U.S. firm stands to benefit from new bill in both upstream and CCS businesses

Houston-based oil and gas company Talos Energy has listed some of the benefits it expects the company will have if the Inflation Reduction Act of 2022 is approved.

At the end of July 2022, U.S. Senator Joe Manchin and Senate Majority Leader Chuck Schumer revealed a decision to add climate provisions to a budget reconciliation legislation expected to provide $369 billion in energy and climate investments.

As explained at the time, the package was said to promote zero and low carbon energy while also supporting domestic production of offshore oil and gas. The plan is to invest in the technologies needed for all fuel types – hydrogen, nuclear, renewables, fossil fuels and energy storage – to be produced and used in the cleanest way possible.

The Inflation Reduction Act of 2022 would also reinstate the vacated Gulf of Mexico Lease Sale 257 and hold the cancelled Lease Sales 258, 259, and 261.

This bill was approved by the Senate on Sunday, 7 August, and is expected to be voted by the House of Representatives on Friday, 12 August. If approved by the House, it is expected that President Joe Biden will sign the bill into law.

In a statement on Tuesday, Talos Energy provided a list of benefits it was expecting to reap if the Inflation Reduction Act of 2022 passes into law in its current form. The company explained that the inclusion of several “favourable provisions” in this bill would benefit not only the U.S. player’s Upstream business but also its Carbon Capture and Sequestration (CCS) business.

As this legislation is expected to reinstate Lease Sale 257 and high bidders must be awarded their leases, Talos emphasised that it was “one of the most active bidders” in the lease sale and was the high bidder on ten blocks totalling over 57,000 gross acres.

Commenting on the benefits of this legislation, Timothy S. Duncan, President and Chief Executive Officer, remarked: “We have always believed maintaining offshore leasing in the Gulf of Mexico is good energy policy that provides energy security, energy production and energy jobs in one of the lowest carbon-intensive oil producing basins in the world.

“The acreage we were the high bidders on in Lease Sale 257 have identified drilling opportunities that will be actionable in our longer-term drilling calendar. Additionally, consistent leasing is an important part of our strategy of responsible energy development.”

Furthermore, as per the terms outlined within this bill, future offshore wind lease sales are tied to holding additional oil and gas lease sales. Therefore, in order to issue an offshore wind lease, an oil and gas lease sale of at least 60 million acres, which is approximately the area-wide Gulf of Mexico size, must have been held in the prior year. This linkage will be in place for ten years.

Moreover, the new bill outlines that deepwater royalty rates are capped at current rates for ten years and Talos underlined that its existing 1.3 million gross acres under lease are also unaffected.

Additionally, Talos notes several benefits for CCS within this bill as it increases the federal 45Q tax credit for permanent sequestration of carbon dioxide to $85/ton subject to prevailing wage and apprenticeship requirements.

“We are also excited about the 45Q tax credit expansion and its potential impact on our growing CCS business. We believe we have put together one of the most attractive portfolios available for permanent carbon sequestration in close proximity to several industrial hubs where these credits will allow decarbonisation to become a priority,” added Duncan.

The legislation also adds a direct pay component for the first five years of a project, after which it reverts to a federal income tax credit. This bill extends eligibility to projects that start construction before 1 January 2033.

“There is no doubt the legislation is an important step for offshore energy security and CCS development along the United States Gulf Coast,” concluded Duncan.