, and mitigate methane emissions.”[3]

The American Petroleum Institute has also informed your colleagues that the methane fee “could have adverse and disproportionate economic impacts nationwide. The potential direct cost of the bill to the economy, not including import fees, could initially be as high as $14.4 billion, increasing 5% above inflation annually. As many as 155,000 jobs could be impacted by the tax, with the largest impacts concentrated in the health care and social assistance industries. Additionally, the import fee, which is based in part on the average methane emissions rate for the oil and gas sector in the country in which the crude oil, natural gas, or natural gas liquids was produced, could be large and complicated to assess; according to the U.S. Energy Information Administration, in 2019, the U.S. imported about 9.14 million barrels per day (MMb/d) of petroleum from about 90 different countries. Given natural gas and petroleum together account for nearly 70% of energy consumption in the U.S., new taxes on the industry are likely to have a ripple effect across the U.S. economy – at a time when inflation is already skyrocketing. The basin focused approach of the bill could also alter where oil and natural gas is produced and thereby impact the state governments’ balance sheets. Taxes and fees collected by states based on volume produced could fall significantly where the calculated basin average fee rate is high. A regulatory approach would likely be much less disruptive to state budgets than the tax this bill would impose.”[4] What’s more, “Reducing methane emissions is a priority for our industry to address the risks of climate change. Thanks to innovation and industry actions, U.S. methane emissions rates in the largest producing regions have declined 70 percent in the past decade, even as America produces more affordable, reliable and cleaner natural gas.”[5]

The Texas Oil & Gas Association has also written that “Several recent studies have found that methane emissions from natural gas systems have remained low even as natural gas production has skyrocketed.  Research from the U.S. Environmental Protection Agency (EPA), the Environmental Defense Fund (EDF), the University of Texas, University of Colorado at Boulder, the National Oceanic and Atmospheric Administration (NOAA) and others have all concluded that methane leakage rates from natural gas systems are extremely low. Furthermore, a study published earlier this year by Harvard University said researchers could NOT attribute the methane emissions they measured to oil and natural gas resources. In Texas, the Environmental Defense Fund’s research in the Barnett Shale found an average methane leakage rate of 1.5 percent of natural gas production. EDF has stated that natural gas is advantageous for the climate “as long as leakage remains under 3.2%.”  EDF’s findings in the Barnett Shale are well below this threshold. Nationwide, according to the EPA, methane emissions from oil and natural gas exploration and production operations are about 1 percent of the U.S. total and methane emissions from natural gas production have decreased by 38 percent since 2005.  During that same timeframe, natural gas production increased by 26 percent.”[6]

Additionally, the House version of the Build Back Better Act contains other reckless fees, costs and provisions that would upend recognized industry practices and will assuredly debilitate domestic energy production and landmen, specifically:

  • Increasing the federal onshore royalty rate up to 20% from the current 12.5%.
  • Mandating royalties be paid on extracted methane which covers all gas, including gas vented, flared, or leaked (fugitive emissions) from onshore operations, with an exception only for 48 hours of emissions during an emergency.
  • Increasing rental rates to $100/acre.
  • Raising onshore federal minimum bid fees to $10/acre.
  • Limiting the primary term for onshore leases in the 48 contiguous states to 5 years.
  • Imposing an “expression of interest fee” of $15-50/acre to cover Interior Department costs.
  • A new annual federal onshore leasing “conservation of resources fee” at $4/acre onshore and a new annual “speculative leasing fee” set at $6/acre for new nonproducing leases.
  • Elimination of noncompetitive onshore federal leasing.
  • Raising bonding requirements and allowing the Secretary of the Interior to promulgate rulemaking to require that a bond, surety, or other financial arrangement be provided by the lessee prior to the commencement of surface-disturbing activities on any lease.
  • Imposing inspection fees on onshore federal leases and allowing the Secretary of the Interior to promulgate rulemaking to set those rates.
  • New severance fees for onshore oil, natural gas, and coal production.
  • Imposing idle well fees, specifically an annual fee levied for those wells idle at least 2 years.
  • Repealing the Arctic National Wildlife Refuge leasing program for the coastal plain and all payments made for leases would be returned to lessees.[7]

