Occidental sees Inflation Reduction Act as 'good' for the oil, gas industry

Occidental Petroleum Corp. sees the pending Inflation Reduction Act which is working its way through the U.S. Congress as a positive for the oil and gas upstream industry broadly and for Occidental specifically.

"This is very good for our industry. Lots of companies will benefit from this. It will provide jobs, and it will help the country meet the goals that the president has set out for emission reduction," CEO Vicki Hollub said Aug. 3.

The multibillion-dollar act would reinstate U.S. Gulf of Mexico Lease Sale 257, which a District of Columbia District Court decision voided in January.

"We had gotten some key leases" in that offshore auction, Hollub said in webcast remarks during Occidental's second-quarter earnings call. "That's really important for us as a company."

U.S. federal records show Occidental was the apparent high bidder in the sale on 30 tracts, for which the company offered a total of $39 million in bids. Some of the leases appear to be near the company's production hubs, such as Nansen-Boomvang, Gunnison and Lucius, which could accommodate future production from exploration on the leases.

Companies won leases in Sale 257, which captured $192 million in high bids, but the tracts were not awarded. Occidental was No. 4 in Sale 257 based on its number of total high bids and No. 3 in the sum of high bids submitted.

The U.S. Gulf's oil production averaged 1.75 million barrels per day in the second quarter, about 15% of total U.S. crude output.

Hollub noted that the Inflation Reduction Act also requires the resumption of scheduled lease sales from 2017 to 2022 in the U.S. Gulf. As a large producer in that region with 147,000 barrels of oil equivalent per day in the second quarter, Occidental a sizable presence in past lease sales has favored reinstating lease sales delayed by the Biden administration.

Sale 257's cancellation earlier this year came amid what law firm Kirkland & Ellis called "the larger backdrop of the Biden administration imposing a moratorium on new leases for oil and gas development on federal lands and waters, and subsequent legal challenges from industry and environmental groups."

However, other items in the act would impact Occidental: increased oil and gas royalty rates on federal land, offshore royalty rate increases, increasing bonding requirements and increases in annual rental rates although Hollub said those are not excessive.

"When you look at the Gulf of Mexico benefit to us ... this is turning into for us a net very positive bill, should it get passed," Hollub said.

The act authorizes $370 billion in spending on energy and climate change and incorporates some proposals of the failed Build Back Better bill from late 2021.

For the second quarter, Occidental's total average production was 1.147 million boe/d, up 6% sequentially but down 6% from a year ago.