Enhanced oil stimulus program passes House committee

CHEYENNE – A Wyoming House of Representatives committee has approved a measure to create a state-seeded, $10 million enhanced oil recovery stimulus program.

On Friday, the House Minerals, Business and Economic Development Committee voted unanimously in favor of Senate File 17, “Carbon dioxide-enhanced oil recovery stimulus,” which supporters say would equalize a market imbalance created by federal tax code in how captured carbon dioxide is used.

“At its core, what the bill is attempting to do is have Wyoming step in and try to correct, from our perspective, an imbalance in the market,” Pete Obermueller, president of the Petroleum Association of Wyoming, told the committee Friday morning.

A current federal tax credit under 26 U.S. Code 45Q called “Credit for carbon oxide sequestration,” commonly referred to as “45Q,” covers carbon sequestration and provides a credit for permanent sequestration of CO2 at a higher level than CO2 used for enhanced oil recovery projects.

The per-ton tax credit for permanent sequestration is $85, and it’s only $60 per ton for enhanced oil recovery.

“This bill is about that differential,” Obermueller said.

Effectively, the federal government has said through its tax code that it prefers CO2 be sequestered permanently, rather than used for productive purposes, he continued.

SF 17 would appropriate $10 million from the Legislative Stabilization Reserve Account, or the the state’s “rainy-day fund,” to equalize that 45Q tax credit for the use of carbon dioxide in enhanced oil recovery in Wyoming. SF 17 would take severance tax money earned from the incremental production of enhanced oil recovery and reinvest it as a payment to CO2 owners, not to enhanced oil producers.

The measure will not cut anyone’s taxes, Obermueller said. A 6% severance tax for oil and gas remains, but instead, SF 17 takes 3% of the severance tax earned off of EOR projects as a result of the bill and reinvests it into the stimulus account. In the Senate, lawmakers have said the stimulus provided under SF 17 would be more like a loan than a grant.

Obermueller explained that initially, the stimulus would require a seed money appropriation of $10 million, but that it would be repaid through production.

“How long does that take?” Obermueller said. “If a project happens, it is not an immediate refill of the LSRA, but … you are looking at about an eight-year gap between when you invest and when you get it back.”

Over time, the University of Wyoming School of Energy Resources estimates a return on investment of 30-33%, he said.

Barrasso’s efforts at the federal level

Rep. Martha Lawley, R-Worland, asked if changes at the federal level under the Trump administration could affect how 45Q is applied.

“My understanding is that as 45Q stands right now, it was part of the first Trump administration’s tax policy,” Lawley said. “Could you give me thoughts on changes in Washington now, about whether it would be taken away or enhanced?”

Obermueller said that 45Q is part of current federal law and would have to be changed by Congress. U.S. Sen. John Barrasso, R-Wyo., has introduced a piece of legislation to equalize the credit at the federal level called the Enhanced Energy Recovery Act (S. 5212).

“I am not aware of a bill to repeal (45Q) … but what I am aware of is Sen. Barrasso has been gaining support and a lot of traction for his bill to equalize EOR with sequestration,” Obermueller said.

If that happens, SF 17 includes a provision for adjusting the amount of the stimulus offered by the state of Wyoming, in proportion to any change in the difference between the amount of the credit available under 45Q from the federal government.

Rob Creager, executive director of the Wyoming Energy Authority, told the committee that until those changes are made at a federal level, the WEA is ready to administer the enhanced oil recovery stimulus created under SF 17 in conjunction with the governor’s office and the state auditor.

According to Barrasso’s office, his Enhanced Energy Recovery Act would create “parity under the Section 45Q carbon capture tax credit by giving across-the-board, equal treatment for carbon captured for increased energy production, utilization and sequestration.”

“For years, Wyoming has proudly led the way on carbon capture projects,” Barrasso said in a September news release introducing his legislation. “The Enhanced Energy Recovery Act … will bolster our nation’s energy security, support Wyoming’s energy workers, and help lower costs for American families.”

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