Even the Biden administration’s own U.S. Energy Information Administration still claims that “Natural gas has many qualities that make it an efficient, relatively clean burning, and economical energy source.”[8] Proposals like these not only represent an unwanted shift in legislative priorities but will irreparably damage our country and standing in the world. Or as stated by Wall Street Journal economist, Stephen Moore, this bill “is the fiscal equivalent of putting more passengers on the deck of the Titanic.”[9]

Making Senate passage of the Build Back Better Act even more untenable is the recent Congressional Budget Office scoring which found the bill is not deficit neutral as touted by President Biden, but in fact the CBO “estimates that enacting this legislation would result in a net increase in the deficit totaling $367 billion over the 2022-2031 period, not counting any additional revenue that may be generated by additional funding for tax enforcement.”[10] Further, “on top of all that, if every program contained in the bill were made permanent, the actual cost would be at least $4 trillion.”[11]

And as you well know, the Senate has a long-standing tradition of following CBO budgetary and deficit projections in considering legislation. As noted recently by The Washington Post, “The CBO is the only official authority in Congress on budget matters. So while lawmakers can grumble that they don’t agree with a particular CBO estimate on their legislation — and they can and often do hold up interest groups’ own economic analyses — the only one that carries any weight in Congress is the CBO’s score.”[12] The fact that the bill is unpaid for should stop its consideration in its tracks. Your West Virginia colleague, Sen. Shelley Moore Capito, has reiterated the importance of following CBO scoring. “Despite President Biden’s claims that the bill wouldn’t cost a penny, the non-partisan Congressional Budget Office confirmed yesterday that the bill will add more than $300 billion more to the deficit, on top of its already astronomical trillion-dollar tax hike — the largest tax increases in decades,” said Sen. Capito.

In her opposition to the bill and support of West Virginians, Sen. Capito continued that the bill “will devastate our economy. With the legislation now heading to the Senate, I will be fighting tooth and nail to remove the most egregious provisions that would devastate West Virginia’s economy, and I will do all I can to defeat the bill. With inflation at its highest point in 31 years, a reckless tax-and-spending spree is the last thing we need right now. Inflation is very real, and it’s impacting the day-to-day lives of Americans across the country. West Virginians are concerned because thanks to inflation, they are paying higher prices for many things they can’t do without. This is especially concerning as we head into the holiday season. Yet, even with these red flags, the Biden administration and my Democrat colleagues want to spend even more on liberal policy wish list items that are unaffordable […] Not only will this legislation not solve the issues West Virginians and other hardworking Americans are worried about, but it will also endanger the very jobs of those hoping to provide for their families.”[13]

We are, however, encouraged that your committee will do the right thing for the American people. In particular, Sen. Manchin provided assurances in his November 18, 2021, interview with CNN’s Manu Raju in which he told the American people that the House’s passage of the bill would not “influence” his decision to vote for the bill and that he will not support a package that “irresponsibly” adds to the debt or that “risks hurting American families suffering from historic inflation.”[14]

As our country emerges from a global pandemic, suffers from 30-year-high inflation, massive government debt, and ongoing supply chain disruptions, now is not the time to further burden American families and workers by passing a massive, unpaid for budget bill. Moreover, passage of the Build Back Better Act’s targeted attack on American oil and gas production —
at a time when American families are struggling to put gas in their cars and heat their homes — would be irresponsible. In fact, the proposed methane fee alone will disincentivize domestic producers of traditional energy, add burdensome costs, and raise prices for everyday Americans while increasing our dependence on foreign adversaries for our energy needs, putting our national security at risk.

AAPL strongly urges you to strike the methane fee — and the other above-noted disastrous provisions — from any budget package considered by the Senate. We support
the position previously conveyed to you by many of our industry partners including the American Petroleum Institute, Independent Petroleum Association of America, U.S. Oil &
Gas Association, Texas Oil & Gas Association, Western Energy Alliance, Energy Workforce & Technology Council, and the Permian Basin Petroleum Association, “that rather than simply approving the House’s energy package without proper consideration, the Committee take its time to develop comprehensive legislation using a deliberative process where input can be sought in a proactive way. Doing so will allow you to receive feedback from the federal agencies, states, local communities, industry partners, and other stakeholders that will be impacted by these major policy changes. We want to be part of this process and will happily work with you to update current statutes through normal order.”[15]

We welcome the opportunity to collaborate with your committee to reach a beneficial and fiscally responsible outcome.  

Respectfully,

James T. Devlin, CPL
President
American Association of Professional Landmen

 

[1] Ewelina Czapla, Methane Fees for Petroleum and Natural Gas Systems (American Action Forum; Nov. 9. 2021);
https://www.americanactionforum.org/insight/methane-fees-for-petroleum-and-natural-gas-systems/#ixzz7DBFkVWDY
[2] Id.
[3] IPAA Methane Fee Opposition Letter (Independent Petroleum Association of America; Sept. 7, 2021); https://www.ipaa.org/wp-content/uploads/2021/09/API-Methane-Fee-Opposition-Letter.pdf
[4] API Methane Fee Opposition Letter (American Petroleum Institute; Sept. 7, 2021); https://www.api.org/-/media/Files/News/2021/09/API-Methane-Fee-Opposition-Letter.pdf
[5] Tackling Methane Emissions (American Petroleum Institute); https://www.api.org/news-policy-and-issues/methane
[6] Methane Emissions Extremely Low, Even as Natural Gas Production Skyrocketed (Texas Oil & Gas Association; https://www.txoga.org/methane-emissions-extremely-low-even-as-natural-gas-production-skyrocketed/
[7] Alan Kovski, House passes budget bill with array of fees, royalty hikes, prohibitions for oil and gas (Oil & Gas Journal; Nov. 19, 2021); https://www.ogj.com/general-interest/government/article/14214333/house-passes-budget-bill-with-array-of-fees-royalty-hikes-prohibitions-for-oil-and-gas
[8] Natural Gas Explained (U.S. Energy Information Administration; Sept. 24, 2020); https://www.eia.gov/energyexplained/natural-gas/natural-gas-and-the-environment.php
[9] Stephen Moore, Why the Senate should kill the Build Back Better bill (Opinion; The Hill; Nov. 23, 2021); https://thehill.com/opinion/white-house/582768-why-the-senate-should-kill-the-build-back-better-bill
[10] Summary of Cost Estimate for H.R. 5376, the Build Back Better Act (Congressional Budget Office; Nov. 18, 2021); https://www.cbo.gov/publication/57627[11] Janice Francis-Smith, Chambers oppose ‘Build Back Better’ bill (The Journal Record; Nov. 19. 2021); https://journalrecord.com/2021/11/19/chambers-oppose-build-back-better-bill/[12] Amber Phillips, What is the CBO, and how could its score derail Democrats’ social safety net bill? (The Washington Post; Nov. 19, 2021); https://www.washingtonpost.com/politics/2021/11/05/what-is-cbo-how-could-its-score-derail-democrats-spending-bills/
[13] Capito Statement following House Passage of Democrats’ Reckless Tax and Spending Spree (Nov. 19. 2021); https://www.capito.senate.gov/news/press-releases/capito-statement-following-house-passage-of-democrats-reckless-tax-and-spending-spree   [14] Alexandra Hutzler, Joe Manchin's Vote on Biden's Social Bill 'Not at All' Influenced by Passage in House (Newsweek; Nov. 18, 2021); https://www.newsweek.com/joe-manchins-vote-bidens-social-bill-not-all-influenced-passage-house-1650836[15]Joint Trades Letter on Senate Consideration of Reconciliation (Nov. 5, 2021); https://www.ipaa.org/wp-content/uploads/2021/11/Joint-Trades-Letter-on-Senate-Consideration-of-Reconciliation.pdf